Determine how much revenue Cool-IT would able to recognize

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Reference no: EM133131037

Question - Cool-IT Ltd. manufactures and sells air conditioning equipment to retailers across North America. In 2020, Cool-IT signed a two-year contract with BigMart Ltd. to supply it with 63,300 units at a price of $78 per unit. Cool-IT'S cost to manufacture these units is $51. The following schedule summarizes the production, delivery, and payments in relation to the contract. Production costs are recorded to inventory:

 

2020

2021

Total

Air conditioning units delivered

41,500

21,800

63,300

Production costs incurred

$2,116,500

$1,111,800

$3,228,300

Cash payments received

$2,780,000

$1,868,400

$4,648,400

Required -

1. Determine how much revenue Cool-IT would be able to recognize in 2020 and 2021.

2. Prepare the required summary journal entries for the contract based on your analysis in part a.

3. How would your answer to part a change if Cool-IT allowed BigMart to return any air conditioners that were returned by its customers as defective? Based on past experience, Cool-It's management estimated a return rate of 2% and that the air conditioners being returned would need to be scrapped.

Reference no: EM133131037

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