A company enters into 100 contracts with customers. Each contract includes the sale of one product for $100. Cash is received with control of a product transfers. The company 's customary business practice is to allow a customer to return any unused product within 30 days and receive a full refund. The company’s cost of each product is $60.
The company applies the requirements in FIRS 15 to the portfolio of 100 contracts. Because the contract allows a customer to return the products, the consideration received from the customer is variable. to estimate the variable consideration to which the company will be entitled, the company decides to use the expected value method.
Using the expected value method, the entity estimates that 97 products will not be returned. In addition, the company has significant experience in estimating returns for this product and customer class. The company concludes that it is highly probable that a significant reversal in the cumulative amount of revenue recognized will not occur as the uncertainty is resolved.
Please prepare journal entries to record the transfer of control of the 100 products.
Debit: Cash 10,000
Credit: Revenue 9,700
Credit: Refund liability 300
Debit: Cost of goods sold 5,820
Debit: Asset 180
Credit: Revenue 6,000