Dominum Corporation is a mining company that mines, produces, and markets teledine, a common mineral substance. The mineral is mined and produced in one large batch per year, as the mine is accessible only for a brief period in the summer due to severe weather conditions at the mine site. Dominum has an advance purchase contract with one customer that takes all of Dominum’s output each year. The agreement allows the customer to return product that is defective for up to 60 days from the date of delivery. Transactions in 20X6 were:

Required: 

1. Assess the five steps for revenue recognition and determine when the performance obligation is complete.

2. Prepare all the journal entries to record these events assuming the critical event is at the point of delivery.

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30 August 186,000 tonnes of teledine ore removed from mine, at a cost of $4,300,000. All of the ore refined to 115,000 tonnes of teledine, at a cost of $640,000. A deposit is receive from the customer for $1,350,000 (10% of the contract amount). All of the teledine delivered to the customer, total contract price, $13,500,000. At this point, 50% of the contract amount is received. Dominium estimates, based on historical experience, that 7% of the goods might be returned. Five percent of the teledine is returned for full credit; ore had been improperly refined and the teledine was unusable; customer given full credit for $675,000 and the unusable teledine scrapped. No other returns are anticipated. Customer fully paid the final amount owing. 30 September 15 October 25 November 30 November