Question

Caleb’s Body Shop is a gym that sells annual memberships for $1,200. Each membership sold includes 12 coupons for $1 off at the gym’s juice bar—the coupons are similar to gift cards. (When a gym membership is sold, therefore, the gym is obligated to provide two different services.) However, past experience shows that only 50% of the coupons are actually redeemed. State which accounts should be debited and credited, for how much, and explain why.

Answer 1

Cash account should be debited, and Unearned Sales Revenue account should be credited by the for the sale price of the coupons, until the coupons are redeemed.

Once the coupons are redeemed, Unearned Sales Revenue should be debited, and Sales Revenue should be credited, by the relevant amount.

In the books of Caleb's Body Shop:

Event	Account Titles	Debit	Credit
		$	$
1.	Cash	1,200
	Subscription Revenue		1,199
	Unearned Sales Revenue		1
	To record sale of memeberships
2.	Unearned Sales Revenue	0.50
	Sales Revenue		0.50
	To redemption of the coupon.