Consider the following unrelated situations:
1. Book of the Week Limited sends books out to potential customers on a trial basis. If the customers do not like the books, they can return them at no cost.
2. Sea Clothing Company Inc. has a return policy that allows customers to return merchandise in good order for a full refund within 30 days of purchase.
3. Shivani Inc. sells machinery to manufacturers. Customers have the right to inspect the equipment upon delivery and may return it if certain customer-specific requirements for size and weight are not met.
(a) Explain the implications of customer acceptance provisions for revenue transactions.
(b) Indicate the point at which these transactions may be recognized as sales under the earnings approach.
(c) Using the information provided in scenario 2, assume Sea Clothing Company Inc. advertises that "customer satisfaction is guaranteed," and assume the role of a customer of Sea Clothing Company Inc. Has the company's advertised statement created an expectation that returns will be accepted at any time, perhaps even beyond the 30-day refund period? Discuss the implications of this expectation on Sea Clothing Company's books, if any.

  • CreatedSeptember 18, 2015
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