A retailer sells vacuum cleaners to customers at $100,000 and provides a coupon for a 60% discount off their next pu

purchase date. The retailer estimates that 80% of the customers will exercise the option for the purchase of, on averag
Required: Prepare journal entry at the date of sale of the vacuum cleaner.

1. At the date of sale of the vacuum cleaner

Dr Cash 100,000
Cr Revenue 85,600
Cr Unearned Revenue 14,400
2. Customers use coupon
Dr Unearned Revenue 14,400
Cr Revenue 14,400
scount off their next purchase. The coupon expires 3 months after the
purchase of, on average, $30,000 of discounted additional products.

($30.000 x60% x 80%)

Exercise 11.7 – Sale return
Cell phone manufacturers sells 300 new model of handsets to a retail chain store at $100 each. Cost of manufacturing
months with full refund. Manufacturer uses expected value method and estimates.
40% 8 mobiles return
45% 9 mobiles return
15% 18 mobiles
Cost of recovering the returned handsets is $80. The unsold handsets, would then be exported and sold to second-tier
Required: Accounting for above information (For the manufacturer)

a) At the time of sale, Cell phone manufacturers should recognise the following:
- Revenue = (Total handsets sold – expected returns) × Selling price
= (300 – 10) × $100 = $29,000
(*Expected returns = 8*40% + 9*45% + 18*15% ≈ 10)
- Cost of sales = (300 – 10) × $60 = $17,400
- Asset for anticipated return = Cost of handsets x expected return
= $60 × 10 = $600
Liability for customer refund = Selling price of handsets x expected return
= $100 × 10 = $1,000
b) Accounting entries
At the time the sale occurs:
Dr. Cash $30,000
Cr. Revenue $30,000
Dr. COGS $18,000
Cr. Inventory $18,000
On return of the products:
Dr. Liability - Customer refund $1,000
Dr. Recovering Expense $80
Cr. Cash $1,080
Dr. Inventory $600
Cr. Asset for anticipated return $600
At the time, the sale of 10 cell phone returned:
Dr. Cash $200 ($20*10)
Cr. Revenue $200
Dr. COGS $680 ($60*10 + $80)
Cr. Inventory $600 ($60*10)
Cr. Recovering Expense $80
Dr. Loss on sale $400 [($60-$20)*10]
Cr. Inventory $400
Cost of manufacturing is $60 each. Manufacturer allows the retail chain to return any unsold products in 6

and sold to second-tier markets, at a discounted price of $20 each. (at a loss of $40 each)