Question

The Rink offers annual $250 memberships that entitle members to unlimited use of ice-skating facilities and locker rooms. each new membership also entitles the number to receive ten "30% off a $5 meal" coupons that are redeemable at the Rink's snack bar. The rink estimates that approximately 75% of the coupons will be redeemed, and that, if the coupons weren't redeemed, $5 meals still would be discounted by 6% because of ongoing promotions.

Prepare the journal entry to recognize the sale of a new membership. Clearly identify revenue or deffered revenue associated with each performance obligation.

Answer 1

journal entry to recognize the sale of a new membership:

cash account Dr 250

to sales account 250

ii) given, membership costs $250

case 1:

each membership get 10 number of 30% off $5 meal coupon.

price of the coupon after 30% discount = 5-1.5 =3.5

given, approximately 75% of coupons will be redeemed

75% of 10 = 7.5

price of coupon = 3.5X7.5 = 26.25

therefore a subscription price = 250+26.25 = $276.25  if 75% of the coupons are redeemed at snacks bar.

case 2:

if the coupons are not redeemed, additional 6% discount is given. so total discount = 36%

36% of $5 = 1.8

total price of coupon = 5-1.8 = 3.2

coupons available = 25% of 10 = 2.5

price of coupons = 2.5 x3.2 = $8

total price , for the remainig 25% of coupons = 250+8 = $258