Question

Blue Company sold 910 geospatial tracking units to Sunland Company for $732 each. Sunland has 60 days to return the unused goods. Blue believes that a good estimate of total items that will be returned by Sunland is 91 units. Prior to Blue's year end, Sunland has returned 61 units. Sunland still has 25 days to make returns. What amount should Blue report in the Refund Liability account related to this activity on its year-end balance sheet?

a.$44652
b.$21960
c.$66612
d.$22326

Answer 1

Blue should report a Refund Liability of $21,960 on its year-end balance sheet, which is calculated by taking the estimated number of units expected to be returned (91), subtracting the number of units already returned (61), and multiplying the remaining units expected to be refunded (30) by the unit price ($732).

Step-by-step explanation:

The question asks what amount should Blue report in the Refund Liability account on its year-end balance sheet in relation to the sale of geospatial tracking units to Sunland Company, considering that Sunland may still return some of the units within the agreed period. To calculate this, you need to consider both the units already returned and the estimated returns that Blue Company expects.

Blue sold 910 units at $732 each, estimating a return of 91 units. Already returned units are 61. Since Blue expects 91 units in total to be returned, the refund liability will be based on the estimated returns minus the units already returned (91-61).

Units expected to be refunded = Estimated returns - Units already returned
Refund Liability = (Units expected to be refunded) x (Unit price)
Refund Liability = (30) x ($732)
Refund Liability = $21,960

Therefore, Blue should report a Refund Liability of $21,960 on its year-end balance sheet.