Clarks Inc., a shoe retailer, sells boots in different styles. In early November
ID: 2424357 • Letter: C
Question
Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts selling “SunBoots” to customers for $70 per pair. When a customer purchases a pair of SunBoots, Clarks also gives the customer a 30% discount coupon for any additional future purchases made in the next 30 days. Customers can’t obtain the discount coupon otherwise. Clarks anticipates that approximately 20% of customers will utilize the coupon, and that on average those customers will purchase additional goods that normally sell for $100.
Prepare a journal entry to record revenue for the sale of 1,000 pairs of SunBoots, assuming that Clarks uses the residual method to estimate the stand-alone selling price of SunBoots sold without the discount coupon. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Requires you to use the residual approach to allocate the transaction price.
2.Prepare a journal entry to record revenue for the sale of 1,000 pairs of SunBoots, assuming that Clarks uses the residual method to estimate the stand-alone selling price of SunBoots sold without the discount coupon. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Requires you to use the residual approach to allocate the transaction price.
Explanation / Answer
Value of Coupons = $100 (Cost of Next Purchase) X 1000 (No of Pairs Sold) X 30% (Discount Rate) X 20% (Uses the Discount Coupon) Value of Coupons = $6000 Value of Sale = 1000 X $70 - $6000 = $64000 (As per Residual method) Journal Entry Date Particulars Dr. Amount Cr. Amount Cash Dr. 70000 To Sales Revenue 64000 To Discount Coupons 6000 (Sales of 1000 Shoes recorded)