Part V:

Note that Part IV should be completed before Part V.

Background

On January 15, KH sold a mixer it purchased from MU for $80 cash and delivered it to a customer. As part of this purchase, KH issued a coupon to the customer for 8% off the $25 selling price for MUs new titanium replacement mixer blades. It is valid for 90 days. KH has not previously sold replacement mixer blades. KHs management has considered the likelihood of use and the value of the coupon and estimated a standalone selling price for these coupons at $1.

Requirements

• Prepare a detailed explanation of each of the five steps of revenue recognition. Record all accounting entries for this transaction for KH for January 15 based on the new guidance on revenue recognition in ASC 606. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries.