Question

In: Advanced Math

P11.7A (LO 4) On April 2, 2021, Pharma Company entered into a contract to supply medication...

P11.7A (LO 4)

On April 2, 2021, Pharma 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 $40,000 and the medication cost Pharma Company $25,000. Pharma has a stated return policy that goods may be returned within 30 days. The medication was shipped on April 10, 2021. Pharma'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. Pharma Company uses the contract-based approach for revenue recognition.

Instructions

a. Describe the rights and obligations of each party in the contract between Pharma Company and Laxall Drug Stores.

b. Identify the variable consideration in the contract.

c. Calculate the transaction price. (Round all amounts to the nearest dollar.)

d. 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.)

Solutions

Expert Solution

If this answer helpful to you. Please Hit thumps up.


Related Solutions

In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa...
In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2023. Information related to the contract is as follows: 2021 2022 2023 Cost incurred during the year $ 1,584,000 $ 3,240,000 $ 2,613,600 Estimated costs to complete as of year-end 5,616,000 2,376,000 0 Billings during the year 1,200,000 3,624,000 5,176,000 Cash collections during the year 1,000,000 2,800,000 6,200,000 Assume that Westgate Construction’s contract with Santa...
In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa...
In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2023. Information related to the contract is as follows: 2021 2022 2023 Cost incurred during the year $ 2,100,000 $ 3,150,000 $ 2,475,000 Estimated costs to complete as of year-end 5,400,000 2,250,000 0 Billings during the year 2,150,000 3,100,000 4,750,000 Cash collections during the year 1,875,000 3,100,000 5,025,000 Westgate recognizes revenue over time according to...
In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa...
In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2023. Information related to the contract is as follows: 2021 2022 2023 Cost incurred during the year $ 3,471,000 $ 4,005,000 $ 1,566,400 Estimated costs to complete as of year-end 5,429,000 1,424,000 0 Billings during the year 2,900,000 4,576,000 2,524,000 Cash collections during the year 2,700,000 4,500,000 2,800,000 Assume that Westgate Construction’s contract with Santa...
In 2021, the Westgate Construction company entered into a contract to construct a road for Santa...
In 2021, the Westgate Construction company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2023. Information related to the contract is as follows. 2018 2019 2020 Cost incurred during the year $ 2,044,000 $ 2,628,000 $ 2,890,800 Estimated costs to complete as of year-end 5,256,000 2,628,000 0 Billings during the year 2,170,000 2,502,000 5,328,000 Cash collections during the year 1,885,000 2,600,000 5,515,000 5. Calculate the amount of revenue and...
In 2021, the Westgate Construction company entered into a contract to construct a road for Santa...
In 2021, the Westgate Construction company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2023. Information related to the contract is as follows. 2018 2019 2020 Cost incurred during the year $ 2,044,000 $ 2,628,000 $ 2,890,800 Estimated costs to complete as of year-end 5,256,000 2,628,000 0 Billings during the year 2,170,000 2,502,000 5,328,000 Cash collections during the year 1,885,000 2,600,000 5,515,000 3. Complete the information required below to...
in 2021, the Westgate Construction Company entered into a contract to construct a road for Santa...
in 2021, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows: 2018 2019 2020 Cost incurred during the year $ 2,044,000 $ 2,628,000 $ 2,890,800 Estimated costs to complete as of year-end 5,256,000 2,628,000 0 Billings during the year 2,170,000 2,502,000 5,328,000 Cash collections during the year 1,885,000 2,600,000 5,515,000 Westgate recognizes revenue over time according to...
In 2021, the Westgate Construction Company entered into a contract to construct a bridge for $12,000,000....
In 2021, the Westgate Construction Company entered into a contract to construct a bridge for $12,000,000. The bridge was completed in 2023. Information related to the contract is as follows: 2021 2022 2023 Cost incurred during the year    $1,840,000 $3,760,000 $4,500,000 Estimated costs to complete as of year-end $6,160,000 $5,600,000 $0 Billings during the year $3,000,000 $4,000,000 $5,000,000 Cash collections during thee year    $2,600,000 $3,900,000    $5,100,000 a. Westgate recognizes revenue over time according to percentage of completion....
In 2021, the Westgate Construction Company entered into a contract to construct a bridge for $12,000,000....
In 2021, the Westgate Construction Company entered into a contract to construct a bridge for $12,000,000. The bridge was completed in 2023. Information related to the contract is as follows: 2021 2022 2023 Cost incurred during the year    $1,840,000 $3,760,000 $4,500,000 Estimated costs to complete as of year-end $6,160,000 $5,600,000 $0 Billings during the year $3,000,000 $4,000,000 $5,000,000 Cash collections during thee year    $2,600,000 $3,900,000    $5,100,000 a. Westgate recognizes revenue over time according to percentage of completion....
In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa...
In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2023. Information related to the contract is as follows: 2021 2022 2023 Cost incurred during the year $ 2,400,000 $ 3,600,000 $ 2,200,000 Estimated costs to complete as of year-end 5,600,000 2,000,000 0 Billings during the year 2,000,000 4,000,000 4,000,000 Cash collections during the year 1,800,000 3,600,000 4,600,000 Assume that Westgate Construction’s contract with Santa...
In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa...
In 2021, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2023. Information related to the contract is as follows: 2021 2022 2023 Cost incurred during the year $ 2,490,000 $ 3,984,000 $ 2,008,600 Estimated costs to complete as of year-end 5,810,000 1,826,000 0 Billings during the year 2,030,000 4,444,000 3,526,000 Cash collections during the year 1,815,000 3,900,000 4,285,000 Westgate recognizes revenue over time according to...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT