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 80% probability that any point issued will be redeemed for the discount. During July 2018, the company records $153,000 of revenue and awards 106,250 loyalty points. The aggregate stand-alone selling price of the purchased products is $153,000. Seventy 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 $68,000 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

Journal Entry to record July and August sales

Date	Particulars	Debit($)	Credit($)
31.07.2018	Cash A/c	1,14,750
	Accounts Receivable A/c	38250
	Revenue		141231
	Deferred Revenue		11769
	153,000*0.75
	153,000*.25
	Loyalty Points(0.20*0.60*106250	$12750
	Product sales	1,53,000
	Allocation Points:Loyalty Points 12750/153,000+12750)=0.076923*153,000=11769
	Product sales=153,000/153,000+12750=0.923076*153,000=141231
2	in August customers redeem loyalty points on $68,000 of mechandise of which 75% for cash and 25 % on credit
31.08.2018	Cash A/c	$40800
	Accounts Receivable a/C	$13600
	Deferred Revenue A/c	$9415
	Revenue		$63,815
	68,000*(1-0.2)*.75=40800
	68,000(1-.20)*.25=13600
	Deferred Revenue:
	106,250*80 % expected to be removed=85,000 points to be redeemed
	68,000/85,000=80%
	$11769 deferred Revenue*80%=$9415