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Pets Inc. launches a new advertising promotion where, for each purchase over $30, it offers a coupon for a 35% discount on a future purchase. There is a limit of one coupon per customer. Pets Inc. estimates that 28% of customers receiving the coupon will redeem the coupon on an average purchase of $24. Sales on the first day of the one-week promotional period totaled $240,000 resulting in 2,400 coupons distributed. Assume all sales were cash sales. Cost of sales is 45% of the selling price. a. Determine how many performance obligations are included in a sales transaction during the advertising promotion program. Assume that coupons readily available to the public online or in company fliers have a maximum discount of 20%. AnswerOne performance obligationTwo performance obligationsThree performance obligationsFour performance obligationsNo performance obligations b. Record the journal entry to record revenue in the first day of the promotion period using the relative percentages to allocate standalone selling prices. Note: Carry all decimals in calculations; round the final answer to the nearest dollar.

	Transaction	Standalone	Total Allocated
Performance	Price	Selling	Transaction Price
Obligations	as Stated	Price	(rounded)
Merchandise	Answer	Answer	Answer
Customer optionmerchandise credit	Answer	Answer	Answer
	Answer	Answer	Answer

	Account Name	Debit	Credit
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueN/A		Answer
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueN/A		Answer
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueN/A		Answer
	To record the sale of merchandise.
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueN/A		Answer
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueN/A		Answer
	To record the cost of sale of merchandise.

c. Only 25% of the coupons were redeemed during the redemption period on qualifying purchases of $13,800. Record the entry for the redemption of the coupons, ignoring the cost entries.

	Account Name	Debit	Credit
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueMerchandise CreditSales RevenueUnused Merchandise CreditN/A		Answer
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueMerchandise CreditSales RevenueUnused Merchandise CreditN/A		Answer
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueMerchandise CreditSales RevenueUnused Merchandise CreditN/A		Answer
	To receognize revenue.

d. If the coupon offered were instead 20% on future purchases (otherwise, same facts as before), how would the answers change to parts a and b, if at all?

	Account Name	Debit	Credit
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueN/A		Answer
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueN/A		Answer
	To record the sale of merchandise.
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueN/A		Answer
	Accounts ReceivableCashContract AssetPrepaid ExpenseCost of Goods SoldAccounts PayableDeferred RevenueInventorySales RevenueN/A		Answer
	To record the cost of sale of merchandise.

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