Connect ecure https://newconnect.mhe connect.html ode: P5-4 Problem 5-4 Performa

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Connect ecure https://newconnect.mhe connect.html ode: P5-4 Problem 5-4 Performance obligations; customer options for additional goods and services [LOS-2, 5-4, 5-5 Supply Club, Inc, sells a vaniety of paper products, office supples, and other products used by businesses and individual consumers Durg My 20 Itstaned a loyalty program through wrach qualifying customers can accumulate ponts and redeem nose points or discounts ontnre purchases Redempoon of a loyalty port reduces the pre or one Olar ortiture purchases by 20%easi to 20 cents) Customers do not eam addmonal loyalty points for purchases on which loyaity points are redeemed Based on past experience, Supply Cuted rates a 60% probabiltythat any pom ssued wl be redemned for the discount Dung Ny 20g, te comany records st61500 of revenue and awards 237,500 loyality points. The aggregate stand-alone selling price of the purchased products is $161500 Seventy-tive percent of sales were cash sales, and the remainder were credit sales Required 1. & 2. Prepare Supply Clubs journal entry to record July and August sales During August, customers redeem koyalty points on $114,000 of merchandise. Seventy-five percent of those sales were for cash, and the remainder were credit sales (Do not round intermediate calculations. Ir no entry is required foro particular transaction event, select-No)ournal ent y requierite ??? ces account fieldy Journal entry worksheet Racord the July sales.

Explanation / Answer

1) Estimated price of Loyalty points = Loyalty points*Estimated redemption

= (237,500*20%)*60% = $28,500

Total stand-alone selling price = Stand-alone selling price of purchased product+Stand-alone price of loyalty points

= $161,500+$28,500 = $190,000

Percentage of FMV of loyalty points = $28,500/$190,000 = 0.15 or 15%

Percentage of FMV for purchased products = $161,500/$190,000 = 85%

Revenue Allocation for purchased product = Package amount of purchased product*Percentage of FMV

= $161,500*85% = $137,275

Revenue Allocation for loyalty points = $161,500*15% = $24,225

Journal Entries (Amounts in $)

2) Loyalty points issued = $237,500

Loyalty points expected to redeem = 237,500*60% = $142,500

Percentage of points redeemed = $114,000/$142,500 = 80%

Revenue earned from deferred revenue of July = $24,225*80% = $19,380

Journal Entries (Amounts in $)

Date General Journal Debit Credit July 31 Cash ($161,500*75%) 121,125 Accounts Receivable ($161,500*25%) 40,375 Sales Revenue 137,275 Deferred revenue-Loyalty points 24,225 (To record july sales)

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