Question

On April 1, 2020, Tulane Electronics enters into a contract to sell XPS computers to Precision Equipment at $100,000, which is also the stand-alone selling price of the computers. Tulane will receive cash payment immediately. Delivery is scheduled for May 1, 2020. As part of the contract, Tulane offers a 30% discount coupon to Precision for any purchases in the next year. Precision also offers a 5% discount on all sales to all customers. Based on experience, Tulane estimates a 20% probability that Precision will redeem the coupon, and that the coupon will be applied to $60,000 of purchases. How much unearned revenue (rounded to the next thousand) will Tulane Electronics record for the offering of coupons?

	a.	$0
	b.	$3,000
	c.	$60,000
	d.	$97,000
	e.	$100,000

Answer 1

Solution :

The Answer is (b) $ 3,000.

Explanation : Since all the customer will receive a 5% discount on purchases in the next year, the only additional discount that provides the customer with a material right is incremental discount of 25% of product purchased.

Tulane Electronics belive that there is 20% likelihood that Precision Equipment will redeem the coupen on a purhcases of $ 60,000.

Unearned Revenue will be = $ 60,000 * 25% * 20%

= $ 3,000.

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