Allocating Transaction Price to Performance Obligations and Recording Sales Maximum Inc. (retailer) has a loyalty program that rewards its customers one point per $1 spent. Points are redeemable for $0.20 off future purchases. A customer purchases products (cost of $280) for cash at the usual selling price of $400 and earns 400 points redeemable for $80 off future purchases of goods or services. The retailer expects redemption of 360 points or 90% of points earned.
Allocating Transaction Price to Performance Obligations and Recording Sales
Maximum Inc. (retailer) has a loyalty program that rewards its customers one point per $1 spent. Points are redeemable for $0.20 off future purchases. A customer purchases products (cost of $280) for cash at the usual selling price of $400 and earns 400 points redeemable for $80 off future purchases of goods or services. The retailer expects redemption of 360 points or 90% of points earned.
a. How should the transaction price be allocated among the performance obligation(s)?
Note: Round each allocated transaction price in the table below to the nearest dollar.
Performance Obligations |
Transaction Price as Stated |
Standalone Selling Price |
Allocated Transaction Price (rounded) |
|---|---|---|---|
| Product purchase | Answer
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Answer
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Answer
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| Loyalty rewards | Answer
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Answer
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Answer
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| Answer
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Answer
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Answer
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b. Prepare Maximum’s
If a journal entry (or a line of the journal entry) isn't required for the transaction, select "N/A" as the account name and leave the Dr. and Cr. answers blank (zero).
| Account Name | Dr. | Cr. |
|---|---|---|
| AnswerCashAccounts ReceivableDue from ConsigneeInventoryPrepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred Revenue—Loyalty RewardsSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising ExpenseInterest ExpenseSales Commission ExpenseN/A | Answer
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Answer
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| Sales Revenue—Product | Answer
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Answer
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| AnswerCashAccounts ReceivableDue from ConsigneeInventoryPrepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred Revenue—Loyalty RewardsSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising ExpenseInterest ExpenseSales Commission ExpenseN/A | Answer
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Answer
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| To record sale of product. | ||
| AnswerCashAccounts ReceivableDue from ConsigneeInventoryPrepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred Revenue—Loyalty RewardsSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising ExpenseInterest ExpenseSales Commission ExpenseN/A | Answer
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Answer
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| AnswerCashAccounts ReceivableDue from ConsigneeInventoryPrepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred Revenue—Loyalty RewardsSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising ExpenseInterest ExpenseSales Commission ExpenseN/A | Answer
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Answer
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| To record cost of sale of product. |
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