Employees at your company disagree about the accounting for sales returns. The sales manager believes that granting more generous return provisions can give the company a competitive edge and increase sales revenue. The controller cautions that, depending on the terms granted, loose return provisions might lead to non-GAAP revenue recognition. The company CFO would like you to research the issue to provide an authoritative answer.
Instructions
If your school has a subscription to the FASB Codification, go to aaa.hq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.
(a) What is the authoritative literature addressing 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?