Question

Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts selling "Sun Boots" 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 $150. 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 1,600 pairs of SunBoots, assuming that Clarks uses the residual method to estimate the stand-alone selling price of Sun Boots sold without the discount coupon. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare a journal entry to record revenue for the sale of 1,600 pairs of SunBoots, assuming that Clarks uses the residual method to estimate the stand-alone selling price of SunBoots sold without the discount coupon. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet No Transaction Credit General Journal Cash Sales revenue Deferred revenue - coupons Debit 96,000 < Required 1 Required 2)

Answer 1

Calculation of Deferred Revenue - Coupons:

= ( Number of Pairs sold ) X ( Approximate % of Customer utilize the Coupons ) x ( Average Value of Additional Purchase value) X (Discount rate)

= 1600 x 10% x $ 150 x 20%

= $ 4800.

Journal Entry:

Particulars Debit Credit $96,000 Cash Sales Revenue $91,200 Deferred Revenue - Coupons $4,800