Steig’s Sports Store has a customer loyalty program in which it issues points to customers for every cash purchase that can be applied to future purchases. For every dollar spent, a customer receives three points. Each point is worth one cent. There is no expiry date on the points. Steig’s estimates that 35% of the points issued will eventually be redeemed. Steig’s has a December 31 year end. The program was started in 2020. During 2020, 900,000 points were issued. Sales for 2020 were $300,000. In 2021, 1.2 million points were issued. Total sales for 2021 were $400,000.

Instructions

a. What is the stand-alone value of the points issued in 2020? In 2021?

b. Prepare the journal entries to record the sales for 2020 and 2021.

c. When the points are redeemed, how is this accounted for? What is the impact of the point redemptions on profit and cash flow?