Bakers Hardware takes pride as the shop around the corner that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are retired local handymen). Baker has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line.1. Baker sells a specialty portable generator that is popular with many of the local customers for use at their cabins. The Baker generator is a standard manufacture generator that Baker modifies so the generator can be used for a variety of tasks. Baker sold 60 of these generators during 2017 at a total price of $120,000, with a warranty guarantee that the product was free of any defects. The cost of generators sold is $84,000. The assurance warranties extend for a 3-year period with an estimated cost of $3,500. In addition, Baker sold extended warranties related to 10 Baker generators for 2 years beyond the3-year period for $300 each.

2. To bolster its already strong customer base, Baker implemented a customer loyalty program that rewards a customer with1 loyalty point for every $10 of purchases on a select group of Baker products. Each point is redeemable for a $1 discount on any purchases of Baker merchandise in the following 2 years. During 2017, customers purchased select group products for $200,000 (all products are sold to provide a 40% gross profit) and earned 20,000 points redeemable for future purchases. The standalone selling price of the purchased products is $200,000. Based on prior experience with incentives programs like this, Baker expects 14,000 points to be redeemed related to these sales (Baker appropriately uses this experience to estimate the value of future consideration related to bonus points)

Instructions

(a) Identify the separate performance obligations in the Baker warranty and bonus point programs, and briefly explain the point in time when the performance obligations are satisfied

.(b) Prepare the journal entries for Baker related to the sales of Baker generators with warranties.

(c) Prepare the journal entries for the bonus point sales for Baker in 2017.

(d) How much additional sales revenue is recognized by Baker in 2018, assuming 8,000 bonus points are redeemed?