Externality is the consequence of a producer's or consumer's action on a third party which did not partake in the action.
The idea that externalities arise because something that is valuable has no price attached is associated with the public goods and the common resources. The provision of public goods such as good roads, defence will lead to positive externalities, while the use of common resources such as fish in the river or the environment will lead to negative externalities e.g polluting the environment will give rise to a negative effect on a third party.
The amount of revenue that Eagle would record in May for the sale of apparel is $240,000.
The amount of revenue deferred for the customer options (coupon promotion) is $0.
a) Data and Calculations:
Sales of apparel to customers in May 2020 = $240,000
Coupons for 30% off purchases in June and July = 2,400
Standalone selling price of the apparel = $240,000
Standalone selling price of the coupons expected to be redeemed = $36,000 (1,200 * $30)
b) The amount of revenue to record in May for the sale of apparel equals $240,000. The coupon expense of $36,000 will not be recognized by Eagle Inc. until the coupons are redeemed or used because the coupons were given to induce future purchases and not for the past purchase of apparel.