Meta Computer, Inc., enters into a contract to sell 5,500 units of Comfort Office

jagguarpaw January 11, 2017 0 Comments

Question: On May 1, 2016, Meta Computer, Inc., enters into a…

On May 1, 2016, Meta Computer, Inc., enters into a contract to sell 5,500 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $94,600, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2016. 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 $44,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.20 per unit.

Requirement 1. How many performance obligations are in this contract?

Answer: 2

Requirement 2. Prepare the journal entry that Meta would record on May 1, 2016.

Cash         94,600

Deferred Revenue-Keyboards                  ?

Deferred Revenue-Discount Options         ?

Requirement 3. Prepare the journal entry that Meta would record on May 1, 2016. Assume the same facts and circumstances as above, except that Meta gives a 5% discount option to Bionics instead of 25%.

Cash                ?

Deferred Revenue-Keyboards               ?