Problem
Supply Club, Inc., sells a variety of paper products, office supplies, and other products used by businesses and individual consumers. During July 2016 it started a loyalty program through which qualifying customers can accumulate points and redeem those points for discounts on future purchases. Redemption of a loyalty point reduces the price of one dollar of future purchases by 20% (equal to 20 cents). Customers do not earn additional loyalty points for purchases on which loyalty points are redeemed. Based on past experience, Supply Club estimates a 60% probability that any point issued will be redeemed for the discount. During July 2016, the company records $161,500 of revenue and awards 237,500 loyalty points. The aggregate stand-alone selling price of the purchased products is $161,500. Seventy-five percent of sales were cash sales, and the remainder were credit sales.
Required:
1. Prepare Supply Club's journal entry to record July and August sales. During August, customers redeem 114,000 loyalty points on merchandise. Seventy-five percent of those sales were for cash, and the remainder were credit sales.
2. What is the amount of deferred revenue-loyalty points?