Question

A New York daily newspaper called "Manhattan Today" charges an annual subscription fee of $135. Customers prepay their subscription and receive 260 issues over the year. To attract more subscribers, the company offered new subscribers the ability to pay $130 for an annual subscription that would also include a coupon to receive a 40% discount on a one-hour ride through Central Park in a horse-drawn carriage. The list price of the carriage ride is $125 per hour. The company estimates that approximately 30% of coupons will be redeemed.

3. Prepare the journal entry to recognize sale of 10 new subscriptions, clearly identifying the revenue or deferred revenue associated with each performance obligation.

So far I have
Transaction 1
Cash $1300 (debit)
Deferred Revenue-Subscription
Deferred Revenue-discount coupon

which was correct, but I cannot figure out the amounts under each
I tried finding it as $130 x 10 subs x 40% coupon, as well as including the 30% probability but neither amount is considered correct in the program
Should there be another entry under this transcaction, or another transaction that I'm not seeing? Or is my math just wrong completely?

Answer 1

Correct Journal entry is as below:

Particulars	Debit ($)	Credit ($)
DR: Cash	1300
CR: Deferred Revenue-Subscription		1170
CR: Deferred Revenue-Discount coupon		130

(Being Amount received on new subscription)

Value of the coupon: 40% discount * $125 carriage fee	$50
Estimated redemption	*30%
Standalone selling price of coupon	15
Standalone selling price of a normal subscription	135
Total of standalone prices	$150

Manhattan Today must identify each performance obligation’s share of the sum of the stand­alone selling prices of all deliverables:

Coupon: $15/($15+135) =10%

Subscription: $135/($15+135) = 90%

Therefore amount for Deferred revenue - Subscription = 1300 *90% = $1170

Deferred revenue - Discount coupon = 1300 * 10% = $130