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. Indicate the amount of (a) net sales, (b) estimated liability for refunds, and (c) cost of goods sold that Kristen should report in its financial statements (assume that none of the products have been returned at the financial statement date).

Answer 1

Answer:

a. Net Sales = (300 units - 10 units return) * $20 each

Net Sales = 290 units * $20 each

Net Sales = $5,800

b. Liability for refunds = (10 units expected to be returned * $20 each)

Liability for refunds = $200

c. Cost of Goods Sold = (300 units - 10 return) * $12 per unit

Cost of Goods Sold = 290 units * $12 per unit

Cost of Goods Sold = $3,480