Part II Step 1: Identify the contract with a customer: A contract is formed when the student orders a large beer in an Ole Miss thermal beer mug. Step 2: Identify the performance obligations in the contract: The performance obligation for the Bier Haus is serving the college student a cup of beer in an Ole Miss thermal beer mug. Step 3: Determine the transaction price: The transaction price is the $7 that the Bier Haus is entitled is exchange for fulfilling its performance obligations. Step 4: Allocate the transaction price to the performance obligations in the contract: The stand-alone price for the thermal mug is $3, and the stand-alone price for the beer is $5. We allocate the transaction price to the performance obligations in proportion to the stand-alone prices and the sum of the stand-alone prices. Therefore, $2.63 ((3/8)*$7) should be allocated to the thermal mug, and $4.37 ((5/8)*$7) should be allocated to the beer. Step 5: Recognize revenue when the entity satisfies a performance obligation: Revenue is recognized as soon as the $7 is exchanged for the cup of beer and thermal mug. Journal Entry: dr. Cash $7 cr. Sales Revenue- Beer $4.37 cr. Sales Revenue- Mug $2.63
Part II Step 1: Identify the contract with a customer: A contract is formed when the student orders a large beer in an Ole Miss thermal beer mug. Step 2: Identify the performance obligations in the contract: The performance obligation for the Bier Haus is serving the college student a cup of beer in an Ole Miss thermal beer mug. Step 3: Determine the transaction price: The transaction price is the $7 that the Bier Haus is entitled is exchange for fulfilling its performance obligations. Step 4: Allocate the transaction price to the performance obligations in the contract: The stand-alone price for the thermal mug is $3, and the stand-alone price for the beer is $5. We allocate the transaction price to the performance obligations in proportion to the stand-alone prices and the sum of the stand-alone prices. Therefore, $2.63 ((3/8)*$7) should be allocated to the thermal mug, and $4.37 ((5/8)*$7) should be allocated to the beer. Step 5: Recognize revenue when the entity satisfies a performance obligation: Revenue is recognized as soon as the $7 is exchanged for the cup of beer and thermal mug. Journal Entry: dr. Cash $7 cr. Sales Revenue- Beer $4.37 cr. Sales Revenue- Mug $2.63