Kitchen Aid sells mixer at the price of $ 50 for each of 100 cordless mixers under warranty of one year replace. The ASC-606-10-55-32 says that the customer is unable to purchase the separate warranty because the product under warranty is issued by the seller. In the subtopic, 460-10 provides the customer guarantees as a promised warranty which will be the addition in customer services. We will here record the 100 cordless mixers at warranty for one year and initial entries will be recorded at the end. Moreover, based on the retrospective volume discount the maximum probability lies in 1000 to 1999. The ASC-606-10-32-12 says that the price per mixer will be reduced according to the discount rate. While keeping all mentioned rules the initial entries are as follows for the date 01 January.
Cash $ 5,000 (100* 50 cordless mixers)
Revenues $4,812.5 (if sales increase from 1000 so 100*48.125)
Refund Liability $187.5 (if discount value should be paid later @1.875)
Cost of Sale $3,200 (100*32 mixer production)
Inventory $3,200 (100*32)
Part II:
KA developed new titanium replacement mixer blades and sold it to it retailer on the 30 days return. We have to write the accounting treatment according to the new rules of accounting. For the accounting treatment of return sales, the ASC-606-10-55 says that customer has the right to return the product within the stipulated time. Moreover, it says that accounting record should have the refund liability. Within the light of ASC-606-10-55, the initial entries will be as follows.
| 15, Jan | Cash
Revenue Refund Liability |
$800 | $ 720
$ 80 |
40*20 for all blades
34*20 expected not return 20 *4 expected return @ 10% prob |
| 15, Jan | Cost of sales
Assets Inventory |
$504
$56 |
$560 | 36*14 products manufactured sold
4*14 products rights to recover for refund 40*14 products |
| 31, Jan | Refund Liability
Revenue |
$ 80 | $80 | 20*4 product did not returned
20*4 products sold |
| 31, Jan | Cost of sales
Assets |
$56 | $56 | 4*14 products manufactured sold
4*14 product sold |
Part III:
In this part we will account the initial entries for the JK, this retailer company has resold the cordless mixer to customer at price $80 and also issued a coupon for 90 days at a selling price of $25. This coupon is about 8% for titanium blades. The ASC-606 says that standalone price of one product is determinable. There are three methods for calculating the transaction price for the discount. But in our case, there are no more products so we will just find the price for the upcoming mixer. Under the light of this rule, we will combine the standalone price for the titanium mixer blades. The JK management already determined the standalone price equal to 1. So we will just record the transaction at a sale price and also we will adjust the coupon value against our revenue. Here are the initial adjusting entries of JK accounts.
| 15 Jan | Resale of purchased product | $80 | 80*1 cordless mixer | |
| Revenue
Coupon (discount) |
$79
$1 |
79*1 Resale of one product
Coupon issued with standalone price 1 |
The price for titanium mixer blade will be as follows.
Price at discount = 25- (25*8%)= $23
References
https://www.grantthornton.com/-/media/content-page-files/audit/pdfs/GT-ASC-606-and-340-40-guide.ashx (accessed April 18, 2018)
