Organic Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant five of its largest customers the unconditional right to return these products if not fully satisfied. The right of return extends for four months. Organic Growth sells these seeds on account for $1,500,000 (cost $800,000) on April 2, 2017. Customers are required to pay the full amount due by June 15, 2017. The company follows IFRS.
Instructions
(a) Prepare the journal entry for Organic Growth at January 2, 2017, assuming Organic Growth estimates returns of 20% based on prior experience.
(b) Assume that one customer returns the seeds on March 1, 2017. Prepare the journal entry to record this transaction, assuming this customer purchased $100,000 of seeds from Organic Growth.
(c) Briefly describe the accounting for these sales if Organic Growth is unable to reliably estimate returns.