Sweet Company sells 307 units of its products for $20 each to Logan Inc. for cas
ID: 2591371 • Letter: S
Question
Sweet Company sells 307 units of its products for $20 each to Logan Inc. for cash. Sweet allows Logan to return any unused product within 30 days and receive a full refund. The cost of each product is $13. To determine the transaction price, Sweet 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, Sweet 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.
(b) Indicate the amount of estimated liability for refunds.
(c) Indicate the amount of cost of goods sold that Sweet should report in its financial statements (assume that none of the products have been returned at the financial statement date).
Explanation / Answer
A. Net Sales = Total sale - returns,
= 307 - 10 = 297 units
Net sales in $ = 297 * 20 each unit
= 5940
B. The amount of estimated liability for refunds.
Refunds :- 10 unit * 20 per unit
= 200 $
C.The amount of cost of goods sold that Sweet should report in its financial statements (assume that none of the products have been returned at the financial statement date).
An asset of Rs 130 ( 13* 10) for its right to recover products from customers on setting the refund liability.
An amount recognised as Cost of good sold is 3861 ( 13 * 297(307-10) )
If none of the products returned on financial date then, cost of good sold is recognised as 3991 ( 307*13)
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