Concept explainers
Requirement – 1
Performance obligation:
Performance obligation is the promise made by the seller to supply the goods and service to the customer on or before the contract.
Customer options for additional goods or services:
Customer option for additional goods or services refers to the privilege that is given by the seller as a name of discounts. Seller grants the option to the customer to receive additional discount or additional goods or service at no cost.
Deferred revenues:
Collection of cash in advance to render service or to deliver goods in future is known as unearned revenues. These unearned revenues are considered as liabilities until they are earned. For the portion of rendered services or delivered goods, revenues would be recognized by way of passing an
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and
stockholders’ equities . - Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To prepare: The
Requirement – 1
Answer to Problem 5.4P
Journal entry for July month is as follows:
Date | Account Title and Explanation | Post Ref. | Debit | Credit |
2018 | Cash
|
$108,000 | ||
July | Account receivable
|
$27,000 | ||
Deferred revenue – purchased product (5) | $121,500 | |||
Deferred revenue – loyalty point (6) | $13,500 | |||
(To record service performed) |
Table (1)
Explanation of Solution
- Cash is an asset, and it increases the value of asset by $108,000, hence debit the cash for $108,000.
- Accounts receivable is an asset, and it increases the value of asset by $27,000, hence debit the accounts receivable for $27,000.
- Deferred revenue – purchased product is a liability, and it increases the value of liability by $121,500, hence credit the deferred revenue for $121,500.
- Deferred revenue – loyalty point is a liability, and it increases the value of liability by $13,500, hence credit the deferred revenue for $13,500.
Working notes:
1. Calculate the stand-alone selling price of purchased product:
Given,
Value of the loyalty point is $25,000
Estimated redemption is 60%.
Now, calculate the stand-alone selling price of purchased product:
2. Calculate the total stand-alone price:
Given,
The stand-alone selling price of purchased product is $135,000
Calculated stand-alone selling price of loyalty point is $15,000 (1)
Now, calculate the total stand-alone price:
3. Calculate the purchased product percentage:
Given,
Calculated stand-alone selling price of purchased product is $15,000 (1)
Stand-alone selling price of loyalty point is $135,000.
Now, calculate the purchased product percentage:
4. Calculate the loyalty point’s percentage:
Given,
Calculated stand-alone selling price of purchased product is $15,000 (1)
Stand-alone selling price of loyalty point is $135,000.
Now, calculate the loyalty point’spercentage:
5. Calculate the selling price of purchased product:
Given,
The transaction price is $135,000
Calculated purchased product percentageis 10%.
Now, calculate the sellingprice of purchased product:
6. Calculation of selling price of loyalty points:
Given,
Transaction price is $135,000
Calculated loyalty points percentageis 90%.
Now, calculate the sellingprice of loyalty points:
Therefore, the journal entry for sales made by S Club is recorded.
Requirement – 2
To prepare: The journal entry of S Club to record August month sales.
Requirement – 2
Answer to Problem 5.4P
Journal entry for August month is as follows:
Date | Account Title and Explanation | Post Ref. | Debit | Credit |
Cash
|
$36,000 | |||
Account receivable
|
$12,000 | |||
Deferred revenue – coupon book | $10,800 | |||
Sales revenue | $58,800 | |||
(To record service performed) |
Table (2)
Explanation of Solution
- Cash is an asset, and it increases the value of asset by $36,000, hence debit the cash for $36,000.
- Accounts receivable is an asset, and it increases the value of asset by $12,000, hence debit the accounts receivable for $12,000.
- Deferred revenue – purchased product is a liability, and it decreases the value of liability by $10,800, hence credit the deferred revenue for $10,800.
- Deferred revenue – loyalty point is a liability, and it increases the value of liability by $58,800, hence credit the deferred revenue for $58,800.
Working notes:
Calculate the value of deferred revenue
Given,
Calculated selling price of purchased product is $13,500
Revenue recognized percentage is 80%.
Now, calculate the deferred revenue:
Therefore, the journal entry for sales made in the month of August by S Club is recorded.
Want to see more full solutions like this?
Chapter 5 Solutions
INTERMEDIATE ACCOUNTING LL+CONNECT >BI<
- Ethical Dilemma: Recognition Point and Ethical Considerations C7. Business Application ▶ Robert Shah, a sales representative for Quality Office Supplies Corporation, will receive a substantial bonus if he meets his annual sales goal. The company’s recognition point for sales is the day of shipment. On December 31, Shah realizes he needs sales of $2,000 to reach his sales goal and receive the bonus. He calls a purchaser for a local insurance company, whom he knows well, and asks him to buy $2,000 worth of copier paper today. The purchaser says, “But Robert, that’s more than a year’s supply for us.” Shah says, “Buy it today. If you decide it’s too much, you can return however much you want for full credit next month.” The purchaser says, “Okay, ship it.” The paper is shipped on December 31 and recorded as a sale. On January 15, the purchaser returns $1,750 worth of paper for full credit (approved by Shah) against the bill. Should the shipment on December 31 be recorded as a…arrow_forwardP18–15 VOLUNTARY SETTLEMENTS: PAYMENTS Jacobi Supply Company recently ran into certain financial difficulties that have resulted in the initiation of voluntary settlement procedures. The firm currently has $150,000 in outstanding debts and approximately $75,000 in liquidatable short-term assets. Indicate, for each of the following plans, whether the plan is an extension, a composition, or a combination of the two. Also indicate the cash payments and timing of the payments required of the firm under each plan. Each creditor will be paid ¢50¢ on the dollar immediately, and the debts will be considered fully satisfied. Each creditor will be paid ¢80¢ on the dollar in two quarterly installments of ¢50¢ and ¢30¢. The first installment is to be paid in 90 days. Each creditor will be paid the full amount of its claims in three installments of ¢50¢, ¢25¢, and ¢25¢ on the dollar. The installments will be made in 60-day intervals, beginning in 60 days. A group of creditors with claims of $50,000…arrow_forwardQ.69. Sonic Inc., a manufacturer of power tools, decides to offer a rebate of $120 on its 16-inch mid-range chain saw, which currently has a retail price $520. Sonic Inc. estimate that, as a result of the rebate, sales of this model will increase from 60,000 to 80,000 units next year. The profit margin for Benson before the rebate is $180. Based on the given information, does it make sense for Sonic Inc. to offer the rebate? A. No, since costs are $6,000,000 more than benefits. B. No, since costs are $6,800,000 more than benefits. D. Yes, since the benefits are $7,300,000 more than the costs. C. Yes, since the benefits are $3,400,000 more than the costs. E. The answer cannot be determined based on the information given.arrow_forward
- HW 5 Q8 Lightening Bulk Company is a moving company specializing in transporting large items worldwide. The firm has an 85% on-time delivery rate. Thirteen percent of the items are misplaced and the remaining 2% are lost in shipping. On average, the firm incurs an additional $67 per item to track down and deliver misplaced items. Lost items cost the firm about $340 per item. Last year, the firm shipped 6,720 items with an average freight bill of $224 per item shipped. The firm’s manager is considering investing in a new scheduling and tracking system costing $152,000 per year. The new system is expected to reduce misplaced items to 1% and lost items to 0.50%. Furthermore, the firm expects total sales to increase by 10% with the improved service. The average contribution margin ratio on any increased sales volume, after cost savings associated with a reduction in misplaced and lost items, is expected to be 37.5%. 3. Upon further investigation, the manager discovered that…arrow_forwardP16–2 COST OF GIVING UP THE EARLY PAYMENT DISCOUNTS Determine the cost of giving up the early payment discount under each of the following terms of sale. (Note: Assume a 365-day year.) 2/10 net 30. 1/10 net 30. 1/10 net 45. 3/10 net 90. 1/10 net 60. 3/10 net 30. 4/10 net 180.arrow_forwardMay I ask for an explanation and solution to the question for a better understanding. Thank you! 5. Pierce Corporation has the following gross profits for 2018 and 2019: Sales = 2019 - P810,000; 2018 - P792,000. Cost of sales = 2019 - 480,000; 2018 - 464,000. Gross profit = 2019 - P330,000; 2018 - P328,000. Sales price was 10% lower during 2019. The increase (decrease) in quantity sold must be: a. (7.95%) b. 12.00% c. 13.33% d. 13.64%arrow_forward
- P15–6 Early payment discount decisions Prairie Manufacturing has four possible suppliers, all of which offer different credit terms. Except for the differences in credit terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in the following table. (Note: Assume a 365-day year.) Supplier Credit terms J 1/5 net 30 EOM K 2/20 net 80 EOM L 1/15 net 60 EOM M 3/10 net 90 EOM Calculate the approximate cost of giving up the early payment discount from each supplier. If the firm needs short-term funds, which are currently available from its commercial bank at 9%, and if each of the suppliers is viewed separately, which, if any, of the suppliers’ early payment discounts should the firm give up? Explain why. Now assume that the firm could stretch by 30 days its accounts payable (net period only) from supplier M. What impact, if any, would that have on your answer in part brelative to this supplier?arrow_forwardEB1. LO 10.1 Ella Maksimovis CEO of her own marketing firm. The firm recently moved from a strip mall in the suburbs to an office space in a downtown building, in order to make the firm’s employees more accessible to clients. Two new clients are interested in using Ella’s advertising services but both clients are in the same line of business, meaning that Ella’s company can represent only one of the clients. Pampered Pooches wants to hire Ella’s firm for a one-year contract for web, newspaper, radio, and direct mail advertising. Pampered will pay $126,000 for these services. Ella estimates the cost of the services requested by Pampered Pooches to be $83,000. Delightful Dogs is interested in hiring Ella to produce mass mailings and web ads. Delightful will pay Ella $94,000 for these services and Ella estimates the cost of these services to be $47,000. Identify any relevant costs, relevant revenues, sunk costs, and opportunity costs that Ella Graham has to consider in making the decision…arrow_forwardMay I ask for an explanation and solution to the question for a better understanding. Thank you! 8. Pierce Corporation has the following gross profits for 2018 and 2019: Sales = 2019 - P810,000; 2018 - P792,000. Cost of sales = 2019 - 480,000; 2018 - 464,000. Gross profit = 2019 - P330,000; 2018 - P328,000. Sales price was 10% lower during 2019. The percent of increase (decrease) in cost price must be: a. 8.97% b(8.97%) c. 9.85% d. (9.85%)arrow_forward
- Ma3. 1) [One word answer].____________ A pool describes a quantity discount for buying multiple different products at the same time which collectively qualify for the discount level. Your answer: 2) [One word answer]. The planning canvas that includes "unfair advantage" is the______________ canvas. Your answer: 3) Which of these provides unlimited intellectual property protection, if properly handled? A. Industrial design B. Patent C. Copyright D. Trade secretarrow_forward4C. Stay Safe Bhd (SSB) launched its new product, Super Sanitizer (SS), in January 2021.SSB faced bad publicity when the news went viral that customers suffered skin fleaallergy dermatitis due to using SS. The client filed a court action in November 2021,claiming damages of RM150,000. The lawyer had advised SSB that the chances for theclient to win the case are possible. The company paid RM5,000 for the lawyer's servicefee, including RM3,000 for services to be completed in the year 2022. REQUIRED:Explain the accounting treatment for the above situation regarding: i. Lawsuit of RM150,000; and ii. Professional fees of RM5,000.Justify your answers.arrow_forwardi will 5 upvotes urgent Company A is currently cash-constrained, and must make a decision about whether to delay paying one of its suppliers, or taking out a loan. They owe the supplier $13,645, but the supplier will give them a 3.46% discount if they pay in the first 14 days (when the discount period expires). That is, they can either take the discount by paying in the first 14 days, or $13,645 in 2 month(s) when the net invoice is due. What would be the cost for the firm if they forgo the discount on its trade credit agreement, wait and pay the full $13,645 in 2 month(s)?arrow_forward