Day three: the same student goes into the Coffee House bringing in his coffee mug and orders a large coffee and a croissant. Standalone selling prices are $5 for the coffee and $2 for the croissant. The cashier tells the student they are out of croissants. The cashier then offers the student the large coffee and a coupon for two croissants (its typical business practice) for $7. The student pays the $7 to the cashier. The cashier gives the student a coupon for two croissants. The barista pours the coffee into the coffee mug and hands it to the student. The student then takes the coffee and the coupon and heads to the dorm to study for the upcoming accounting exam. The Coffee House sells a coupon for two croissants for $3.50. To increase visits, these coupons can be redeemed any date after the date of purchase. The Coffee House has limited experience with these coupons but, so far, these coupons have always been redeemed.

Requirements:

• Review ASC 606-10-25-2 through 6.
• For each of the five steps:
  • Describe how the revenue model applies to this transaction. For any step that is not applicable, simply indicate it is not applicable.
  • Draw a conclusion as to whether the requirements for that step were complied with.
• As a final conclusion, determine the amount of revenue that should be recognized with detailed calculations and provide the journal entry to record the transaction.

Revenue recognition

Coffee House

Part IV:

Part III should be completed before beginning Part IV.

Background:

Day four: the same student goes into the Coffee House and orders two croissants. The cashier takes the order and asks for a $4 payment. The student hands the cashier the coupon. The cashier reviews the coupon and determines it is valid and accepts it as payment. The cashier gives the student the two croissants. The student then heads off to share the croissants with a friend from the Accounting Club.

Requirements:

• Complete the revenue recognition for the contract established in Part III by addressing only step five for the redemption of the coupon:
  • Describe how the revenue model applies to this transaction.
  • Draw a conclusion as to whether the requirements for this step were complied with.
• As a final conclusion, determine the amount of revenue that should be recognized with detailed calculations and provide the journal entry to record the transaction.