Question

Kristin Company sells 300 units of its products for $20 each to Logan Inc. for cash. Kristin allows Logan to return any unused product within 30 days and receive a full refund. The cost of each product is $12. To determine the transaction price, Kristin decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the probability-weighted amount. Using the probability-weighted amount, Kristin estimates that (1) 10 products will be returned and (2) the returned products are expected to be resold at a profit.

(a) Indicate the amount of Net sales. Net sales _______ $
(b) Indicate the amount of estimated liability for refunds. Liability for Refunds ______ $
(c) Indicate the amount of cost of goods sold that Kristin should report in its financial statements (assume that nonee of the products have been returned at the financial statement date). Cost of Goods Sold ________ $

Answer 1

Answer: See explanation

Step-by-step explanation:

(a) Indicate the amount of Net sales.

This will be the number of units sold by the company after 10 products returned have been deducted. We then multiply the answer by $20.

= (300 units - 10 units ) × $20

= 290 units × $20

Net sales = $5800

(b) Indicate the amount of estimated liability for refunds.

This will be the cost of the products that are expected to be returned. This will be:

= 10 units × $20 each

= $200

(c) Indicate the amount of cost of goods sold that Kristin should report in its financial statements.

This will be:

= (300 units - 10 Units returned) × $12

= 290 units × $12

= $3480