On 1 January 2020, Entity A sold 100 units of Product X to Entity B for $220 per unit payable on 31 December 2020. On the same date, the cash selling price of one Product X is $200. The customer obtained control of the product at contract inception. However, the contract permits the customer to return the product within 90 days, i.e. on or before 31 March 2020. Product X is a new product. It suffers insufficient testing before the sales to Entity B on 1 January 2020. Thus, Entity A has no relevant historical evidence of product returns or other available market evidence. On 31 March 2020, 15 units of Product X was returned. On 31 December 2020, all outstanding amount was settled. The cost of one Product X is $150. The end or reporting period of Entity A is 31 December. REQUIRED: Provide journal entries for Entity A from 1 January 2020 to 31 December 2020 under relevant accounting standards. ACCOUNTS FOR INPUT: | Bank | Payable | Receivable | Interest expense | Interest revenue | Inventory | PPE | | Asset for product to be returned | Commission expense | Commission revenue | Revenue | | Cost of sales | Contract asset | Contract liability | Retained earnings | No entry |
On 1 January 2020, Entity A sold 100 units of Product X to Entity B for $220 per unit payable on 31 December 2020. On the same date, the cash selling price of one Product X is $200. The customer obtained control of the product at contract inception.
However, the contract permits the customer to return the product within 90 days, i.e. on or before 31 March 2020.
Product X is a new product. It suffers insufficient testing before the sales to Entity B on 1 January 2020. Thus, Entity A has no relevant historical evidence of product returns or other available market evidence.
On 31 March 2020, 15 units of Product X was returned.
On 31 December 2020, all outstanding amount was settled.
The cost of one Product X is $150. The end or reporting period of Entity A is 31 December.
REQUIRED:
Provide
ACCOUNTS FOR INPUT:
| Bank | Payable | Receivable | Interest expense | Interest revenue | Inventory | PPE |
| Asset for product to be returned | Commission expense | Commission revenue | Revenue |
| Cost of sales | Contract asset | Contract liability |
ANSWERS:
Journal Entries:
| Date | Account Name | Debit ($) | Credit ($) | Hints For Sequence |
| 1-Jan-20 | - | |||
| - | ||||
| - | ||||
| - | ||||
| 31-Mar-20 | - | |||
| - | ||||
| 31-Mar-20 | - | |||
| - | ||||
| - | ||||
| - | ||||
| 31-Dec-20 | - | |||
| - | ||||
| - | ||||
| - |
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