Question

How to answer this question

A New York City daily newspaper called "Manhattan Today" charges tomers prepay their subscriptions and receive 260 issues over the year. To attract more subscribers, the company offered new subscribers the ability to pay $130 for an annual subscription that also would include a coupon to receive a 40% discount on a one-hour ride through Central Park in a horse-drawn carriage. The list price of a carriage ride is $125 per hour. The company estimates that approximately 30% of the coupons will be redeemed. an annual subscription fee of $135. Cus- te ption al rvices; Required: 1. How much revenue should Manhattan Today recognize upon receipt of the $130 subscription price?, becule 2. How many performance obligations exist in this contract?2 Contract.Subsorip on is adia 06-4, ton 3. Prepare the journal entry to recognize sale of 10 new subscriptions, clearly identifying the revenue or deferred revenue associated with each performance obligation. 7oyment

Answer 1

1. Revenue to be recognized : $ 0.

As it is an prepayment, revenue should not be recognized until there is transfer of goods or services by Manhattan Today to the customer.

2. Number of performance obligations : 2

Delivery of newspapers is the first performance obligation. The coupon for a 40% discount on the carriage ride through Central Park is the second performance obligation.

3.

Account Titles	Debit	Credit
	$	$
Cash ( 10 x $ 130)	1,300
Deferred Revenue: Subscription ( 90 % )		1,170
Deferred Revenue: Discount Coupon ( 10 % )		130

Price of the coupon = $ 125 x 40 % x 30 % = $ 15

Price of a normal subscription : $ 135

Total price = $ 135 + $ 15 = $ 150

Performance obligation share of subscription = $ 135 / $ 150 * 100 = 90 %

Performance obligation share of discount coupon = $ 15 / $ 150 * 100 = 10 %