Question

B E חד 5 10 11 12 14 A с D 1 Problem 3 [retroactive sales discount] 2 On March 1, 2020, ABC contracted with Best Buy to provide 1,000 televisions at a contracted price of 3 $450/cach. Delivery occurred on March 3, 2020. The sale was on account, and Best Buy made cash 4 payment 30 days after delivery. 6 The sale was subject to a retroactive volume discount whereby the per-unit sales price is reduced if total units purchased by Best Buy during the calendar year exceed certain thresholds, shown below. 7 8 9 Post- Cumulative sales Retroactive Discount Probability during the year are discount Price of Occuring <2000 units no discount $450 17.5% 13 2000-2500 units $10/unit $440 17.5% 2501 units - 3000 units $15/unit $435 17.5% 15 3001-3500 units $20/unit $430 30.0% >3500 units 16 $25/unit $425 17.5% 17 100% 18 ABC's beliefs about the likelihood of each event occurring are reported under the "probability of 19 occurring" column. 20 1. Prepare the journal entry needed to record the sale on the appropriate date using the expected value approach to measure variable consideration. Be sure to clearly identify the appropriate date for recognizing revenue on the sale 21 22 23 Enter your answer below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. 24 25 Entry on March 3, 2020: 26 Account Debit 27 Credit 28 29 1 30 1 1 31

Answer 1

Part 1 and 2

Calculation of expected value using expected valuation method as on 3 March 2020

Cu Sales during the year	Retroactive discount	Post discount sales price	Probability of occuring	Expected Value
< 2000 units	No Discount	$                  450	17.50%	$             78.75
2000-2500 units	$                      10	$                  440	17.50%	$             77.00
2501 -3000 units	$                      15	$                  435	17.50%	$             76.13
3001 -3500 units	$                      20	$                  430	30%	$           129.00
> 3500 units	$                      25	$                  425	17.50%	$             74.38
				$           435.25

Calculation of expected value using expected valuation method as on 1 Sep 2020

Cu Sales during the year	Retroactive discount	Post discount sales price	Probability of occuring	Expected Value
2100 Units	$                      10	$                  440	90%	$           396.00
2600 Units	$                      15	$                  435	10%	$             43.50
				$           439.50

Journal Entries for expected valuation method

Date	Particular	Dr	Cr
03-03-2020	Best Buy Dr	$        4,50,000
	To Contract Liabilities ([$450-$435.25]*1000Units)		$            14,750
	To Sales [$435.25*1000units]		$        4,35,250
	(Being 1000 television sold to @$450/unit accounted based on expected value method @435.25/units)
02-04-2020	Bank A/C Dr	$        4,50,000
	To Best Buy		$        4,50,000
	(Being amount received)
01-09-2020	Contract Liabilities A/c Dr	$        4,250.00
	To Sales		$        4,250.00
	(Being contact liabilities reversed based on the new expected value of $439.50/Units) ([$439.50-$435.25]*1000Units)

Part 3 - Calcualtion for Most likely approach

Journal Entry - Most likely Method

Date	Particular	Dr	Cr
03-03-2020	Best Buy A/c Dr	$          4,50,000
	To Contract Liabilities ([$450-$430]*1000Units)		$             20,000
	To Sales [$400*1000units]		$          4,30,000
	(Being 1000 television sold to @$450/unit accounted based on most likely method @430/units)
02-04-2020	Bank A/C Dr	$          4,50,000
	To Best Buy		$          4,50,000
	(Being amount received)
01-09-2020	Contract Liabilities A/c Dr	$       10,000.00
	To Sales		$       10,000.00
	(Being contact liabilities reversed based on the new most likely value of $4440/Units) ([$440-$430]*1000Units)