Galaxy sells used videogames for cash and provides a one-week return right. Retu

ID: 2465975 • Letter: G

Question

Galaxy sells used videogames for cash and provides a one-week return right. Returns are material and reasonably predictable. Galaxy should:

Not record sales until the right to return has expired.

Record a contra-receivable in the year of the sale.

Recognize a refund liability associated with estimated returns.

Credit sales in the period of the return.

**Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2016. The note was accepted as payment for

merchandise with a fair value of $500,000. The effective interest rate is 10%.

The entry to record interest on December 31, 2016 would be:

31-Dec-16 Interest Receivable A/c. $50,000

Interest Income A/c. $50,000

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