On August 1, 2024, Pennant Uniforms Ltd. entered into a contract with Branch Health Clinic to provide
Question:
On August 1, 2024, Pennant Uniforms Ltd. entered into a contract with Branch Health Clinic to provide 300 medical uniforms, terms 2/20, n/45, FOB shipping point. The uniforms sell for $80 each and cost Pennant Uniforms $35 each. Pennant’s stated return policy is 20 days from the date of sale. The uniforms were shipped on September 15, 2024. Pennant’s management uses the contract-based approach for revenue recognition and the expected value method to estimate variable consideration. The following information has been provided by Pennant’s management:
1. Returns are 5% of sales 70% of the time and 15% of sales 30% of the time.
2. Branch Health Clinic pays within the discount period 70% of the time.
Instructions
a. Identify the variable consideration in the contract.
b. Calculate the transaction price for this contract. Round all amounts to the nearest dollar.
Step by Step Answer:
Accounting Principles Volume 2
ISBN: 9781119786634
9th Canadian Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak