Answer:
How much revenue should Manhattan Today recognize upon receipt of the $110 subscription price?
$0.
Since no service/good is delivered to the customer at the time of subscription. The fee receipt would be considered as a liability and would only be recognized as revenue at the end when the service is performed.
How many performance obligations exist in this contract?
2, Delivering newspapers is one performance obligation. The coupon for a 40% discount on a carriage ride qualifies as a second performance obligation.
Prepare the journal entry to recognize sale of 14 new subscriptions, clearly identifying the revenue or deferred revenue associated with each performance obligation.
Value of the coupon: 40% discount x $100 carriage fee = $ 40
Estimated redemption x 30%
Stand-alone selling price of coupon $12
Stand-alone selling price of a normal subscription $ 108
Total of stand-alone prices $ 120
Manhattan Today must identify each performance obligation’s share of the sum of the stand-alone selling prices of all deliverables:
Coupon: [tex]\frac{12}{108+12}[/tex] = 10%
Subscription: [tex]\frac{108}{108+12}[/tex]=90%
Manhattan Today allocates the total selling price based on stand-alone selling prices, as follows:
$110
(0.90)(110) + (0.10)(110) = 99 + 11
Subscription: $ 99
Coupon: $ 11
Upon receiving the fee for 10 subscriptions, the journal entry should be:
Cash ($110 x 14) 1,540
Deferred revenue – subscription ($99 x 14) 1,386
Deferred revenue – coupon ($11 x 14) 154
