Question

On May 1, 2016, Meta Computer, Inc., enters into a contract to sell 5,000 units of Comfort Office Keyboard to

one of its clients, Bionics, Inc., at a fixed price of $95,000, to be settled by a cash payment on May 1. Delivery
is scheduled for June 1, 2016. As part of the contract, the seller offers a 25% discount coupon to Bionics for any
purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time
period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability
that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $20,000 of purchases.
The stand-alone selling price for the Comfort Office Keyboard is $19.60 per unit.

1. How many performance obligations are in this contract?
2. Prepare the journal entry that Meta would record on May 1, 2016.
3. Assume the same facts and circumstances as above, except that Meta gives a 5% discount option to Bionics
instead of 25%. In this case, what journal entry would Meta record on May 1, 2016?

Answer 1

1. 2

2. Journal Entry

3. Journal Entry

Step-by-step explanation:

1. There are 2 number performance obligations in this contract.

2. Cash Dr, $95,000

To unearned sales revenue $93,100

To unearned discounted sales revenue $1,900

(Being unearned revenue is recorded)

Working Note:-

Sales revenue = 5,000 × $19.6

= $98,000

Coupon applied = $20,000 × (25% - 5%) × 50%

= $2,000

Sales revenue including discount

= $98,000 + ($20,000 × 20% × 50%)

= $100,000

Discount on sales

= $95,000 × ($2,000 ÷ $100,000)

= $1,900

3. Cash Dr, $95,000

To Unearned sales revenue $95,000

(Being unearned revenue is recorded)