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. Clarks obtains the boots from wholesalers for $40 per pair. As
part of the sales contract,
Clarks gives customers who participate in an online survey a 30 percent discount voucher for any
additional purchases in the next 30 days. Clarks anticipates that approximately 20 percent of customers
will complete the survey and utilize the coupon, purchasing an average of $100 of goods. Clarks intends
to offer a 10 percent discount on all sales during the next 30 days as part of a seasonal promotion during
the Thanksgiving holidays.
Required:
1. Determine whether the discount voucher by Clarks is a separate performance obligation.
2. Prepare a journal entry to record the sale of 1,000 pairs of SunBoots.
Answer:
Requirement
The discount voucher provides a material right to the customer that the customer would not receive
otherwise, because the customer can receive a 30 percent discount with the voucher but only a 10
percent discount without the voucher. That right to receive a discount could be sold separately.
Therefore, the discount voucher given by Clarks is a separate performance obligation.
Requirement 2
Cash 70,000
Revenue (to balance) 66,000
Unearned revenue (discount option) 4,000
(1,000 pairs (30% – 10% discount)
Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts selling
“SunBoots” to customers for $70 per pair. Clarks obtains the boots from wholesalers for $40 per pair. As
part of the sales contract,
Clarks gives customers who participate in an online survey a 30 percent discount voucher for any
additional purchases in the next 30 days. Clarks anticipates that approximately 20 percent of customers
will complete the survey and utilize the coupon, purchasing an average of $100 of goods. Clarks intends
to offer a 10 percent discount on all sales during the next 30 days as part of a seasonal promotion during
the Thanksgiving holidays.
Required:
1. Determine whether the discount voucher by Clarks is a separate performance obligation.
2. Prepare a journal entry to record the sale of 1,000 pairs of SunBoots.
Answer:
Requirement
The discount voucher provides a material right to the customer that the customer would not receive
otherwise, because the customer can receive a 30 percent discount with the voucher but only a 10
percent discount without the voucher. That right to receive a discount could be sold separately.
Therefore, the discount voucher given by Clarks is a separate performance obligation.
Requirement 2
Cash 70,000
Revenue (to balance) 66,000
Unearned revenue (discount option) 4,000
(1,000 pairs (30% – 10% discount)
