Problem 18-6

Kingbird Hardware takes pride as the shop around the corner that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are retired local handymen). Kingbird has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line.

1. Kingbird sells a specialty portable winch that is popular with many of the local customers for use at their lake homes (putting docks in and out, launching boats, etc.). The Kingbird winch is a standard manufacture winch that Kingbird modifies so the winch can be used for a variety of tasks. Kingbird sold 80 of these winches during 2017 at a total price of $24,800, with a warranty guarantee that the product was free of any defects. The cost of winches sold is $17,000. The assurance warranties extend for a 3-year period with an estimated cost of $2,400. In addition, Kingbird sold extended warranties related to 20 Kingbird winches for 2 years beyond the 3-year period for $370 each. 2. To bolster its already strong customer base, Kingbird implemented a customer loyalty program that rewards a customer with 1 loyalty point for every $10 of purchases on a select group of Kingbird products. Each point is redeemable for a $1 discount on any purchases of Kingbird merchandise in the following 2 years. During 2017, customers purchased select group products for $105,000 (all products are sold to provide a 45% gross profit) and earned 10,500 points redeemable for future purchases. The standalone selling price of the purchased products is $105,000. Based on prior experience with incentives programs like this, Kingbird expects 9,900 points to be redeemed related to these sales (Kingbird appropriately uses this experience to estimate the value of future consideration related to bonus points).

Prepare the journal entries for Kingbird related to the sales of Kingbird winches with warranties. Prepare the journal entries for the bonus point sales for Kingbird in 2017.