Question

On February 1, 2020, Pronghorn Ltd. began selling electric scooters that it purchased exclusively from Ionone Motors Inc. Ionone Motors offers volume rebates based on the volume of annual sales to its customers and calculates and pays the rebates at its fiscal year end, December 31. Pronghorn has a September fiscal year end and uses a perpetual inventory system. The rebate offer that Pronghorn received is for a $75 rebate on each scooter that is purchased in excess of 150 units in the calendar year, ending December 31. An additional rebate of $30 is given for all units purchased in excess of 175 units in the same year. By September 30, 2020, Pronghorn had purchased 190 units from Ionone Motors and had sold all but 35. Although it only made its first purchase on February 1, 2020, Pronghorn expects to purchase a total of 260 electric scooters from Ionone Motors by December 31, 2020. Before arriving at the estimate of 260 electric scooters, Pronghorn’s management looked carefully at trends in purchases by its competitors and the strong market for sales of electric scooters in the coming months; sales are especially strong among environmentally conscious customers in suburban areas. Management is very confident the 260 electric scooters will be purchased by December 31, 2020. Assuming that Pronghorn follows the reporting requirements under ASPE, answer the following questions.

Calculate the amount of any accrued rebate to be recorded by Pronghorn at September 30, 2020, assuming that the rebate is not discretionary and that management has a high degree of confidence in its estimate of the amount of purchases that will occur by December 31, 2020. (Round per unit rate to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 5,275.) Accrued rebate $

Answer 1

Solution of the above problem is as under:

Calculation of Accrued Rebate recorded by Pronghorn at September 30, 2020
Particulars	Amount (in $)
Total No of Electric Scooters purchased as at Sept 30,2020	190
Average Rebate per Electric Scooter	41.54
Amount of Accrued Rebate Recorded	7893

Calculation of Average Rebate per Electric Scooter recorded by Pronghorn
Particulars	Rebate (in $)
$ 75 per unit in excess of 150 units till 175	1875
$ 105 per unit in excess of 175	8925
Total Rebate	10800
Estimated Total Volume Pronghorn expected to purchase by the end of Dec 31 2020	260
Average Rebate per Electric Scooter ($10800/260 Units)	41.54

Question Background

Ionone Motors Volume Discount
Electric Scooters (Units)	Rebate (in $)
0-150	0
151-175	75
176-260	105