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14 October, 03:51

On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 4,100 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $69,700, 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 $41,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.00 per unit.

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  1. 14 October, 03:53
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    Journal Entry

    Explanation:

    1. There are two obligations in this contract

    a. keyboard

    b. Customer option for future discount

    2. Cash Dr, $69,700

    To Deferred revenue - keyboard $66,215

    To Deferred revenue - discount coupon $3,485

    (Being cash is recorded)

    Working note:-

    Keyboards = 4,100 * $19

    = $77,900

    Option = $41,000 * (0.25 - 0.05) * 0.50

    = $4,100

    Allocation

    For keyboard

    = $77,900 : ($77,900 + 4,100)

    = 0.95

    Deferred revenue Keyboard = $69,700 * 0.95

    = $66,215

    Option = 4,100 : ($77,900 + 4,100)

    = 0.05

    Deferred revenue - discount coupon = $69,700 * 0.05

    = $3,485

    3. Cash Dr, $69,700

    To Deferred revenue Keyboard $69,700

    (Being cash is recorded)
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