Question

On December 1, 2017, AwakeAllNight Inc. sells 5,000 super caffeinated candy bars to Campus Grocers. The candy bars sell for $3 per bar. In addition, AwakeAllNight pays Campus Grocers a $900 "placement fee" to ensure that its candy bars are always stocked prominently by the cash register. The $900 is paid at the end of each month based on the results of random inspections of Campus Grocers by AwakeAllNight to ensure that the terms of the contract are being followed.Required:1. Determine the transaction price for AwakeAllNight’s revenue contract.2. Prepare AwakeAllNight’s journal entries to recognize sales revenue and pay Campus Grocers the placement fee.

Answer 1

Step-by-step explanation:

Base on the scenario been described in the question, we can use the following method

1.

transaction price = total revenue - placement fee = (5,000 x $3) - $900 = $15,000 - $900

Transaction price = $14,100

The transaction price is the price which is assent price and which is use in doing transaction

2.

December 1, 2017, merchandise sold to Campus Grocers

Dr Accounts receivable (or Cash)* 15,000

Cr Sales revenue 15,000

*Generally goods are not sold on cash, they are sold on credit.

December 31, 2017, placement fee is paid to Campus Grocer

Dr Promotional expenses 900

Cr Accounts receivable (or Cash)* 900

Answer 2

1. Determine the transaction price for AwakeAllNight’s revenue contract.

• transaction price = total revenue - placement fee = (5,000 x $3) - $900 = $15,000 - $900 = $14,100

The transaction price is the agreed price (consideration) at which a transaction is carried out.

2. Prepare AwakeAllNight’s journal entries to recognize sales revenue and pay Campus Grocers the placement fee.

December 1, 2017, merchandise sold to Campus Grocers

Dr Accounts receivable (or Cash)* 15,000

Cr Sales revenue 15,000

*Generally goods are not sold on cash, they are sold on credit.

December 31, 2017, placement fee is paid to Campus Grocer

Dr Promotional expenses 900

Cr Accounts receivable (or Cash)* 900

*Depending on the credit terms of the sale, the fee is paid with a decrease of accounts receivable (credit to the client) or by check. Sometimes instead of paying the fee, companies generally give them products of equivalent value but that depends on the agreement between the companies.