Brief Exercise 18A-14 Kristin Company sells 320 units of its products for $22 ea

Question

Brief Exercise 18A-14 Kristin Company sells 320 units of its products for $22 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 $11. 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. Prepare the journal entry for Kristin at the time of the sale to Logan

Explanation / Answer

Sol: Journal entries

i) on sending goods on approval basis :

         Customers a/c .........dr.           $7040

          To sales a/c                                           $ 7040

ii) on approval :

    no entry, because on sending the goods it has been treated as sales

iii) on return : ( based on assumtion )

     sales a/c .......dr.          $ 220

     To customers a/c                         $ 220

iv) when approval is pending:

     sales a/c .......dr.                 $ 220

     To customers a/c                           $ 220

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