Reference no: EM132693878

On April 2, 2021, Blossom 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 $50,000 and the medication cost Blossom Company $26,000. Blossom has a stated return policy that goods may be returned within 30 days. The medication was shipped on April 10, 2021. Blossom'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. Blossom Company uses the contract-based approach for revenue recognition.

Problem 1: Assume Laxall Drug Stores returns 5% of the medication purchased within the return period. Will this affect the amount of revenue that Blossom Company recognizes?