Problem
Oriole Hardware takes pride as the "shop around the corner" that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are retired local handymen). Oriole has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line.
1. Oriole sells a specialty portable winch that is popular with many of the local customers for use at their lake homes (putting docks in and out, launching boats, etc.). The Oriole winch is a standard manufacture winch that Oriole modifies so the winch can be used for a variety of tasks. Oriole sold 70 of these winches during 2017 at a total price of $18,900, with a warranty guarantee that the product was free of any defects. The cost of winches sold is $16,200. The assurance warranties extend for a 3-year period with an estimated cost of $2,100. In addition, Oriole sold extended warranties related to 20 Oriole winches for 2 years beyond the 3-year period for $410 each.
2. To bolster its already strong customer base, Oriole implemented a customer loyalty program that rewards a customer with 1 loyalty point for every $10 of purchases on a select group of Oriole products. Each point is redeemable for a $1 discount on any purchases of Oriole merchandise in the following 2 years. During 2017, customers purchased select group products for $92,000 (all products are sold to provide a 45% gross profit) and earned 9,200 points redeemable for future purchases. The standalone selling price of the purchased products is $92,000. Based on prior experience with incentives programs like this, Oriole expects 8,800 points to be redeemed related to these sales (Oriole appropriately uses this experience to estimate the value of future consideration related to bonus points).
Prepare the journal entries for Oriole related to the sales of Oriole winches with warranties.
Three accounts to record sales two accounts to reord cost of goods sold
Prepare the journal entries for the bonus point sales for Oriole in 2017.
3 accounts to record sales
2 accounts to record cost of goods sold
How much additional sales revenue is recognized by Oriole in 2018, assuming 3,300 bonus points are redeemed?