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Revenue Recognition where right of return exists

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.

Solution Preview

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 ...

Solution Summary

The solution explains the journal entries under revenue recognition where right of return exists

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