In January 2020, a retailer sells 200 paper shredders to customers for $100 each. The terms of the sales include a right for the customer to return a shredder within 180 days of the sale date. Based on historical trends, the retailer uses the expected value method and estimates a 40% probability that 16 paper shredders will be returned, a 45% probability that 18 paper shredders will be returned, and a 15% probability that 24 paper shredders will be returned. The retailer also concludes it is highly probable that there will not be a significant reversal of revenue recognized based on this return estimate. Thus, the agreement is a valid contract. Assume no actual returns in January 2020. Determine (1) the transaction price for the sale of shredders for January 2020, and (2) the refund liability balance on January 31, 2020. Round expected returns to the nearest whole unit in your calculations. 1. Transaction price $Answer 2. Refund liability $Answer

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
Chapter9: Current Liabilities And Contingent Obligations
Section: Chapter Questions
Problem 21E: Cash Rebates On January 1, 2020, Fro-Yo Inc. began offering customers a cash rebate of 5.00 if the...
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Determining Transaction Price and Refund Liability

In January 2020, a retailer sells 200 paper shredders to customers for $100 each. The terms of the sales include a right for the customer to return a shredder within 180 days of the sale date. Based on historical trends, the retailer uses the expected value method and estimates a 40% probability that 16 paper shredders will be returned, a 45% probability that 18 paper shredders will be returned, and a 15% probability that 24 paper shredders will be returned. The retailer also concludes it is highly probable that there will not be a significant reversal of revenue recognized based on this return estimate. Thus, the agreement is a valid contract. Assume no actual returns in January 2020.

Determine (1) the transaction price for the sale of shredders for January 2020, and (2) the refund liability balance on January 31, 2020. Round expected returns to the nearest whole unit in your calculations.

1. Transaction price $Answer
2. Refund liability $Answer
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