Question

Ayayai 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). Ayayai has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line.

1. Ayayai 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 Ayayai winch is a standard manufacture winch that Ayayai modifies so the winch can be used for a variety of tasks. Ayayai sold 70 of these winches during 2017 at a total price of $18,900, with a warranty guarantee that the product was free of any defects. The cost of winches sold is $16,200. The assurance warranties extend for a 3-year period with an estimated cost of $2,100. In addition, Ayayai sold extended warranties related to 20 Ayayai winches for 2 years beyond the 3-year period for $410 each.

2. To bolster its already strong customer base, Ayayai implemented a customer loyalty program that rewards a customer with 1 loyalty point for every $10 of purchases on a select group of Ayayai products. Each point is redeemable for a $1 discount on any purchases of Ayayai merchandise in the following 2 years. During 2017, customers purchased select group products for $92,000 (all products are sold to provide a 45% gross profit) and earned 9,200 points redeemable for future purchases. The standalone selling price of the purchased products is $92,000. Based on prior experience with incentives programs like this, Ayayai expects 8,800 points to be redeemed related to these sales (Ayayai appropriately uses this experience to estimate the value of future consideration related to bonus points).

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

Prepare the journal entries for the bonus point sales for Ayayai in 2017

How much additional sales revenue is recognized by Ayayai in 2018, assuming 3,300 bonus points are redeemed?

Answer 1