Question
On Jan 1, 2019, XYZ Co. sells 100 products for $60 each to Customer Inc. on credit. XYZ estimates that 10% of the products sold
On Jan 1, 2019, XYZ Co. sells 100 products for $60 each to Customer Inc. on credit. XYZ estimates that 10% of the products sold will be returned. If returned, the product can be resold at a profit. The product costs $25/unit.
On Jan 15, 2019, Customer Inc. returns 6 products.
On Jan 30, 2019, Customer Inc. pays their balance owing.
XYZ Co. reports under IFRS (using IFRS 15).
Required: (a) Prepare the journal entries for XYZ on the dates given above.
(b) What is the Jan 2019 gross profit as a result of the above?
(c) Show the impact of the Jan 1, 2019 transactions on the balance sheet (accounts and amount of change, including affect on retained earnings).
(d) Assume instead that returned product cannot be resold ($0 cost to dispose).
(i) How would Jan 2019 income change from (b)?
(ii) How would the Jan 1, 2019 balance sheet change from (c)?
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