Question

Blendit (BLD) just developed new universal titanium replacement mixer blades. These replacement blades can be used in most mixers currently on the market. BLD is selling these blades with a right of return for 30 days. On January 15, management believes it is probable that 10% of the titanium blades sold will be returned. This belief is based on significant experience in estimating returns on other mixer blades BLD has developed and sold in the past. BLD estimates the cost of processing any returned blades will be insignificant. On January 15,Chef's Toolbox (CTX0 purchases and pays for 40 blades at a cost of $20 each. The cost to manufacture each blade was $14. On January 31, BLD's assessment of potential returns had not changed from its assessment on January 15. Requirements: · Review ASC 606-10-05-04, ASC 606-10-32-2 through 12, ASC 606-10-55-22 through 28 · Prepare a detailed explanation of each of the five steps of revenue recognition. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries. · Record all accounting entries for BLD for the month of January based on the new guidance on revenue recognition in ASC 606

Answer 1

Answer:-

ASC 606-10-05-04, ASC 606-10-32-2 through 12, ASC 606-10-55-22 through 28 contains an explanation of each of the five steps of revenue recognition, which are discussed as follows:

1. Identification of contract with the customer.
2. Identification of any performance obligation in the above-mentioned contract.
3. Determination transaction price.
4. Allocation of transaction price to the performance obligations stated in the above-mentioned contract.
5. Recognition of revenue when the entity satisfied the performance obligations.

- Applying the above steps we get the following results:

1. Contract to sell blades has been entered into with the customer.

2. There is a performance obligation of accepting bad units within 30 days of such sale.

3. The transaction price per blade is $ 40.

4. As per the policy followed by the company, revenue of 4 (10% of 40) blades shall not be recognized. Therefore,the revenue not to be recognized = 4 blades* 40$ / blade = 160$

5. Total revenue to be recognized= No. of good units (40-4) * S.P. p.u = 36*40 = $1,440

The journal entry supporting the same is given as follows:

In the books of BLD (Blendit)
In the books of B L D
For the period ended 31st January.
Date	Particulars	Debit ($)	Credit($)
15/1	Bank a/c (40-4)=36 * 40	1,440
	To Sales A/C		1,440
	(Being of sale of goods units recorded)