Question

Orange Inc. offers a coupon for 50% off a new watch when a customer buys its new oPhone. How many performance obligations are represented in this contract? The market price for the oPhone is $600. The watch usually retails for $200, and Orange anticipates 25% of customers will use the coupon to purchase a new watch next month.

1. How many performance obligations are represented in this contract?

2. What is the stand-alone price of the phone?

3. What is the stand-alone price of the coupon?

4. If one watch were sold under the contract described above, what should be recorded as the Credit to sales revenue on the date of the sale? (if nothing, enter 0)

5. If one watch were sold under the contract described above, what should be recorded as the Credit to deferred revenue on the date of the sale? (if nothing, enter 0)

Answer 1

1.

For Orange Inc.

There is 1 performance obligation for the company as is a customer purchase new oPhone, Orange Inc have to give a coupon of 50% off on a new watch.

For Customer

There are no obligations on a customer, its totally depend on them if they want to buy a new watch or not.

2. Stand alone price of oPhone is $600. if any customer want to buy oPhone he have to pay $600 to buy oPhone.

3. Coupon offers discount of 50% on new watch (if oPhone is purchased), normal price of new watch is $200. After applying offer new watch will be of $100.

4. If one watch were sold under the contract described above $100 will be Credit to sales revenue.

5. If one watch were sold under the contract described above $100 will be Credit to deferred revenue.