A retailer sells a product for $100 and offers a $10 mail-in rebate. Based on history, 40% of customers mail in the rebate. What is the transaction price for this sale?

Answer options:

$100

$96

$90

$94

How to approach this question

Variable Consideration (Rebates): Estimate the amount expected to be returned to the customer and reduce the transaction price. $10 rebate * 40% probability = $4 expected reduction. Price = $96.

Full Answer

B.$96✓ Correct

The transaction price should include an estimate of variable consideration. Expected rebate liability = $10 × 40% = $4. Transaction Price = $100 - $4 = $96.

Common mistakes

Ignoring the probability (using $90). Ignoring the rebate (using $100).

Question 40 All questions Question 42

Practice the full CPA FAR Practice Exam 3

50 questions · hints · full answers · grading

More questions from this exam

Q01Dunn Corp. is preparing its Year 1 balance sheet. The following issues were identified during the...Hard Q02On October 1, Year 1, Host Co. approved a plan to dispose of a component of its business. The dis...Hard Q03Selected financial information for Zeno Corp. for the year ended December 31, Year 1: - Cost ...Medium Q04Parch Co. owns 80% of Scribe Inc. During Year 1, Parch sold inventory to Scribe for $500,000. The...Hard Q05A company had the following equity transactions in Year 1: - Jan 1: 100,000 shares outstandin...Hard

View all 50 questions →