Allocating Transaction Price to Performance Obligations and Recording SalesMaximum 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 ObligationsTransactionPriceas StatedStandaloneSellingPriceAllocatedTransaction Price(rounded)Product purchaseAnswer Answer Answer Loyalty rewardsAnswer Answer Answer Answer Answer Answer b. Prepare Maximum’s journal entry to record the $400 sale to the customer where the customer earned 400 loyalty points.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 NameDr.Cr.AnswerCashAccounts ReceivableDue from ConsigneeInventoryPrepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred Revenue—Loyalty RewardsSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising ExpenseInterest ExpenseSales Commission ExpenseN/AAnswer Answer Sales Revenue—ProductAnswer Answer AnswerCashAccounts ReceivableDue from ConsigneeInventoryPrepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred Revenue—Loyalty RewardsSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising ExpenseInterest ExpenseSales Commission ExpenseN/AAnswer Answer 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/AAnswer Answer AnswerCashAccounts ReceivableDue from ConsigneeInventoryPrepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred Revenue—Loyalty RewardsSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising ExpenseInterest ExpenseSales Commission ExpenseN/AAnswer Answer To record cost of sale of product.

Maximum Inc. is selling the product and giving loyalty points which can be redeemed on future…

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Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter8: Revenue Recognition, Receivables, And Advances From Customers

Section: Chapter Questions

Problem 40P

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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	Answer	Answer
Loyalty rewards	Answer	Answer	Answer
	Answer	Answer	Answer

b. Prepare Maximum’s journal entry to record the $400 sale to the customer where the customer earned 400 loyalty points.
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	Answer
Sales Revenue—Product	Answer	Answer
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	Answer
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	Answer
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	Answer
To record cost of sale of product.

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