Headland Inc. has a customer loyalty program that rewards a customer with 1 cust

Question

Headland Inc. has a customer loyalty program that rewards a customer with 1 customer loyalty point for every $10 of purchases. Each point is redeemable for a $3 discount on any future purchases. On July 2, 2017, customers purchase products for $280,000 (with a cost of $159,600) and earn 28,000 points redeemable for future purchases. Headland expects 22,500 points to be redeemed. Headland estimates a standalone selling price of $2.50 per point (or $70,000 total) on the basis of the likelihood of redemption. The points provide a material right to customers that they would not receive without entering into a contract. As a result, Headland concludes that the points are a separate performance obligation.

Account Titles and Explanation

(To record sales)

(To record cost of goods sold)

Headland Inc. has a customer loyalty program that rewards a customer with 1 customer loyalty point for every $10 of purchases. Each point is redeemable for a $3 discount on any future purchases. On July 2, 2017, customers purchase products for $280,000 (with a cost of $159,600) and earn 28,000 points redeemable for future purchases. Headland expects 22,500 points to be redeemed. Headland estimates a standalone selling price of $2.50 per point (or $70,000 total) on the basis of the likelihood of redemption. The points provide a material right to customers that they would not receive without entering into a contract. As a result, Headland concludes that the points are a separate performance obligation.

Explanation / Answer

SOLUTION

(A)

(B) Journal entry-

Standalone selling price ($) (A) Percent allocated (B) Transaction price ($) (C) Allocated amount ($) (B*C) Produce Purchases 280,000 80% 280,000 224,000 Loyalty points 70,000 20% 280,000 56,000 350,000 280,000

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.