Question

Blue Inc. has a customer loyalty program that rewards a customer with 1 customer loyalty point for every $10 of purchases. Each point is redeemable for a $3 discount on any future purchases. On July 2, 2020, customers purchase products for $340,000 (with a cost of $197,200) and earn 34,000 points redeemable for future purchases. Blue expects 29,000 points to be redeemed. Blue estimates a standalone selling price of $2.50 per point (or $85,000 total) on the basis of the likelihood of redemption. The points provide a material right to customers that they would not receive without entering into a contract. As a result, Blue concludes that the points are a separate performance obligation.

(a)

Determine the transaction price for the product and the customer loyalty points.

Product Purchases		$
Loyalty Points		$
Total Transaction Price		$

(b)

Prepare the journal entries to record the sale of the product and related points on July 2, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
(To record sales)
(To record cost of goods sold)

(c)

At the end of the first reporting period (July 31, 2020), 11,600 loyalty points are redeemed. Blue continues to expect 29,000 loyalty points to be redeemed in total. Determine the amount of loyalty point revenue to be recognized at July 31, 2020.

Amount of Loyalty Point Revenue

$

Answer 1

	Standalone Selling Prices	% Allocated	Transaction Price	Allocated Amounts
Produce Purchases	340,000	80.00%	340,000	272,000
Loyalty Points	85,000	20.00%	340,000	68,000
Total Transaction Price	425,000	100.00%		340,000

Date	Account Titles and Explanation	Debit	Credit
2-Jul-20	Cash	340,000
	Unearned Sales Revenue		68,000
	Sales Revenue		272,000
	(To record sales)
2-Jul-20	Cost of Good Sold	197,200
	Inventory		197,200
	(To record cost of goods sold)

Amount of Loyalty Point Revenue

(68,000 / 34,000) * 11,600

23,200