Question

Supply Club, Inc., sells a variety of paper products, office supplies, and other products used by businesses and individual consumers. During July 2018 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 75% probability that any point issued will be redeemed for the discount. During July 2018, the company records $132,000 of revenue and awards 220,000 loyalty points. The aggregate stand-alone selling price of the purchased products is $132,000. 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 $132,000 of merchandise. Seventy-five percent of those sales were for cash, and the remainder were credit sales. (Do not round intermediate calculations. If no entry is required for a particular transaction/event, select "No journal entry required" in the first account field.)

Answer 1

	Supply company
July	Cash ( 132000 * 80 % )	105600
	Accounts receivable ( 132000 * 20 % )	26400
	Revenue		105600
	Deferred revenue		26400
	Loyalty Points =220000 * 75 % * 0.20 =	33000
	Product sales -	132000
	Allocation :-
	Loyalty Points = 33000 / ( 33000 + 132000 )=	0.2 * 132000 =	26400
	Product sales -132000 / ( 33000 + 132000 )=	0.8* 132000	105600
August	Cash ( 132000 * ( 1-0.2)* 0.75)	79200
	Accounts receivable ( 132000 * (1-0.2) *25% )	26400
	Deferred revenue	21120
	Revenue		126720
	Deferred revenue
	220000 points issued * 75 % expected to be redeemed =	165000	points to be redeemed
	132000 points redeemed / 165000 expected =	80% redeemed
	26400 deferred revenue * 80 % =	21120 rev. earned