Question

Metropolis Books sold 50,800 copies of a best-selling novel in July for $13 each. Included in each book was a $3 mail-in rebate for a future book purchase if the customer sends in proof of purchase with a completed rebate form. Metropolis estimates that 14% of the purchasers will claim the rebate.

Calculate the sales revenue and the unearned revenue related to the loyalty program that Metropolis earned in July on this book. (Round answers to 0 decimal places, e.g. 5,276. Do not round intermediate calculation.)

Earned revenue		$
Unearned revenue		$

List of Accounts

  

  

Prepare the journal entry to record the sale and the unearned revenue Metropolis Books should record. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
(To record sales and unearned revenue related to the loyalty program.)

Answer 1

This requirement is relate to the rebate given to the customer on the next purchase so boost up the sale and promotion of the product. and the entry are made for the earned revenue and unearned revenue and also for the rebate given by the company on next purchase.

Unearned revenue is that money on which work is not yet done for the customer, it create liability for the recipient of the payment

Journal Entries for the Earned Revenue and the Unearned Revenue

Date	Accounts Titles and Explanations	Debit	Credit
	Bank	$575,056
	Sale		$575,056
	(When sale is made on cash which is $575,056 [$7,1120 + $567,944])
	Mail-in Rebate	$21,336
	Bank		$21,336
	(When Rebate is given on 14% copies which is 7,112 @ $3)
	Account Receivable	$92,456
	Unearned Revenue		$92,456
	(When amount to be received on the unearned revenue $92.456 (7,112 @ 13)

Working:

1.

Total copies are 50,800 out of which 14% claim rebate, So number of copies are 7,112 (50,800 * 14%) and the Revenue value is 7,112 * $10 as $3 is rebate who purchase in the future	$71,120
Rest number of copies is 50,800 * 86% which is 43,688 copies which is sale at $13 as not opted for future purchase	$567,944
Total Earned Revenue is $71,120 + $567,944	$575,056

2.

For the rebate amount is $21,336 (7,112 @ 3) it is 14% of the copies (50,800 * 14%)

3.

For unearned revenue value is fully taken , it is assumed that on the next year they paid the full amount which is $13 on the 7,112 copies