Question

Superb Vision sells 100 pairs of eyeglasses for $400 each. Superb Vision delivers each pair of glasses with a coupon that entitles the customer to purchase an additional pair of glasses of the same type at a 50% discount. Based on past experience, Superb Vision estimates that 20% of the coupons will be redeemed by customers. Upon delivery of the 100 eyeglasses, Superb should recognize deferred revenue of

Answer 1

Superb Vision should recognize a deferred revenue of $4,000, estimated based on the anticipated redemption rate of the provided discount coupons for future purchases, which is a common practice in revenue recognition for businesses offering such discounts.

Step-by-step explanation:

The question revolves around the accounting treatment for coupons provided by Superb Vision when they sell eyeglasses. Superb Vision sells each pair of glasses for $400 and delivers a coupon that allows a 50% discount on a future purchase.

Based on an estimated redemption rate of 20% for these coupons, Superb Vision should recognize deferred revenue for the coupons that are likely to be redeemed. To calculate the deferred revenue, we first need to determine the discount value for each redeemed coupon, and then multiply that by the estimated number of coupons that will be redeemed.

The discount value per pair is 50% of $400, which is $200. If 20% of the coupons are redeemed, that's 20% of 100, or 20 pairs of glasses. Therefore, the deferred revenue is 20 pairs x $200 discount, totaling $4,000.