Dusky Designs makes and sells custom jewellery and accessories to retail stores throughout Canada. On April 6, 2024, Dusky entered into a contract with Tara’s Boutique to supply 50 custom bracelets at a price of $85 each to be paid on June 30, 2024. The bracelets cost Dusky $25 to make and they were delivered to Tara’s on June 1, 2024, FOB destination, n/30. Dusky Designs is a relatively new business and in order to promote the brand and encourage retailers to purchase goods, the company has a return policy that states that any unsold jewellery can be returned within 30 days of delivery for a full refund. Dusky estimates that 10% of the bracelets will be returned. Tara’s returns five bracelets on June 20, 2024, and pays the remaining amount owing on June 30, 2024. 

Instructions 

a. When is Dusky’s performance complete? When do the risks and rewards of ownership of the bracelets transfer to Tara’s Boutique? 

b. Can this transaction be measured reliably? If so, how much is the potential revenue? 

c. Is it probable that there will be an increase in economic resources to Dusky? 

d. Are the costs associated with the sale known? If so, how much are the costs? 

e. What is the critical event that triggers revenue recognition? 

f. Prepare all journal entries required by Dusky to record the transactions with Tara’s Boutique. 

If returns cannot be estimated, are the revenue recognition criteria met? Explain.