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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 1, 2019, Piper Company entered into an agreement with Save-Mart to sell its most popular product, the gadget. The contract stipulates that the price per unit will decrease as Save-Mart purchases higher volumes of the gadget, as follows:

Chapter 17, Problem 15E, On January 1, 2019, Piper Company entered into an agreement with Save-Mart to sell its most popular

The contract states that Save-Mart pays Piper the unit price based on the current sales volume. Once a volume threshold is reached, the price is retroactively reduced to the applicable price per unit. Based on its past experience with similar contracts, Piper believes that the total sales volume for the year will be 1,800 units and uses the most likely amount approach to estimate variable consideration. In addition, Piper concludes it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty surrounding the variable consideration is resolved.

Required:

1. Determine the transaction price per unit that Piper should use to record revenue.

2. Assume that Save-Mart purchases 800 units in the first quarter of 2019 and 900 units in the second quarter of 2019. Prepare Piper’s journal entries to record the sales in the first and second quarters.

3. Given the higher than expected sales volume in the first half of the year, Piper increases its estimate of the sales volume to 2,800 units. Prepare the journal entry to record this change in estimate.

1.

To determine

Ascertain the transaction price per unit that is used to record the revenue.

Explanation

Transaction price:

Transaction price is the amount of consideration that is estimated by the company to be authorized in exchange, for delivering the promised goods and services to the customer...

2.

To determine

Journalize entries to record the sakes made in the first and second quarters.

3.

To determine

Journalize entries to record the change in estimate.

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