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Chapter 18: Q.18-8P_2 (page 1045)

Question: P18-8 (LO2,3) (Time Value, Gift Cards, Discounts) Presented below are two independent revenue arrangements for Colbert Company.

Instructions

Respond to the requirements related to each revenue arrangement.

(b) Colbert sells 20 nonrefundable \(100 gift cards for 3D printer paper on March 1, 2017. The paper has a standalone selling price of \)100 (cost $80). The gift cards expiration date is June 30, 2017. Colbert estimates that customers will not redeem 10% of these gift cards. The pattern of redemption is as follows.

Redemption total

March 31

50%

April 30

80

June 30

85

Prepare the 2017 journal entries related to the gift cards at March 1, March 31, April 30, and June 30.

Short Answer

Expert verified

Answer

Both sides of the Journal total$5,060.

Step by step solution

01

Definition of Non-Refundable

The fees taken by any institute or any consultant which is not subjected to be refunded in any case is known as non-refundable.

02

Journal entries for 2017

Date

Accounts and Explanation

Debit $

Credit $

1 March 2017

Cash

$2,000

Unearned sales revenue

$2,000

31 March 2017

Unearned sales revenue

$1,000

Sales revenue

$1,000

31 March 2017

Cost of goods sold

$800

Inventory

$800

30 April 2017

Unearned sales revenue

$600

Sales revenue

$600

30 April 2017

Cost of goods sold

$480

Inventory

$480

30 June 2017

Unearned sales revenue

$100

Sales revenue

$100

30 June 2017

Cost of goods sold

$80

Inventory

$80

$5,060

$5,060

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Most popular questions from this chapter

How do companies recognize revenue from a performance obligation over time?

On June 1, 2017, Mills Company sells \(200,000 of shelving units to a local retailer, ShopBarb, which is planning to expand its stores in the area. Under the agreement, ShopBarb asks Mills to retain the shelving units at its factory until the new stores are ready for installation. Title passes to ShopBarb at the time the agreement is signed. The shelving units are delivered to the stores on September 1, 2017, and ShopBarb pays in full. Prepare the journal entries for this bill-and-hold arrangement (assuming that conditions for recognizing the sale as a bill-and-hold sale have been met) for Mills on June 1 and September 1, 2017. The cost of the shelving units to Mills is \)110,000.

What are the reporting issues in a sale with a repurchase agreement?

What is the nature of a sale on consignment?

(Determine Transaction Price) Aaron鈥檚 Agency sells an insurance policy offered by Capital Insurance Company for a commission of \(100 on January 2, 2017. In addition, Aaron will receive an additional commission of \)10 each year for as long as the policyholder does not cancel the policy. After selling the policy, Aaron does not have any remaining performance obligations. Based on Aaron鈥檚 significant experience with these types of policies, it estimates that policyholders on average renew the policy for 4.5 years. It has no evidence to suggest that previous policyholder behavior will change.

Instructions

(a) Determine the transaction price of the arrangement for Aaron, assuming 100 policies are sold.

(b) Determine the revenue that Aaron will recognize in 2017.
See all solutions

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