Revenue Recognition where right of return exists
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Uddin Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer's expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 12%, and the average collection period is 72 days.
a. In late July, Uddin shipped books invoiced at $15,229,100. Prepare the journal entries to record this event that best conforms to generally accepted accounting principles.
b. In October, $2,108,700 of the invoiced July sales were returned according to the return policy, and the remaining $13,120,400 was paid. Prepare the entries recording the return and payment.
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The solution explains the journal entries under revenue recognition where right of return exists
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SFAS No. 48, "Revenue Recognition When Right of Return Exists," deals with such a situation. If the returns can be reasonably estimated, then we recognize the revenue at the time of ...
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