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Larkspur Inc. has a customer loyalty program that rewards a customer with one customer loyalty point...

Larkspur Inc. has a customer loyalty program that rewards a customer with one customer loyalty point for every $100 of purchases. Each point is redeemable for a $3 discount on any future purchases. On July 2, 2020, customers purchase products for $294,000 (with a cost of $167,580) and earn 2,940 points redeemable for future purchases. Larkspur expects 2,450 points to be redeemed (based on its past experience, which is predictive of the amount of consideration to which it will be entitled). Larkspur estimates a stand-alone selling price of $2.50 per point (or $7,350 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, Larkspur concludes that the points are a separate performance obligation.

Determine the transaction price for the product and the customer loyalty points.

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The transaction price is allocated to the products and loyalty points, as follows:

Performance obligation

Stand-Alone (SA) Selling Price

% of Total SA Selling Price

Contract Price

Allocation of Contract Price

Product

$294,000

97.56%

X $294,000

$286,826

Loyalty Points

7,350

2.44%

X $294,000

7,174

$301,350

100 %

$294,000

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