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A. Potential Accounting Issues
1. On KTSB’s sale to Ramesses, they need to consider that Ramesses II is
allowed to return any unsold product within 90 days of purchase. They will
need to estimate variable consideration or fully recognize revenue when
the return period expires.
2. KTSB created a coupon giving customers $100 off with a 90-day expiration
date and will reimburse Ramesses II for any coupons used in their store.
KTSB will need to consider the transaction price change and record
liabilities to Ramesses II.
3. Since Ramesses II will sell KTSB gift cards at their store for a 3%
commission, KTSB will need to make sure they defer revenue from sold
gift cards until the performance obligation is met and record commission
expense from Ramesses II’s 3% commission.
4. Ramesses II will accept warranty claims within the first year of sale to its
customers and will provide refunds or exchanges. KTSB will reimburse
Ramesses II for any refunds, exchanges, and shipping costs. KTSB needs
to consider a warranty liability for future estimated claims within that year.
B. Memo to KTSB Management
KTSB has made a mutual agreement with Ramesses II for the purchase of
300 Model E computers for them to sell in their stores. The purchase order was
made on July 16 and will be shipped on August 23 with net 90-day payment
terms. The legal title is transferred to Ramesses II on the delivery date. The
terms of this agreement are that Ramesses II may return any unsold computers
within 90 days, but is not allowed to discount the computers to its customers.
KTSB also issued coupons for $100 off Model E purchases that are valid for 90
days. If coupons are used at Ramesses II stores, KTSB will reimburse them for
any coupons used. Ramesses II has also agreed to sell KTSB gift cards at their
kiosks with a 3% commission for any gift cards sold. Lastly, Ramesses II will
allow warranty claims at their store within the first year of purchase and will offer
refunds and exchanges. KTSB will reimburse Ramesses II for any refunds,
exchanges, and shipping costs.
One accounting issue that arises is the variable consideration of any
potential refunds that will be made to Ramesses for any unsold computers. The
This study source was downloaded by 1827175 from cliffsnotes.com on 01-08-2026 17:36:56 GMT -06:00
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A. Potential Accounting Issues
1. On KTSB’s sale to Ramesses, they need to consider that Ramesses II is
allowed to return any unsold product within 90 days of purchase. They will
need to estimate variable consideration or fully recognize revenue when
the return period expires.
2. KTSB created a coupon giving customers $100 off with a 90-day expiration
date and will reimburse Ramesses II for any coupons used in their store.
KTSB will need to consider the transaction price change and record
liabilities to Ramesses II.
3. Since Ramesses II will sell KTSB gift cards at their store for a 3%
commission, KTSB will need to make sure they defer revenue from sold
gift cards until the performance obligation is met and record commission
expense from Ramesses II’s 3% commission.
4. Ramesses II will accept warranty claims within the first year of sale to its
customers and will provide refunds or exchanges. KTSB will reimburse
Ramesses II for any refunds, exchanges, and shipping costs. KTSB needs
to consider a warranty liability for future estimated claims within that year.
B. Memo to KTSB Management
KTSB has made a mutual agreement with Ramesses II for the purchase of
300 Model E computers for them to sell in their stores. The purchase order was
made on July 16 and will be shipped on August 23 with net 90-day payment
terms. The legal title is transferred to Ramesses II on the delivery date. The
terms of this agreement are that Ramesses II may return any unsold computers
within 90 days, but is not allowed to discount the computers to its customers.
KTSB also issued coupons for $100 off Model E purchases that are valid for 90
days. If coupons are used at Ramesses II stores, KTSB will reimburse them for
any coupons used. Ramesses II has also agreed to sell KTSB gift cards at their
kiosks with a 3% commission for any gift cards sold. Lastly, Ramesses II will
allow warranty claims at their store within the first year of purchase and will offer
refunds and exchanges. KTSB will reimburse Ramesses II for any refunds,
exchanges, and shipping costs.
One accounting issue that arises is the variable consideration of any
potential refunds that will be made to Ramesses for any unsold computers. The
This study source was downloaded by 1827175 from cliffsnotes.com on 01-08-2026 17:36:56 GMT -06:00
*@*^%^#!*&^*&^!()(@*&$*@10/23/2026,
*@*^%^#!*&^*&^!()(@*&$*@10/23/2026,
4:03:13 AM1
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of 3Page 1D252
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