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P18-4 (LO2,3,4) (Allocate Transaction Price, Discounts, Time Value) Economy Appliance Co. manufactures low-price, no-frills appliances that are in great demand for rental units. Pricing and cost information on Economy’s main products are as follows

Item	Standalone Selling price (cost)
Refrigerator	\(500 (\)260)
Range	560 (275)
Stackable washer/dryer unit	700 (400)

Customers can contract to purchase either individually at the stated prices or a three-item bundle with a price of \(1,800. The bundle price includes delivery and installation. The economy also provides installation (not a separate performance obligation).

Instructions

Respond to the requirements related to the following independent revenue arrangements for Economy Appliance Co.

On June 1, 2017, Economy sold 100 washer/dryer units without installation to Laplante Rentals for \)70,000. Laplante is a newer customer and is unsure how this product will work in its older rental units. Economy offers a 60-day return privilege and estimates, based on prior experience with sales on this product, that 4% of the units will be returned. Prepare the journal entries for the sale and related cost of goods sold on June 1, 2017.

Step by step solution

01

Definition of Sales Return

Sales return can be defined as the account reporting the goods that the customer returns due to any defect or any other valid reason.

02

Journal entries for sale and cost of goods sold

Date	Accounts and Explanation	Debit $	Credit $
1 June 2017	Accounts receivables	$70,000
	Sales revenue		$70,000
1 June 2017	Cost of goods sold	$40,000
	Inventory (100 x $400)		$40,000
		$110,000	$110,000
Journal entries at the net amount

1 June 2017	Accounts receivables	$ 70000
	Refund liability (4% x $70000)		$2800
	Sales revenue		$67200
1 June 2017	Cost of goods sold	$38,400
	Estimated refund (100 x $400 x 4%)	$ 1600
	Inventory		$40000
		$110000	$110000

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