On April 2, 2021, Cullumber Company entered into a contract to supply medication to Laxall Drug Stores, FOB shipping point, terms 2/30, n/45. The selling price of the medication is $50,000 and the medication cost Cullumber Company $20,000. Cullumber has a stated return policy that goods may be returned within 30 days. The medication was shipped on April 10, 2021. Cullumber's management estimates returns using the expected value method and sales discounts are estimated using the most likely outcome. Based on past experience with this product, returns are 5% of sales 50% of the time, 10% of sales 20% of the time, and 20% of sales 30% of the time. Laxall Drug Stores will most likely pay within the discount period. Cullumber Company uses the contract-based approach for revenue recognition.
On April 2, 2021, Cullumber Company entered into a contract to supply medication to Laxall Drug Stores, FOB shipping point, terms 2/30, n/45. The selling price of the medication is $50,000 and the medication cost Cullumber Company $20,000. Cullumber has a stated return policy that goods may be returned within 30 days. The medication was shipped on April 10, 2021. Cullumber's management estimates returns using the expected value method and sales discounts are estimated using the most likely outcome. Based on past experience with this product, returns are 5% of sales 50% of the time, 10% of sales 20% of the time, and 20% of sales 30% of the time. Laxall Drug Stores will most likely pay within the discount period. Cullumber Company uses the contract-based approach for revenue recognition.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Make only correct Jornal entry

Transcribed Image Text:Prepare journal entries to recognize revenue on the appropriate date. (Hint: The expected value method is also used to determine
the amount for cost of goods sold and estimated inventory returns.) (Credit account titles are automatically indented when the
amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. If no entry is required, select "No
Entry" for the account titles and enter O for the amounts.)
Account Titles and Explanation
Debit
Credit
Accounts Receivable
50,000
Refund Liability
5,250
Sales
44,750
(To record sales on account.)
Cost of Goods Sold
17,900
Estimated Inventory Returns
2,100
Merchandise Inventory
20,000
(To record cost of goods sold.)

Transcribed Image Text:On April 2, 2021, Cullumber Company entered into a contract to supply medication to Laxall Drug Stores, FOB shipping point, terms
2/30, n/45. The selling price of the medication is $50,000 and the medication cost Cullumber Company $20,000. Cullumber has a
stated return policy that goods may be returned within 30 days. The medication was shipped on April 10, 2021. Cullumber's
management estimates returns using the expected value method and sales discounts are estimated using the most likely outcome.
Based on past experience with this product, returns are 5% of sales 50% of the time, 10% of sales 20% of the time, and 20% of sales
30% of the time. Laxall Drug Stores will most likely pay within the discount period. Cullumber Company uses the contract-based
approach for revenue recognition.
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