Facts: Cuppa Joe, a coffeehouse chain, sells beverages and premium homemade foods. The Company offers a popular loyalty program whereby customers can purchase 10 cups of coffee and get the 11th cup free. Customers must present their punch card with every purchase to earn punches toward a free cup. Cuppa Joe is a nonpublic company and has asked for your help applying the five-step revenue model to its customer sales.

Research Question: Assume a customer purchases a latte for $4.50 ($4. 85 with tax) and presents his loyalty punch card, earning a punch toward a free medium cup of coffee. How should Cuppa Joe record revenue for this transaction under ASC 606?

1. Assume that a customer orders a latte (also earning a punch on his loyalty card) and pays by credit card. A few minutes later, a Cuppa Joe employee hands the customer his drink. Evaluate whether-and when-the criteria in par. 606-25-1 are met.

2. Before Cuppa Joe can identify its performance obligations in this contract, it is useful to first identify the promised goods and services in a contract. Describe the promised good(s) or service(s) in this contract, considering the preceding guidance.

3. Considering the preceding guidance, what promised goods/services in this contract are distinct? Describe how you evaluated the conditions in par. 606-25-19(a) and (b):

4. Given these responses, what is/are the performance obligation(s) in this contract?

5. What do you suppose is the significance of bundling versus separating performance obligations? Consider how this might impact the timing of when an entity can record revenue.

6. What is the transaction price in this customer transaction?

7. What does it mean that taxes are excluded from the transaction price? How would taxes be recorded in this transaction (journal entry)?

8. What factors are considered in computing the value of customer loyalty points?

9. In Cuppa Joe's case, take a shot at allocating the transaction price of $4.50 to the loyalty points and the current transaction (the latte). Assume that 50% of loyalty points are redeemed and that each punch is worth 1/10 of a cup of coffee (retail value for a medium coffee at Cuppa Joe's is $3.00).

10. For each performance obligation identified by Cuppa Joe, when should Cuppa Joe recognize revenue? Is "point in time" or " over time" recognition appropriate?

11. What entry should Cuppa Joe record at the transaction date?