290 SECTION 1 The Role of Accounting as an Information System 2. Assume F&S offers a “Fit 50” coupon book with 50 prepaid visits over the next year. F&S has learned that Fit 50 purchasers make an average of 40 visits before the coupon book expires. A customer purchases a Fit 50 book by paying $500 in advance, and for any additional visits over 50 during the year after the book is purchased, the customer can pay a $15 visitation fee per visit. F&S typically charges $15 to nonmembers who use the facilities for a single day. a. How many separate performance obligations are included in the Fit 50 member deal? Explain your answer. b. How much of the contract price would be allocated to each separate performance obligation? Explain your answer. c. Prepare the journal entry to recognize revenue for the sale of a new Fit 50 book. C reative Computing sells a tablet computer called the Protab. The $780 sales price of a Protab Package includes the following: • One Protab computer. • A 6-month limited warranty. This warranty guarantees that Creative will cover any costs that arise due to repairs or replacements associated with defective products for up to six months. • A coupon to purchase a Creative Probook e-book reader for $200, a price that represents a 50% discount from the regular Probook price of $400. It is expected that 20% of the discount coupons will be utilized. • A coupon to purchase a one-year extended warranty for $50. Customers can buy the extended warranty for $50 at other times as well. Creative estimates that 40% of customers will purchase an extended warranty. • Creative does not sell the Protab without the limited warranty, option to purchase a Probook, and the option to purchase an extended warranty, but estimates that if it did so, a Protab alone would sell for $760. Required: 1. How many performance obligations are included in a Protab Package? Explain your answer. 2. List the performance obligations in the Protab Package in the following table, and complete it to allocate the transaction price of 100,000 Protab Packages to the performance obligations in the contract. P 5–2 Performance obligations; warranties; option ● LO5–2, LO5–4, LO5–5 Performance obligation: Stand-alone selling price of the performance obligation: Percentage of the sum of the stand-alone selling prices of the performance obligations (to two decimal places): Allocation of total transaction price to the performance obligation: 3. Prepare a journal entry to record sales of 100,000 Protab Packages (ignore any sales of extended warranties). A ssume the same facts as in P5–2, except that customers must pay $75 to purchase the extended warranty if they don’t purchase it with the $50 coupon that was included in the Protab Package. Creative estimates that 40% of customers will use the $50 coupon to purchase an extended warranty. Complete the same requirements as in P5–2. Supply Club, Inc., sells a variety of paper products, office supplies, and other products used by businesses and individual consumers. During July 2016 it started a loyalty program through which qualifying customers can accumulate points and redeem those points for discounts on future purchases. Redemption of a loyalty point reduces the price of one dollar of future purchases by 20% (equal to 20 cents). Customers do not earn additional loyalty points for purchases on which loyalty points are redeemed. Based on past experience, Supply Club estimates a 60% probability that any point issued will be redeemed for the discount. During July 2016, the company records $135,000 of revenue and awards 125,000 loyalty points. The aggregate stand-alone selling price of the purchased products is $135,000. Eighty percent of sales were cash sales, and the remainder were credit sales. Required: 1. Prepare Supply Club’s journal entry to record July sales. 2. During August, customers redeem loyalty points on $60,000 of merchandise. Seventy-five percent of those sales were for cash, and the remainder were credit sales. Prepare Supply Club’s journal entry to record those sales. P 5–3 Performance obligations; warranties; option ● LO5–2, LO5–4, LO5–5 ✮ P 5–4 Performance obligations; customer options for additional goods and services ● LO5–2, LO5–4, LO5–5
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