A) Healthy Farms Company is testing a number of new agricultural seeds which it they have recently harvested. To generate interest, the company 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 4 months. Healthy Farms sells these seeds on account for $1.5 million on April 2, 2020. The cost of these seeds were $800,000.Customers are required to pay the full amount due by June 15, 2020. In addition, Healthy Farms is a public company and as a result follows IFRS.

Question

1.Prepare the journal entry for Healthy Farms at April 2, 2020, assuming Healthy Farms estimates returns of 20% based on prior experience.

2.Assume that one customer returns the seeds on July 1, 2020. Prepare the journal entry to record this transaction, assuming this customer purchased $100,000 of seeds from Healthy Farms.

B) Red Fish Corporation shipped $20,000 of merchandise on consignment to Blue Fish Corporation. Red Fish paid freight costs of $2,000. Blue Fish paid $500 for local advertising, which is reimbursable from Red Fish. By year end, 60% of the merchandise had been sold for $21,500. Blue Fish notified Red Fish, retained a 10% commission, and remitted the cash due to Red Fish.

Question

1.Prepare Red Fish's journal entry when cash is received.

C) Gigabit Inc., a software company sells new accounting software and user support bundled together. The fair value of the software is $1,500 and the fair value of the user support is $500. The user support is valid for a period of 12 months from the date of software purchase. To be able to compete with a competitor's offering, Gigabit decided to sell the bundle at a discount for $1,800.

During its first month of sales, 100 units of this software bundle were sold at the discounted price, and expenses were $50,000.

Questions

1.Calculate the sale price that should be allocated to each component of the bundle using the adjusted market assessment approach.

2.Calculate the sale price that should be allocated to each component of the bundle using the residual approach.

3.Assuming that the relative fair value method is used and income tax rate is 30%, calculate the net income applicable to Gigabit's first month of sales.

D) Frigid Temperatures Inc.has sold 1,000 refrigerators during 2020 at a total price of $ 1,620,000, with a warranty guarantee that the product was free from any defects. The cost of the refrigeratetorssold was $1,080,000. The warranty covers one year, with an estimated cost of $ 10,000. In addition,Frigid Temperatures Inc.sold extended warranties on 600 refrigerators for four years beyond the one-year period for $ 210,000.

Question

1.Prepare the journal entries to record the sale and related warranties for 2020.