Question

Question: P18-7 (LO3) (Customer Loyalty Program) 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, 2017, 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. 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.

Short answer

The transaction price of the product is$240,000, and the customer loyalty point is$60,000.

Step-by-step solution

Definition of Transaction Price

The amount of money a business entity expects to receive against the transfer of goods or services to the customer is known as the transaction price.

Determination of transaction price

Particular	Standalone selling price	/	Total standalone price	X	Total Transaction price	=	Allocated Transaction price
Product price	$300,000	/	$375,000	X	$300,000	=	$240,000
Bonus points	$75,000	/	$375,000	X	$300,000	=	$60,000
	$375,000						$300,000