10.On May 1, 2018, Meta Computer, Inc., enters into a contract
to sell 4,500 units of Comfort Office Keyboard to one of its
clients, Bionics, Inc., at a fixed price of $76,500, to be settled
by a cash payment on May 1. Delivery is scheduled for June 1, 2018.
As part of the contract, the seller offers a 25% discount coupon to
Bionics for any purchases in the next six months. The seller will
continue to offer a 5% discount on all sales during the same time
period, which will be available to all customers. Based on
experience, Meta Computer estimates a 50% probability that Bionics
will redeem the 25% discount voucher, and that the coupon will be
applied to $45,000 of purchases. The stand-alone selling price for
the Comfort Office Keyboard is $19.00 per unit.
Required:
1. How many performance obligations are in this
contract? (number of performance obligations ___________)
2. Prepare the journal entry that Meta would
record on May 1, 2018 using the given information. Then, prepare
the journal entry assuming the same facts and circumstances as
above, except that Meta gives a 5% discount option to Bionics
instead of 25%.
(2.1Record the entry for Meta on May 1, 2018.
2.2Record the entry for Meta on May 1, 2018 assuming that Meta gives a 5% discount option to Bionics instead of 25%)
1. How many performance obligations are in this contract? (number of performance obligations :-
In this case there are two performance obligations:
(i) One is the actual keyboard
(ii) Other is customer option for future discount
2.1Record the entry for Meta on May 1, 2018 :-
Date |
General Journal |
Debit |
Credit |
May 1, 2018 |
Cash |
$76500 |
|
Deferred Revenue – Keyboards |
$72675 |
||
Deferred Revenue – discount coupon |
$3825 |
Keyboards: $19 * 4500 = $85500
Option: $45000 * (.25 - .05) * .50 = $4500
Allocation:
Keyboards: [$85500 / ($85500 + $4500) = .95 * $76500 = $72675]
Option: [$4500 / ($85500 + $4500) = .05 * $76500 = $3825]
2.2Record the entry for Meta on May 1, 2018 assuming that Meta gives a 5% discount option to Bionics instead of 25% :-
Date |
General Journal |
Debit |
Credit |
May 1, 2018 |
Cash |
$76500 |
|
Deferred Revenue – Keyboards |
$76500 |
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