Question

The Studious Frog provides study support and tutoring services for high school students during their finals. All services require cash payment in advance. Studious Frog provides an Finals Prep course for $480, as well as a Post- Finals Review course for $120. The finals prep course takes place before the students have their final tests, and the finals review course takes place after finals are complete. During December 2022, The Studious Frog offered a promotional package where students could purchase a package for both courses for the price of $580. On December 10, a total of 100 promotional packages were sold for cash, and on the same day, the Finals Prep course was provided. On December 31, the Post-Finals Review course was provided.

Using the five-step model for revenue recognition under the contract-based approach, record all necessary transactions related to the promotional package sold by The Studious Frog Services

Date	Account Titles and Explanation	Debit	Credit
Dec 10
Dec 31

Answer 1

Case - As per given case the studious frog provides tutorials services to the students. They provides final prep course for $480 and final review course for $120.

Studious frog provides a promotional package in which students need to pay $580 for both the course. On 10^th December Total 100 students purchase the promotional package and paid the fees on same day and final prep course were provided on the same day and review course provided on 31^st December.

Explanation – As per ASC 606 and ASU 2014-09 “Revenue from Contract with Customer”

There are five steps for recognition of Revenue in Contract

1. Firstly we identify the contract with the customer – in this case when student purchased promotional package then contract is established.

2. Performance obligation – we need to identify the obligation of performance. In this case obligation is completed when both the course are provided to the student.

3. Price – we need to determine the price at which transaction should be recorded. In this case the price which is decided by the studious frog is $580.

4. Allocation of transaction price – in this case student pay $580 for both services like for final prep course and for final review course. While recognition of revenue we need to separate both the courses.

5. Recognize revenue when performance obligations are full filled - in this case revenue received on 10^th of December but both the courses are provided on 31^st December. So obligation were   completed on 31^st December.

Date                                      Account Title                                                     Debit                     credit

10^th Dec                                Cash Ac DR.                                                        $58000

                                                TO Revenue from Promotional Pac.                                         $58000

               

                31^st Dec                                Revenue from Promotional Pac.AC DR   $58000

                                                                Discount on Promotional Package AC DR $2000

                                                                To Fess From Final Prep Course                                                 $48000

                                                                To fees From Review Course                                                      $12000