Question
Larkspur Inc. has a customer loyalty program that rewards a customer with one customer loyalty point for every $100 of purchases. Each point is redeemable
Larkspur Inc. has a customer loyalty program that rewards a customer with one customer loyalty point for every $100 of purchases. Each point is redeemable for a $3 discount on any future purchases. On July 2, 2020, customers purchase products for $294,000 (with a cost of $167,580) and earn 2,940 points redeemable for future purchases. Larkspur expects 2,450 points to be redeemed (based on its past experience, which is predictive of the amount of consideration to which it will be entitled). Larkspur estimates a stand-alone selling price of $2.50 per point (or $7,350 total) on the basis of the likelihood of redemption. The points provide a material right to customers that they would not receive without entering into a contract. As a result, Larkspur concludes that the points are a separate performance obligation.
1. Determine the transaction price for the product and the customer loyalty points.
2. Prepare the journal entries to record the sale of the product and related points on July 2, 2020.
3.
At the end of the first reporting period (July 31, 2020), 1,000 loyalty points are redeemed. Larkspur continues to expect 2,450 loyalty points to be redeemed in total. Determine the amount of loyalty point revenue to be recognized at July 31, 2020.
Loyalty point revenue recognized |
4. Prepare the journal entries for cash sales on July 31, 2020, assuming the points were applied to cash sales of $73,500 with a cost of $38,220
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