On May 1, 2018, Meta Computer, Inc., enters into a contract to sell 5,000 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $95,000, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2018. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $20,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.60 per unit.

The number of performance obligations that are in this contract is two.

The journal entry that will be recorded by Meta on May 1, 2016 will be:

(Being the unearned revenue recorded)

It should be noted that the calculation for the unearned discount sales revenue is given as:

= ($95,000 × $2,000) / $100,000

= $1,900

If Meta gives a 5% discount option to Bionics instead of 25%, the journal entry that Meta record on May 1, 2016 will be:

(Being the unearned sales revenue recorded)

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Journal entries

Explanation:

1. There are two performance obligations in this contract

2. The journal entry is as follows

Cash Dr $95,000

    To Unearned sales revenue $93,100

    To Unearned discount sales revenue $1,900

(Being the unearned revenue is recorded)

The computation of the unearned discount sales revenue is shown below:

= $95,000 × $2,000 ÷ $100,000

= $1,900

The $2,000 is come from

= $20,000 ×(25% - 5%) × 50%

= $2,000

And, the $100,000 is come from i.e sales revenue including discount

= $98,000 + ($20,000  × 20% × 50%)

=$100,000

And, $98,000 is come from  i.e sales revenue

= 5,000 units × $19.60 per unit

= $98,000

3. And, the journal entry is as follows

Cash Dr $95,000

      To Unearned sales revenue $95,000

(Being the unearned sales revenue is recorded)

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