Reference no: EM132936062

Mixer Up (MU) manufactures cordless mixers for use in the kitchens of consumers. MU sells to retailers, which sell the mixers to the ultimate consumer. One of MU's retail customers is Kitchen Hardware (KH).

On January 1, MU sells to and receives payment from KH for 100 cordless mixers with a one-year warranty for $50 each. The mixers are delivered by MU to KH upon receipt of payment and the warranty is initiated at that time as well by MU. This warranty provides for a replacement of the mixer if the mixer fails to work properly within one year of the date of purchase. MU also sells its mixers with no warranty for $40 per unit. The cost to manufacture each mixer is $32.

MU also provides its retail customers with sales incentives in the form of volume discounts on purchases of mixers with warranties, with the discount paid in cash at the end of each calendar year. The agreement between MU and KH provides for the following volume discounts. Additionally, the probability of purchases for each volume level as estimated by MU is provided below based on historical experience and forecasted sales.

Number of mixers purchased              Discount                 Probability

Less than 1,000                                 0.00%                35.00%

1,000 through 1,999                            3.75%             40.00%

2,000 or more                                   10.00%               25.00%

The discounts are retroactive. If 2,000 mixers are purchased during the year, a discount of 10% will be applied to all 2,000 mixers.

Problem 1: Prepare a detailed explanation of each of the five steps for revenue recognition. Record all initial accounting entries for MU for the month of January based on guidance on revenue recognition in ASC 606. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries.