Question

Kingbird Hardware takes pride as the “shop around the corner” that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are retired local handymen). Kingbird has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line.

1. Kingbird sells a specialty portable winch that is popular with many of the local customers for use at their lake homes (putting docks in and out, launching boats, etc.). The Kingbird winch is a standard manufacture winch that Kingbird modifies so the winch can be used for a variety of tasks. Kingbird sold 60 of these winches during 2017 at a total price of $19,200, with a warranty guarantee that the product was free of any defects. The cost of winches sold is $17,200. The assurance warranties extend for a 3-year period with an estimated cost of $1,800. In addition, Kingbird sold extended warranties related to 20 Kingbird winches for 2 years beyond the 3-year period for $430 each.

2. To bolster its already strong customer base, Kingbird implemented a customer loyalty program that rewards a customer with 1 loyalty point for every $10 of purchases on a select group of Kingbird products. Each point is redeemable for a $1 discount on any purchases of Kingbird merchandise in the following 2 years. During 2017, customers purchased select group products for $91,000 (all products are sold to provide a 45% gross profit) and earned 9,100 points redeemable for future purchases. The standalone selling price of the purchased products is $91,000. Based on prior experience with incentives programs like this, Kingbird expects 8,500 points to be redeemed related to these sales (Kingbird appropriately uses this experience to estimate the value of future consideration related to bonus points).

Prepare the journal entries for Kingbird related to the sales of Kingbird winches with warranties.

(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. Do not round intermediate calculations. Round final answers to 0 decimal places.)

Account Titles and Explanation

Debit Credit

(To record sales)

(To record cost of goods sold)

Prepare the journal entries for the bonus point sales for Kingbird in 2017.

(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. Do not round intermediate calculations. Round final answers to 0 decimal places.)

Account Titles and Explanation Debit Credit

(To record sales)

(To record cost of goods sold)

How much additional sales revenue is recognized by Kingbird in 2018, assuming 3,900 bonus points are redeemed? (Do not round intermediate calculations. Round final answers to 0 decimal places.)

Additional Sales Revenue $

Answer 1

1) Prepare the journal entries for Kingbird related to the sales of Kingbird winches with warranties.
Account Titles and Explanation	Debit	Credit
Cash	$27,800.00
Unearned Warranty Revenue (20 x $430)		$8,600.00
Sales Revenue		$19,200.00
(To record sales)
Cost of Good Sold	$17,200.00
Inventory		$17,200.00
(To record cost of goods sold)
2) Prepare the journal entries for the bonus point sales for Kingbird in 2017.
Account Titles and Explanation	Debit	Credit
Cash	$91,000.00
Liability to Bonus Point Customer (8500/$99500) x $91000		$7,773.87
Sales Revenue ($91000/$99500 x $91000)		$83,226.13
(To record sales)
Cost of Good Sold (1- 45%) x $91000	$50,050.00
Inventory		$50,050.00
(To record cost of goods sold)
Standalone Selling Price
Purchased Products	$91,000.00
Points to be redeemed	8500.00
Total	$99,500.00
3) How much additional sales revenue is recognized by Kingbird in 2018, assuming 3,900 bonus points are redeemed?
Additional Sales Revenue = 3900/8500 x 7773.87	$3,566.83