Question
Splish Brothers Inc. has a customer loyalty program that rewards a customer with one customer loyalty point for every $100 of purchases. Each point is
Splish Brothers 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 $336,000 (with a cost of $191,520) and earn 3,360 points redeemable for future purchases. Splish Brothers expects 2,800 points to be redeemed (based on its past experience, which is predictive of the amount of consideration to which it will be entitled). Splish Brothers estimates a stand-alone selling price of $2.50 per point (or $8,400 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, Splish Brothers concludes that the points are a separate performance obligation.
At the end of the first reporting period (July 31, 2020), 1,000 loyalty points are redeemed. Prepare the journal entries for cash sales on July 31, 2020, assuming the points were applied to cash sales of $84,000 with a cost of $43,680. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round the calculation of revenue per point to three decimal places, e.g. 52.750 and final answers to 0 decimal places, e.g. 5,275.)
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