Revenue recognition
Mixer Up
Part I:
Background
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 paid at the end of an annual period. 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 based on historical experience and forecasted sales.
Number of mixers purchased
Discount
Probability
Less than 1,000
0%
40%
1,000 through 1,999
5%
40%
10%
20%
2,000 or more
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.
Requirements
► Review ASC 605-10-25, ASC 605-20-25 and ASC 605-50-25. Record all initial accounting entries for
MU for the month of January based on the current guidance on revenue recognition in ASC 605.
Include references to the guidance to support your proposed accounting. Show any calculations you
make to support your journal entries.
► Review ASC 606-10-05-04, ASC 606-10-25, ASC 606-10-32-2 through 12, 25 through 31 and
ASC 606-10-55-30 through 35. 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 the new
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.
► What, if anything, is the difference in revenue recognized for the month of January under ASC 605 and
ASC 606?