Question

On December 15, 2019, Peter Painter signed a contract with Joe Newhouse in which Peter agreed to both provide the paint and provide the painting service to Joe. If purchased separately, the elling price of thepaint would be $ 1,600, and the value of the painting service would be $ 2,400. However, since Joe Newhouse purchased both from Peter, Peter agreed to "bundle" the paint and painting for a total of $ 3,200.According to the terms of the contract, Joe paid Peter $ 1,600 at the time the contract was signed, with the remaining balance due at complete of the project. The paint was delivered to Joe's home on December 29, 2019, and Peter Painter did all of the painting work during the first week of January of 2020. Peter Painter follows US GAAP, and after consulting with his accountant, they both concluded that delivery of the paint and completion of the painting services were separate performance obligations. Thus, for thefiscal year ending December 31, 2019, Peter Painter recognized revenue for delivery of the paint, and used the proportionate "stand alone" values of the individual performance obligations in determining how muchrevenue to recognize. Based on the information provided above, what is the dollar amount of outstanding performance obligations that Peter should report related to this contract in his December 31, 2019 financial statements?

A.$0

B.$ 1,600

C.$ 1,920

D.$ 2,400

Answer 1

(c) $1,920

Explanation:

Proportionate Value of painting service in the bundled contract = Stand alone value of painting service / Separate Value of bundled contract

= $2,400 / ($1,600 + $2,400)

= $2,400 / $4,000

= 60%

As paint has been delivered before the end of the finnacial year, the dollar amount of outstanding performance obligations that Peter should report related to this contract in his December 31, 2019 financial statements shall be

Outstanding performance obligation = Contract Value * Proportionate value of painting service

= $3,200 * 60%

= $1,920