Cuppa Joe, a coffeehouse chain, sells beverages and premium homemade foods. The Company offers a popular loyalty

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Question:

Cuppa Joe, a coffeehouse chain, sells beverages and premium homemade foods. The Company offers a popular loyalty program whereby customers can purchase 10 cups of coffee and get the 11th cup free. Customers must present their punch card with every purchase to earn punches toward a free cup. Cuppa Joe is a nonpublic company and has asked for your help applying the five-step revenue model to its customer sales.

Research Question:

Assume a customer purchases a latte for $4.50 ($4.85 with tax) and presents his loyalty punch card, earning a punch toward a free medium cup of coffee. How should Cuppa Joe record revenue for this transaction under ASC 606? Recall the five-step process in the new standard, described in ASC 606-10: 05-4 An entity recognizes revenue in accordance with that core principle by applying the following steps:

a. Step l: Identify the contract(s) with a customer ....

b. Step 2: Identify the performance obligations in the contract ....

c. Step 3: Determine the transaction price ....

d. Step 4: Allocate the transaction price to the performance obligations in the contract ....

e. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation ....

Question:

Refer to the Cuppa Joe example presented in the chapter. Respond to the following questions:

a. When must Cuppa Joe first apply the new revenue standard? Assume Cuppa Joe has a calendar year-end. Describe the first interim and annual reporting period in which application of the new standard is required.

b. Find additional nonauthoritative guidance to support the accounting for loyalty points. What are some of the other names by which loyalty points are known? What are some analogous examples? What are some industry examples?

c. Locate authoritative and nonauthoritative guidance differentiating between a material right and a promotion offered to all customers. Show the journal ent1ies that apply at the time of sale of "cup I" if the punch card benefits are considered a material right versus if the punch card benefits are not considered a material right.