Question

On October 1, 2018, Bullseye Company sold 250,000 gallons of diesel fuel to Schmidt Co. at $3 per gallon. On November 8, 2018, 150,000 gallons were delivered; on December 27, 2018. another 50,000 gallons were delivered; and on January 15, 2019, the remaining 50,000 gallons were delivered. Payment terms are 10% due on October 1, 2018, 50% due on first delivery; 20% due on the next delivery; and the remaining 20% due on final delivery. Required: Do the three deliveries each represent a distinct performance obligation, or is there a single performance obligation requiring three deliveries

1. Do each of the three deliveries represent a distinct performance obligation, or is there a single performance obligation requiring three deliveries?2. What amount of revenue should bullseye recognize from this sale during 2018?

Answer 1

1) We must follow the revenue recognition principle in order to determine whether these transactions represent one single performance obligation or three separate ones. If revenue can be recognized after each delivery has been made, then each transaction will be considered a separate performance obligation.

Personally, I believe that on November 8, 2018, $450,000 in revenue must be recognized since title of the goods passed from Bullseye to Schmidt. That means that the earning process had been realized. The same for the other transactions, so I would consider them 3 separate performance obligations.

2) total revenue for 2018:

November 8 = $450,000

December 27: $150,000

total = $600,000