Question

On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 5,700 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $96,900, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2021. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $57,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.00 per unit.

Required:
1. How many performance obligations are in this contract?
2. Prepare the journal entry that Meta would record on May 1, 2021.

3. Assume the same facts and circumstances as above, except that Meta gives a 5% discount option to Bionics instead of 25%. In this case, what journal entry would Meta record on May 1, 2021?

Answer 1

Answer-1-Number of performance obligations in the contract= 2

2-The journal entry that Meta would record on May 1,2021

Date	Account Title and Explanation	Debit ($)	Credit ($)
2021 May 1	Cash	96,900
	Unearned Revenue (Sales) ($96,900-$4,845)		92,055
	Unearned Revenue (Discounted Sales)		4,845
	(To record unearned revenue)

Working Note:-

Sales Revenue (5,700*$19)=	$108,300
57,000*(25%-5%) *50%=	$5,700
Sales Revenue including discount $108,300+($57,000*20%*50%)	$114,000
Discount on Sales $96,900*(5,700/ $114,000)=	$4,845

3-Assume the same facts and circumstances as above, except that Meta gives a 5% discount option to Bionics instead of 25%. In this case, journal entry would Meta record on May 1, 2021:-

Date	Account Title and Explanation	Debit ($)	Credit ($)
2021 May,1	Cash	96,900
	Unearned Revenue (Sales)		96,900
	(To record unearned revenue)

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