Reference no: EM132713577

Today is January 1, 2020, and ASC Topic 606, "Revenue Recognition from Contracts with Customers" is now in effect.

• On January 1, 2020, Luxury Vacation Company began selling vacation time share packages. For an initial investment of $ 20,000, payable immediately in cash, an individual who purchased a vacation time share package was entitled to 10 separate one week vacations at one of Luxury Vacation Company's resorts. According to the terms of the contract, the 10 separate packages had to be used by the end of five years. If a one week package was purchased on an individual basis, the cost for a week would be $ 2,800.

• According to the terms of the contract, if, after two years, an individual was not satisfied with the program, the individual could request a refund for any unused weeks.

• During 2020, Luxury Vacation Company sold twelve of the vacation time share packages, initially receiving $ 240,000 of cash (i.e. $ 20,000 per packages x 12 packages)

• During 2020, the twelve individuals who purchased the plans used a total 33 weeks of vacation - eleven individuals used three weeks each, and one individual did not use any week. Luxury Vacation Company's best estimate was that the individual who didn't use a week in 2020 would request a refund in 2022, and that Luxury Vacation would have to refund a total of $ 16,000 to that individual.

Problem A. (1) Do you believe that Luxury Vacation Company should recognize revenue for the 10 stay vacation packages "over time", or "at a point in time"? If you believe the Revenue should be recognized at a "point in time", which point in time?

Problem B. (1) Given your answer to Part A, for the twelve contracts sold in 2020, how much  "revenue" may be recognized for the fiscal year ending December 31, 2020?

Problem C. (1) In their December 31, 2020 Financial Statements, what is the dollar amount of  remaining "performance obligations" that Luxury Vacation should report?