Question

HTB Corp. sells its virtual reality headset for $750. In addition to the headset, a customer receives an activation code to gain free access to a specific game that currently sells for $62.50. The activation code expires six months from the date of the purchase of the headset, and the company expects that 80% of customers will use the activation code. HTB sells 100 headsets during the month of October of 2019.Requirements:

1.How many performance obligations are included in the sale of the headset?

2.Allocate the transaction price to the different performance obligations.

3.Prepare the summary entry in October of 2019 to record the sale of the 100 headsets.

4.Assume that 60% of the activation codes are redeemed by 12/31/19.

Prepare the necessary adjusting entry.

Answer 1

Question No. 01:

There are two performance Obligations in the sale of Headset

1. Supply of VR Headset

2. Free Access to Special Game

Question No. 02:

Revenue allocated to

1. Access to Special Game = $ 62.50 * 80% = $ 50.00

2. Sale of VR Head Set = $ 750 - $ 50.00 = $ 700

Date	Particulars	Debit	Credit
Question-3
October 2019	Cash	$      75,000
	Sale of VR Headsets		$      70,000
	Special Game Subscriptions		$         5,000
	To Record Sales during the Period
Question-4
31-Dec-19	Special Game Subscriptions	$         3,000
	Revenue from Special Game Subscription		$         3,000
	To Record Subscriptions Redeemed