Question

Eagle Inc. sold apparel to customers in May of 2020 for $120,000. At the point of sale, Eagle Inc. provided customers 1,200 coupons for 30% off purchases in June and July of 2020. The coupon is considered a separate performance obligation. Eagle Inc. estimates the standalone selling price of the apparel to be $120,000 and the standalone selling price of the coupons to be $18,000 ($30 estimated coupon value x 600 coupons expected to be redeemed). Determine the amount of revenue that Eagle would record in May for the sale of apparel, and the amount of revenue deferred for the customer options (coupon promotion).

Answer 1

Solution:

Total fair value of apparel and coupon = $120,000 + $18,000 = $138,000

Lump sum selling amount = $120,000

Amount of revenue that Eagle would record in May for the sale of apparel = $120,000 * $120,000 / $138,000 = $104,348

Amount of revenue deferred for the customer options = $120,000 - $104,348 = $15,652