Nicolet Publishers sells textbooks to universities across Canada. On July 10, 2021, Nicolet entered into a contract with Hinton University to supply 300 accounting textbooks at a price of $110 per book to be paid on September 25, 2021. The books cost Nicolet $80 each. Nicolet’s return policy states that any unsold books can be returned within 90 days of delivery. The books were delivered on August 25, 2021. Nicolet estimates returns at 10% of sales. Hinton returns 10 books on September 15, 2021, and 20 books on September 30, 2021.

Instructions

a. Identify the contract with the customer.

b. Identify Nicolet’s performance obligation.

c. Determine the transaction price.

d. On what date should revenue be recognized?

e. Prepare all journal entries required by Nicolet to record the transactions with Hinton University.

Taking It Further

The contract-based approach requires revenue to be recognized at the amount a business expects to be entitled to. If Nicolet offers cash discounts for early payment, how might this affect its revenue recognition? Significant cash discounts are a type of variable consideration.