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An entity has a contract to sell 100 bikes to a customer for $500 each and the customer has the right to return the bikes within 30 days for a full refund. On the basis of past experience, the entity places the following probabilities on the number of bikes the customer is expected to return: Number of bikes returned 0 1 2 3 4 Probability of outcome 15% 20% 28% 22% 15% Using the ‘expected value’ method, calculate the amount of revenue from the customer to be recognised? If, by contrast, the ‘most likely amount’ approach is applied, and if it is assumed that the most likely outcome is that two bikes will be returned, then the revenue to be recognised would be calculated as?

An entity has a contract to sell 100 bikes to a customer for $500 each and the customer has the right to return the bikes within 30 days for a full refund. On the basis of past experience, the entity places the following probabilities on the number of bikes the customer is expected to return: Number of bikes returned 0 1 2 3 4 Probability of outcome 15% 20% 28% 22% 15% Using the ‘expected value’ method, calculate the amount of revenue from the customer to be recognised? If, by contrast, the ‘most likely amount’ approach is applied, and if it is assumed that the most likely outcome is that two bikes will be returned, then the revenue to be recognised would be calculated as?

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter17: Advanced Issues In Revenue Recognition
Section: Chapter Questions
Problem 15RE: GameDay sells recreational vehicles along with secure parking storage to customers. Game Day sells...
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Q2. An entity has a contract to sell 100 bikes to a customer for $500 each and the customer has the right to return the bikes within 30 days for a full refund. On the basis of past experience, the entity places the following probabilities on the number of bikes the customer is expected to return:
Number of bikes returned
0 1 2 3 4
Probability of outcome
15% 20% 28% 22% 15%
Using the ‘expected value’ method, calculate the amount of revenue from the customer to be recognised?
If, by contrast, the ‘most likely amount’ approach is applied, and if it is assumed that the most likely outcome is that two bikes will be returned, then the revenue to be recognised would be calculated as?

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