Supply Club, Inc., sells a variety of paper products, office supplies, and other

Question

Supply Club, Inc., sells a variety of paper products, office supplies, and other products used by businesses and individual consumers. During July 2016 it started a loyalty program through which qualifying customers can accumulate points and redeem those points for discounts on future purchases. Redemption of a loyalty point reduces the price of one dollar of future purchases by 20% (equal to 20 cents). Customers do not earn additional loyalty points for purchases on which loyalty points are redeemed. Based on past experience, Supply Club estimates a 60% probability that any point issued will be redeemed for the discount. During July 2016, the company records $135,000 of revenue and awards 125,000 loyalty points. The aggregate stand-alone selling price of the purchased products is $135,000. Eighty percent of sales were cash sales, and the remainder were credit sales. Required: 1. & 2. Prepare Supply Club’s journal entry to record July and August sales. During August, customers redeem loyalty points on $60,000 of merchandise. Seventy-five percent of those sales were for cash, and the remainder were credit sales. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Supply Club (All amounts in $) Entry for July Sales Cash A/c DR 108000 Accounts Receivable A/c 27000 To Sales A/c 135000 No entry for loyalty points awarded No entry for August sales, since information not provided in the problem Entry for Loyalty Points Loyalty Points A/c DR 60000 To Cash A/c 45000 To Accounts Receivable A/c 15000

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