A New York City daily newspaper called “Manhattan Today” charges an annual subsc

Question

A New York City daily newspaper called “Manhattan Today” charges an annual subscription fee of $162. Customers prepay their subscriptions and receive 290 issues over the year. To attract more subscribers, the company offered new subscribers the ability to pay $160 for an annual subscription that also would include a coupon to receive a 40% discount on a one-hour ride through Central Park in a horse-drawn carriage. The list price of a carriage ride is $150 per hour. The company estimates that approximately 30% of the coupons will be redeemed. Required: 1. How much revenue should Manhattan Today recognize upon receipt of the $160 subscription price?

Explanation / Answer

The company has offered new subscribers tha ability to pay $160 for annual subscription and that would also include a coupon to receive 40% discount on a hour ride through Central park

List price of the carriage is $150 per hour

Therefore discount given by company per subscription = $150*40% = $60

But company estimate that approx 30% coupons only will be redeemed, therefore approx cost to company per subscription = $60 * 30% = $18

Therefore, now if Manhattan Today receives $160 subscription price it should recognize revenue of only($160 - $18) $142 since $18 is cost to the company.

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