Question

Revenue allocated to the PCS is deferred and recognized on a straight-line basis over the 2-year estimated life of a NOOK® device. The average percentage of a NOOK®’s sales price that is deferred for undelivered items and recognized over its 2-year estimated life ranges between 0% and 5%, depending on the type of device sold. The amount of NOOK®-related deferred revenue as of April 29, 2017 and April 30, 2016 was $226 and $160, respectively. These amounts are classified on the Company’s balance sheet in accrued liabilities for the portion that is subject to deferral for one year or less and other long-term liabilities for the portion that is subject to deferral for more than one year.

1. When B&N sells merchandise with right of inspection or acceptance, it still records the revenue at the time of sale and estimates the sales returns in the same period. Assume B&N sells $200,000 of merchandise and the estimated sales returns is 2% of sales. Show the journal entry that would be made to record this sale (ignore the effect on inventory).

Date	Accounts	Debit	Credit

Show computations:

2. When B&N records sales with multiple elements it uses the relative selling price method.

         Assume that the NOOK device sells for $100 including the software. Similar devices sell for

         $90 without the software and similar software sells for $50.

1. Compute the amount of revenue related to the device and the software. Show your computations.

   

2. The footnote indicates that the revenue from the software is recognized over a two-year period. Show the journal entry to record the sale of 70 NOOKs for cash. (Ignore the effect on inventory)

Date	Accounts	Debit	Credit

Computations:

Answer 1