On May 1, 2018, Meta Computer, Inc., enters into a contract to sell 4,000 units

Question

On May 1, 2018, Meta Computer, Inc., enters into a contract to sell 4,000 units of Comfort Office Keyboard to one of its clients, Bionics Inc., at a fixed price of $68,000, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2018. 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 $40,000 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.&3. Prepare the journal entry that Meta would record on May 1, 2018. Assume the same facts and circumstances as above, except that Meta gives a 5% discount option to Bionics instead of 25%.

Explanation / Answer

Ans 1 The performance obligations are two 1) Actual keyboard-Sale of keyboards 2) Special discount coupon i.e the customer option for future discount. ans b Accounts Totle Dr Cr May 1 2018 Cash $68,000 Deferred Revenue-Keyboard 64600 Deferred Revenue-Discount coupon 3400 working the standalone selling prive of keyboard is $19*4000 76000 Option 40000*(25%-5%)*50% 4000 Allocation of amount Keyboard 76000/80000*68000 64600 Discount coupon 4000/80000*68000 3400 Now if instead of 25% it is 5% than there will no deferred revenue for discount coupon as 5% is regular discount May 1 2018 Cash $68,000 Deferred Revenue-Keyboard 68000 If any doubt please comment.

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