Reference no: EM133106748
Questions -
Q1) On March 10, 2020, Oriole Company sold to Barr Hardware 220 tool sets at a price of $52 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Oriole allows Barr to return any unused tool sets within 60 days of purchase. Oriole estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2020, Barr returned 6 tool sets and received a credit to its account.
a) Prepare journal entries for Oriole to record (1) the sale on March 10, 2020, (2) the return on March 25, 2020, and (3) any adjusting entries required on March 31, 2020 (when Oriole prepares financial statements). Oriole believes the original estimate of returns is correct.
b) Indicate the income statement and balance sheet reporting by Oriole at March 31, 2020, of the information related to the Barr sales transaction.
Q2) Jeff Heun, president of Windsor Always, agrees to construct a concrete cart path at Dakota Golf Club. Windsor Always enters into a contract with Dakota to construct the path for $195,000. In addition, as part of the contract, a performance bonus of $46,800 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $11,700 per week for every week beyond the agreed-upon completion date. Jeff has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. Jeff estimates, given the constraints of his schedule related to other jobs, that there is 60% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 10% probability that he will be 2 weeks late.
a) Determine the transaction price that Windsor Always should compute for this agreement.
b) Assume that Jeff Heun has reviewed his work schedule and decided that it makes sense to complete this project on time. Assuming that he now believes that the probability for completing the project on time is 88% and otherwise it will be finished 1 week late, determine the transaction price.