Question

Blendit (BLD) manufactures cordless mixers for use in the kitchens of consumers. BLD sells to retailers,...

Blendit (BLD) manufactures cordless mixers for use in the kitchens of consumers. BLD sells to retailers, which sell the mixers to the ultimate consumer. One of BLD's retail customers is Chef's Toolbox (CTX). On January 1, BLD sells to and receives payment from CTX for 100 cordless mixers with a one-year warranty for $50 each. BLD delivers the mixers to CTX upon receipt of payment, and the warranty is initiated at that time as well by BLD. This warranty provides for a replacement of the mixer if the mixer fails to work properly within one year of the date of purchase. BLD also sells its mixers with no warranty for $40 per unit. The cost to manufacture each mixer is $32.

BLD also provides its retail customers with sales incentives in the form of volume discounts on purchases of mixers with warranties paid at the end of an annual period. The agreement between BLD and CTX provides for the following volume discounts. Additionally, the probability of purchases for each volume level as estimated by BLD is provided based on historical experience and forecasted sales.

Number of mixers purchased

Discount

Probability

Less than 1,000

0.00%

35.00%

1,000 through 1,999

3.75%

40.00%

2,000 or more

10.00%

25.00%

The discounts are retroactive. If 2,000 mixers are purchased during the year, a discount of 10% will be applied to all 2,000 mixers.

Assignment Requirements:

Prepare a professional accounting research memorandum in proper form with reference to the applicable sections of the FASB Codification

Review ASC 606-10-05-04, ASC 606-10-25, ASC 606-10-32-2 through 12, 25 through 31 and ASC 606-10-55-30 through 35.

  1. Prepare a detailed professional memo in proper format explaining how each of the of the revenue recognition model’s five steps applies to this transaction. Refer to the proper ASC section in your memo. For any step that is not applicable, just indicate it is not applicable. Otherwise, draw a conclusion regarding the application of each step to the transaction.
  1. Using the Journal Entry Template, record all initial accounting entries for BLD for the month of January based on ASC 606. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries.

Homework Answers

Answer #1
Cost to manufacture each mixer $32
Mixers with no warranty per unit $40
Sale with one-year warranty $50
Number of mixers purchased Avg. Quantity Discount Probability Expected Sales Quantity
Less than 1,000 500 0.00% 35.00% 175
1,000 through 1,999 1500 3.75% 40.00% 600
2,000 or more 2000 10.00% 25.00% 500
Total 1275
Sale with one-year warranty ($50*1275) $63,750
Less: Discount @3.75% (63750*3.75%) $2,391
$61,359
Cost to manufacture mixer (1275*$32) $40,800
Profit $20,559
A warranty that can be purchased separately should be accounted for as a separate performance
obligation because the entity promises a service to the customer in addition to the product.
A promised warranty, or a part of the promised warranty, which is not sold separately but provides the customer
with a service in addition to the assurance that the product complies with agreed specifications,
creates a performance obligation for the promised service.
An entity that cannot reasonably separate the service component from a standard warranty should account for
both together as a separate performance obligation.
In accordance with paragraphs 606-10-55-30 through 55-35, that the warranty does not provide the customer
with a good or service in addition to that assurance and, therefore, the entity does not account for it as a performance obligation.
The entity accounts for the assurance-type warranty in accordance with the requirements on product warranties in Subtopic 460-10.
Journal Entry
1 Customer/CTX Debit $61,359
Sales Credit $61,359
2 Purchase Debit $40,800
Creditor/ Vendor Credit $40,800
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assessment Module 9 – Marginal Analysis Please create a tab in your Excel Workbook and name...
Assessment Module 9 – Marginal Analysis Please create a tab in your Excel Workbook and name it “Module 9 Marginal Analysis.” You have same basic templates in your Resources workbook, but you may need to modify these to fit the individual business problem. I am evaluating your professional ability to do so, and to create professional models and reports, so take your time, think through a logical, clear, well-structured, well-formatted model. Remember, assumption tables (like T-accounts) are your friends! Be...
Note: This problem is for the 2018 tax year. David R. and Ella M. Cole (ages...
Note: This problem is for the 2018 tax year. David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a self-employed consultant specializing in retail management, and Ella is a dental hygienist for a chain of dental clinics. David earned consulting fees of $145,000 in 2018. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary rivals? How will the acquisition of Reebok by Adidas impact the structure of the athletic shoe industry? Is this likely to be favorable or unfavorable for New Balance? 2- What issues does New Balance management need to address? 3-What recommendations would you make to New Balance Management? What does New Balance need to do to continue to be successful? Should management continue to invest...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT