
Concept explainers
Requirement – 1
Performance obligation:
Performance obligation is the promise made by the seller to supply the goods and service to the customer on or before the contract.
Customer options for additional goods or services:
Customer option for additional goods or services refers to the privilege that is given by the seller as a name of discounts. Seller grants the option to the customer to receive additional discount or additional goods or service at no cost.
Deferred revenues:
Collection of cash in advance to render service or to deliver goods in future is known as unearned revenues. These unearned revenues are considered as liabilities until they are earned. For the portion of rendered services or delivered goods, revenues would be recognized by way of passing an
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and
stockholders’ equities . - Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To prepare: The
Requirement – 1

Answer to Problem 5.4P
Journal entry for July month is as follows:
Date | Account Title and Explanation | Post Ref. | Debit | Credit |
2018 | Cash
|
$108,000 | ||
July | Account receivable
|
$27,000 | ||
Deferred revenue – purchased product (5) | $121,500 | |||
Deferred revenue – loyalty point (6) | $13,500 | |||
(To record service performed) |
Table (1)
Explanation of Solution
- Cash is an asset, and it increases the value of asset by $108,000, hence debit the cash for $108,000.
Accounts receivable is an asset, and it increases the value of asset by $27,000, hence debit the accounts receivable for $27,000.- Deferred revenue – purchased product is a liability, and it increases the value of liability by $121,500, hence credit the deferred revenue for $121,500.
- Deferred revenue – loyalty point is a liability, and it increases the value of liability by $13,500, hence credit the deferred revenue for $13,500.
Working notes:
1. Calculate the stand-alone selling price of purchased product:
Given,
Value of the loyalty point is $25,000
Estimated redemption is 60%.
Now, calculate the stand-alone selling price of purchased product:
2. Calculate the total stand-alone price:
Given,
The stand-alone selling price of purchased product is $135,000
Calculated stand-alone selling price of loyalty point is $15,000 (1)
Now, calculate the total stand-alone price:
3. Calculate the purchased product percentage:
Given,
Calculated stand-alone selling price of purchased product is $15,000 (1)
Stand-alone selling price of loyalty point is $135,000.
Now, calculate the purchased product percentage:
4. Calculate the loyalty point’s percentage:
Given,
Calculated stand-alone selling price of purchased product is $15,000 (1)
Stand-alone selling price of loyalty point is $135,000.
Now, calculate the loyalty point’spercentage:
5. Calculate the selling price of purchased product:
Given,
The transaction price is $135,000
Calculated purchased product percentageis 10%.
Now, calculate the sellingprice of purchased product:
6. Calculation of selling price of loyalty points:
Given,
Transaction price is $135,000
Calculated loyalty points percentageis 90%.
Now, calculate the sellingprice of loyalty points:
Therefore, the journal entry for sales made by S Club is recorded.
Requirement – 2
To prepare: The journal entry of S Club to record August month sales.
Requirement – 2

Answer to Problem 5.4P
Journal entry for August month is as follows:
Date | Account Title and Explanation | Post Ref. | Debit | Credit |
Cash
|
$36,000 | |||
Account receivable
|
$12,000 | |||
Deferred revenue – coupon book | $10,800 | |||
Sales revenue | $58,800 | |||
(To record service performed) |
Table (2)
Explanation of Solution
- Cash is an asset, and it increases the value of asset by $36,000, hence debit the cash for $36,000.
- Accounts receivable is an asset, and it increases the value of asset by $12,000, hence debit the accounts receivable for $12,000.
- Deferred revenue – purchased product is a liability, and it decreases the value of liability by $10,800, hence credit the deferred revenue for $10,800.
- Deferred revenue – loyalty point is a liability, and it increases the value of liability by $58,800, hence credit the deferred revenue for $58,800.
Working notes:
Calculate the value of deferred revenue
Given,
Calculated selling price of purchased product is $13,500
Revenue recognized percentage is 80%.
Now, calculate the deferred revenue:
Therefore, the journal entry for sales made in the month of August by S Club is recorded.
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Chapter 5 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
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