Question

Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts selling "SunBoots" to customers for $60 per pair. When a customer purchases a pair of SunBoots Clarks also gives the customer a 20% discount coupon for any additional future purchases made in the next 30 days. Customers can't obtain the discount coupon otherwise. Clarks anticipates that approximately 10% of customers will utilize the coupon, and that on average those customers will purchase additional goods that normally sell for $350. Required: 1. How many performance obligations are in a contract to buy a pair of SunBoots? 2. Prepare a journal entry to record revenue for the sale of 1,300 pairs of SunBoots, assuming that Clarks uses the residual method to estimate the stand-alone selling price of SunBoots sold without the discount coupon. 5 Complete this question by entering your answers in the tabs below. Required 1 Required 2 How many performance obligations are in a contract to buy a pair of SunBoots? Number of performance obligations Required Required 2 >

Answer 1

Ans:

1. No of performance Obligation: Delivery of Sun boots and Discount coupon for additional Purchases

2. Journal Entry

Date	Account title and explanation	Debit($)	Credit($)
	Cash{60*1,300}	78,000
	Sales Revenue		68,900
	Deferred Revenue Discount Coupon		9,100
	{ to record Sale of 1,300 shoes Recorded}

Working Note:

Discount Coupon= Cost of Next Purchase*No of Pairs Sold*Discount Rate*Estimated Coupon

=> $350*1,300*20%*10%

=> 9,100