Tenth Cup, a coffee retail chain, offers its customers a loyalty card whereby customers can receive their choice of drink free of charge after purchasing nine cups of coffee. Prices for small, medium, and large sizes are $1.50, $1.80, and $2, respectively. In one month, Tenth Cup sold the following quantities to customers who are on the loyalty program: small—100,000 cups; medium—250,000 cups; large—320,000 cups. (The company also made sales to other customers not on the loyalty program at the prices specified above.)

Required:
a. Assume that the relative stand-alone selling price method is appropriate, and that each customer always consumes the same size of coffee (whether purchased or obtained “free”). Record the journal entries for the sales to customers who are on the loyalty program.
b. Given the conditions of the loyalty offer, customers have a tendency to redeem for a large size even if they usually purchase a small or medium size. Assuming this is true for all loyalty customers, use the residual value method to record the journal entries for the sales to customers who are on the loyalty program, assuming that all loyalty customers order a large size for their free 10th cup of coffee.
c. Taking into consideration your answer to part (b), explain why the residual value method described in part (b) would be more appropriate under the circumstances than the standalone selling price method. To answer this part, it may be helpful to compute the amounts