Employees at your company disagree about the accounting for returns. The sales manager believes that granting more generous returns provisions can give the company a competitive edge and increase sales revenue. The controller cautions that, depending on the terms granted, loose returns provisions might lead to non-GAAP recording of revenue. The company CFO would like you to research the issue to provide an authoritative answer.

Instructions
Using the Financial Accounting Research System (FARS) database, respond to the following items. (Provide text strings used in your search.)
(a) Which statement addresses revenue recognition when right of return exists?
(b) What is meant by “right of return”?
(c) When there is a right of return, what conditions must the company meet to recognize the revenue at the time of sale?
(d) What factors may impair the ability to make a reasonable estimate of future returns?