Question

Because retail establishments were skeptical about the market appeal of the product, McLaughlin sold the product with a declining unconditional right of return for up to ten months, with 10% of the right-of-return amount of the purchase expiring every month for ten months. Thus, after the retailer had the product for one month, only 90% could be returned. After two months, only 80% could be returned, and after ten months, the right of return was fully expired. Assume that all the values provided for "returns" in the question data meet the terms set for right of return by McLaughlin.

McLaughlin had no basis for estimating the amount of returns. Consistent with the terms McLaughlin offered its customers, all retailers paid cash when purchasing the clip-on-eyeglass wipers but received cash refunds if goods were returned. McLaughlin had its first sales of the product in September 20X5. Sales for the remainder of the year, and returns prior to 31 December 20X5, were as follows:

Month of Sale	Units Sold		Sales Price			Monthly Sales			Units Returned
September	11,500		$	10		$	115,000		2,900
October	13,500			10			135,000		1,000
November	16,500			12			198,000		1,000
December	12,000			12			144,000		0
Totals	53,500					$	592,000		4,900

Each unit of product costs McLaughlin $6 to produce.

Required:

-a. Compute the amount that McLaughlin can record as (realized) sales for 20X5. How much is gross margin? Record the revenue recognition entry.
Realized Sales :

Realized gross margin:

Answer 1

Month of Sale	Units Sold	Product Cost ($)	Total Cost ($)	Sales Price			Monthly Sales			Units Returned	Product Cost ($)	Total Cost ($)
September	11,500	6	69000	$	10		$	115,000		2,900	6	17,400
October	13,500	6	81000		10			135,000		1,000	6	6,000
November	16,500	6	99000		12			198,000		1,000	6	6,000
December	12,000	6	72000		12			144,000		0	6	0
Totals	53,500	6	321000				$	592,000		4,900	6	29,400
			642000					1184000				58800
			Total Sales	1184000
			Less: Sales returns	58800
			Sales Realized	1125200
			Production Cost	642000
			Gross Margin	483200
			in Percentage	42.94