On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 4,100 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $69,700, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2021. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $41,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.00 per unit.

Question

Business

Mollie Donaldson

7 August, 11:09

On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 4,100 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $69,700, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2021. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $41,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.00 per unit.

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Rockette · Answer 1

Journal Entry

Explanation:

1. There are two obligations in this contract

a. keyboard

b. Customer option for future discount

2. Cash Dr, $69,700

To Deferred revenue - keyboard $66,215

To Deferred revenue - discount coupon $3,485

(Being cash is recorded)

Working note:-

Keyboards = 4,100 * $19

= $77,900

Option = $41,000 * (0.25 - 0.05) * 0.50

= $4,100

Allocation

For keyboard

= $77,900 : ($77,900 + 4,100)

= 0.95

Deferred revenue Keyboard = $69,700 * 0.95

= $66,215

Option = 4,100 : ($77,900 + 4,100)

= 0.05

Deferred revenue - discount coupon = $69,700 * 0.05

= $3,485

3. Cash Dr, $69,700

To Deferred revenue Keyboard $69,700

(Being cash is recorded)