91Ó°ÊÓ

A discount permitted is a reduction in the price of products or services that a seller allows to a customer and represents a cost to the seller. Discount received, on the other hand, is the price reduction obtained by the buyer of products and services from the seller, and it is a source of revenue for the buyer.

Working Notes:

Taylor has 300 slips and the price of slips is $800 per slip that means,

$$\begin{gathered} \mathrm{Unearned}\mathrm{revenue}\mathrm{in}2017=\mathrm{Total}\mathrm{no}.\mathrm{of}\mathrm{slips}×\mathrm{Price}\mathrm{per}\mathrm{slip} \\ =300×\$800 \\ =\$240,000 \end{gathered}$$

5% discount is given on payment made in advance for 2019 season slips by December 31, 2018

$$\begin{gathered} \mathrm{Unearned}\mathrm{revenue}\mathrm{in}2018\mathrm{for}2019\mathrm{season}\mathrm{slip}=\mathrm{Slips}\mathrm{reserved}\mathrm{for}2019×\mathrm{Price}\mathrm{paid}×\left(1-\mathrm{Discount}\mathrm{allowed}\right) \\ =200×\$800×\left(1-\frac{5}{100}\right) \\ =200×\$800×\left(1-0·05\right) \\ =\$152,000 \end{gathered}$$

20% discount is allowed on payment for 2020 season slip by December 31, 2018

$$\begin{gathered} \mathrm{Unearned}\mathrm{revenue}\mathrm{in}2018\mathrm{for}2020\mathrm{season}\mathrm{slip}=\mathrm{Slips}\mathrm{reserved}\mathrm{for}2020×\mathrm{Price}\mathrm{paid}×\left(1-\mathrm{Discount}\mathrm{allowed}\right) \\ =60×\$800×\left(1-\frac{20}{100}\right) \\ =60×\$800×\left(1-0·20\right) \\ =\$38,400 \end{gathered}$$

Advance rentsbrought in $240,000 in 2017, $152,000 for 2019 and$38,400 for 2020 in 2018 in exchange for the marina's guarantee to provide future services. As a result, future cash flow has been lowered as boat owners' payments have been accelerated. In addition, the cost of rental services has been considerably decreased. The present financial windfall is unrelated to current revenue. Future operating costs must be partially met by this faster cash stream. The giving of these reductions is ill-advised on a present value basis unless interest rates jump and interest revenue offsets the discounts granted, or unless dock repair expenses are likely to rise dramatically.