A bicycle retailer normally sells its R7 road bike for $2,600. The store is runn

Question

A bicycle retailer normally sells its R7 road bike for $2,600. The store is running a promotion. Each purchaser of an R7 will receive a coupon for 40% off the normal selling price of any other items in the store, up to a total of $1,200 per coupon. The coupon is good for six months. The retailer estimates that 80% of the customers purchasing an R7 will use the coupon to purchase additional goods that normally sell for $1,000 on average. What is the unit stand alone price of the coupon option to purchase additional goods, for purposes of step 4 of the 5 step revenue recognition model? a. 480 b. 600 c. 400 d. 320 e. 384
A bicycle retailer normally sells its R7 road bike for $2,600. The store is running a promotion. Each purchaser of an R7 will receive a coupon for 40% off the normal selling price of any other items in the store, up to a total of $1,200 per coupon. The coupon is good for six months. The retailer estimates that 80% of the customers purchasing an R7 will use the coupon to purchase additional goods that normally sell for $1,000 on average. What is the unit stand alone price of the coupon option to purchase additional goods, for purposes of step 4 of the 5 step revenue recognition model? a. 480 b. 600 c. 400 d. 320 e. 384
A bicycle retailer normally sells its R7 road bike for $2,600. The store is running a promotion. Each purchaser of an R7 will receive a coupon for 40% off the normal selling price of any other items in the store, up to a total of $1,200 per coupon. The coupon is good for six months. The retailer estimates that 80% of the customers purchasing an R7 will use the coupon to purchase additional goods that normally sell for $1,000 on average. What is the unit stand alone price of the coupon option to purchase additional goods, for purposes of step 4 of the 5 step revenue recognition model? a. 480 b. 600 c. 400 d. 320 e. 384

Explanation / Answer

d) There is a five step model revenue recognition model and as per step 4 of the 5 step revenue recongnition model i.e Allocate the transaction price to the perfomance obligation in the contract. A performance obligation is a promise in a contract to provide a product or services to a customer. A business detrimines this based upon the standalone selling price of each perfomance obligations. Here the bicycle retailer i.e R7 will provide 40% coupon of the normal selling price of the other items in the store. As per retailer estimate 80% of the customer will excercise the option and the average selling price of the product will be $1000.

So as per the above ($1000*.80)*.40=$320 (i.e option d) will the unit stand alone price of the coupon option to purchase additional goods.

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