Question

Problem 1 (2/4, 6 points total) Antonio's Car Services provides Rick placed an order for an ar Services provides maintenance services for motorized vehicles. In March 2018, aced an order for a new set of tires for $350. When a customer purchases goods or services in excess of $300. Antonio's gives the customer a 25% discount coupon for future purchases made in the next three months. Antonio's estimates that approximately 80% of comers utilize the coupon and that on average those customers will purchase goods or services that typically sell for $75. Required: (a) How many performance obligations are in Rick's contract? Explain the reasons for your answer Reason: Answer – Number of obligations: (b) Prepare a journal entry to record revenue for this transaction, assuming that Antonio's uses the residual method to estimate the stand-alone selling price of new tires sold without the discount coupon.

Answer 1

Number of Obligations There are two performance obligations: 1) Delivery of new tire 2) Discount coupon for future purchases made in the next three months (b) No General Journal Debit Credit Cash Deferred revenue - Discount option Sales revenue (350-15) 15 335 Working Notes Calculation of deferred revenue discount option Price of goods and services Discount Percentage of customer utilize coupon Deferred revenue - Discount coupon ($ 75 x 25% x 80%) 75 25% 80% $ 15