Question

Hill and Dale Enterprises offers a promotion that provides a customer signing up for a membership the opportunity to enroll in educational courses. A customer signing up the first time is entitled to a 25% discount off a full year 's worth of courses. A new membership costs $1,600 annually and a year's worth of courses another $1,200. Hill and Dale estimate that approximately 40% of the customers will take advantage of the 25% discount. The company is offering a 10% discount on all courses at this time.

a. Identify the separate performance obligations in the new customer deal.

b. Allocate the price to the separate performance obligations. Use the most-likely amount approach.

c. Record the journal entry to record the sale of a new membership and one year of courses. The customer paid cash.

Answer 1

Solution:

a. The separate performance obligations include:
1. the membership fee
2. the courses that may be taken

b.
Performance
Obligation
Standalone Price
Most Likely Amount

Fee
$1,600
$1,600

Courses
$1,200
$900

Total
$2,800
$2,500

C. Journal entry:
Cash
2,500

Revenue

2,500