In: Accounting
P18.8 (LO 2, 3) (Time Value, Gift Cards, Discounts) Presented below are two independent revenue arrangements for Colbert Company.
Instructions
Respond to the requirements related to each revenue
arrangement.
a. Colbert sells 3D printer systems. Recently, Colbert provided a special promotion of zero-interest financing for 2 years on any new 3D printer system. Assume that Colbert sells Lyle Cartright a 3D system, receiving a $5,000 zero-interest-bearing note on January 1, 2020. The cost of the 3D printer system is $4,000. Colbert imputes a 6% interest rate on this zero-interest note transaction. Prepare the journal entry to record the sale on January 1, 2020, and compute the total amount of revenue to be recognized in 2020.
b. Colbert sells 20 nonrefundable $100 gift cards for 3D printer paper on March 1, 2020. The paper has a standalone selling price of $100 (cost $80). The gift cards expiration date is June 30, 2020. Colbert estimates that customers will not redeem 10% of these gift cards. The pattern of redemption is as follows.
Redemption Total
March 31
50%
April 30
80%
June 30
85%
Prepare the 2020 journal entries related to the gift cards at March
1, March 31, April 30, and June 30.
Ans:
No. | Account Titles and Explanations | Debit | Credit |
01-Jan-2020 | Notes Receivable | $ 5,000 | |
Discount on Notes Receivable | $ 550 | ||
Sales Revenue ($5000* PVIF (2 yrs,6%)($5000*0.8899) | $ 4,450 | ||
(To record Sales) | |||
01-Jan-2020 | Cost of Goods Sold | $ 4,000 | |
Inventory | $ 4,000 | ||
(To record cost of goods sold) | |||
Sales Revenue | $ 4,450 | ||
Interest on Notes ($4450*6%) | $ 267 | ||
Income recognized | $4717 | ||
Note:- As per guideline I have answered 1st part of question
Hope this helped ! Let me know in case of any queries.