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Determining Transaction Price and Recording Entries for a Customer Loyalty Program
Best Burritos Inc., a restaurant chain, sponsors a new customer loyalty program. For every purchase, the customer swipes their reward card that tracks their spending at the restaurant. Every cumulative $50 spent earns the customer a free menu item. It is common for customers to track spending using the loyalty card and to accumulate the right to free menu items.
For the month of June 2020, Best Burritos Inc. records sales of $150,000 with 70% of the sales registered on loyalty cards. The average value of a food item expected to be redeemed by a customer, as a free menu item, is $6.50. The average redemption rate is estimated at 60%. Round amounts to the nearest dollar.
a. Determine the transaction price for the product and for the customer loyalty program.
$Answer
b. Record the journal entry for the June 2020 sales. Ignore the cost of sales entry.
- Note: Round the allocated transaction prices to the nearest whole dollar.
| | Transaction | Standalone | Allocated |
| Performance | Price | Selling | Transaction Price |
| Obligations | as Stated | Price | (rounded) |
| Restaurant sales | ? | ? | ? |
| Loyalty rewards | ? | ? | ? |
| | ? | ? | ? |
- Note: List multiple debits or credits (when applicable) in alphabetical order according to the first letter of the account name.
| Account Name | Dr. | Cr. |
| ? | ? | ? |
| ? | ? | ? |
| ? | ? | ? |
| | | |
c. At the end of June 2020, 300 items are redeemed for $1,800. Record the redemption entry in June 2020.
| Account Name | Dr. | Cr. |
| ? | ? | ? |
| ? | ? | ? |
ANSWER CHOICES:
Determining Transaction Price and Recording Entries for a Customer Loyalty Program Best Burritos Inc., a restaurant chain, sponsors a new customer loyalty program. For every purchase, the customer swipes their reward card that tracks their spending at the restaurant. Every cumulative $50 spent earns the customer a free menu item. It is common for customers to track spending using the loyalty card and to accumulate the right to free menu items. For the month of June 2020, Best Burritos Inc. records sales of $150,000 with 70% of the sales registered on loyalty cards. The average value of a food item expected to be redeemed by a customer, as a free menu item, is $6.50. The average redemption rate is estimated at 60%. Round amounts to the nearest dollar. a. Determine the transaction price for the product and for the customer loyalty program. $ 0 b. Record the journal entry for the June 2020 sales. Ignore the cost of sales entry. Note: Round the allocated transaction prices to the nearest whole dollar. Performance Obligations Restaurant sales S Loyalty rewards Transaction Standalone Allocated Price Selling Transaction Price as stated Price (rounded) O S OS 0S 0S 0 Note: List multiple debits or credits (when applicable) in alphabetical order according to the first letter of the account name. Account Name Dr. Cr. c. At the end of June 2020, 300 items are redeemed for $1,800. Record the redemption entry in June 2020. Account Name Dr. Cr. Cash Inventory Prepaid expense Contract Asset Deferred Revenue Sales Revenue-Restaurant Sales Sales Revenue-Loyalty Programs Advertising Expense Interest Expense Sales Commission Expense N/A Determining Transaction Price and Recording Entries for a Customer Loyalty Program Best Burritos Inc., a restaurant chain, sponsors a new customer loyalty program. For every purchase, the customer swipes their reward card that tracks their spending at the restaurant. Every cumulative $50 spent earns the customer a free menu item. It is common for customers to track spending using the loyalty card and to accumulate the right to free menu items. For the month of June 2020, Best Burritos Inc. records sales of $150,000 with 70% of the sales registered on loyalty cards. The average value of a food item expected to be redeemed by a customer, as a free menu item, is $6.50. The average redemption rate is estimated at 60%. Round amounts to the nearest dollar. a. Determine the transaction price for the product and for the customer loyalty program. $ 0 b. Record the journal entry for the June 2020 sales. Ignore the cost of sales entry. Note: Round the allocated transaction prices to the nearest whole dollar. Performance Obligations Restaurant sales S Loyalty rewards Transaction Standalone Allocated Price Selling Transaction Price as stated Price (rounded) O S OS 0S 0S 0 Note: List multiple debits or credits (when applicable) in alphabetical order according to the first letter of the account name. Account Name Dr. Cr. c. At the end of June 2020, 300 items are redeemed for $1,800. Record the redemption entry in June 2020. Account Name Dr. Cr. Cash Inventory Prepaid expense Contract Asset Deferred Revenue Sales Revenue-Restaurant Sales Sales Revenue-Loyalty Programs Advertising Expense Interest Expense Sales Commission Expense N/A
