Carla Vista Company sells 250 products for $100 each to Pharoah Inc., payable in 30 days. Carla Vista allows Pharoah to return any unused product within 60 days and receive a full refund. The cost of each product is $80. To determine the transaction price, Carla Vista decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the most likely amount. Using the most likely amount, Carla Vista estimates that:
Carla Vista Company sells 250 products for $100 each to Pharoah Inc., payable in 30 days. Carla Vista allows Pharoah to return any unused product within 60 days and receive a full refund. The cost of each product is $80. To determine the transaction price, Carla Vista decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the most likely amount. Using the most likely amount, Carla Vista estimates that:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Carla Vista Company sells 250 products for $100 each to Pharoah Inc., payable in 30 days. Carla Vista allows Pharoah
to return any unused product within 60 days and receive a full refund. The cost of each product is $80. To determine
the transaction price, Carla Vista decides that the approach that is most predictive of the amount of consideration to
which it will be entitled is the most likely amount. Using the most likely amount, Carla Vista estimates that:
1.
2.
3.
(a)
Four products will be returned.
The costs of recovering the products will be immaterial.
The returned products are expected to be resold at a profit.
Your answer is partially correct.
How should Carla Vista record this sale? Show journal entries under IFRS, including the entries to reflect cost of
sales and the return of 2 units of product. (Credit account titles are automatically indented when the
amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts. List all debit entries before credit entries.)
ccount Titles and Explanation
Accounts Receivable
Sales Revenue
o record sale)
Cost of Goods Sold
Estimated Inventory Returns
Inventory
o record cost of goods sold)
Accounts Payable
o record returns from customers)
Estimated Inventory Returns
Debit
25000
YOU TO
160
Credit
20000
160
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