Course Content/Chapter 7 Chapter 7 Homework
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Chapter 7 Homework
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Allocating a Transaction Price and Recording Revenue and Cost of Revenue
A retailer initiates an advertising campaign, which allows a customer to receive a coupon for a free gaming system DVD with the purchase of three gaming system DVDs in a single purchase for $225 (3 x $75). To receive the free gaming system DVD coupon, the customer fills out a
request form and mails it to the retailer prior to the expiration date. The retailer estimates, based on recent experience with similar promotions, that 80% of the customers will complete the mail-in rebate required to receive the free gaming system DVD. The cost of the DVD to the
retailer is $54, and its standalone selling price is $75.
Required
a. How is the consideration allocated to the performance obligations in the revenue contract?
•Note: Enter the allocated transaction prices in dollars and cents, rounded to the nearest penny.
Performance
Obligations
DVD
Coupon Offer
Transaction
Price
as Stated
Standalone
Selling
Price
Allocated
Transaction Price
(rounded)
225 $
0
75 $
225 $
75 $
b. Prepare the journal entry for sales and cost of sales for 120 sales transactions in which 3 gaming system DVDs were sold as part of each transaction.
Note: Round amounts to the nearest whole dollar.
Account Name
Cash
Deferred Rebate Revenue
Sales Revenue-DVDs
To record sales