Reference no: EM132047447

Question - Martz Inc. has a customer loyalty program that rewards a customer with 1 customer loyalty point for every $10 of purchases. Each point is redeemable for a $3 discount on any future purchases. On July 2, 2014, customers purchase products for $300,000 (with a cost of $171,000) and earn 30,000 points redeemable for future purchases. Martz expects 25,000 points to be redeemed (based on its past experience, which is predictive of the amount of consideration to which it will be entitled). Martz estimates a standalone selling price of $2.50 per point (or $75,000 total) on the basis of the likelihood of redemption. The points provide a material right to customers that they would not receive without entering into a contract. As a result, Martz concludes that the points are a separate performance obligation.

Instructions

(a) Determine the transaction price for the product and the customer loyalty points.

(b) Prepare the journal entries to record the sale of the product and related points on July 2nd 2014.

(c) At the end of the first reporting period (July 31, 2014) 10,000 loyalty points are redeemed. Martz continues to expect 25,000 loyalty points to be redeemed in total. Determine the amount of loyalty point revenue to be recognized at July 31, 2014.