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revenue recognition

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If you should examine the proper recognition of revenue in different situations. For instance:
In 1981, Statement of Financial Accounting Standard (SFAS) No. 48 standardized revenue recognition, when the right of return exists. Prior to this, AICPA Statement of Position (SOP) 75-1 provided guidance, but was not mandatory. As a result, three methods were widely used to account for the following transactions:

(1)No sale recognized until the product was unconditionally accepted
(2)Sale recognized along with an allowance for estimated revenue
(3)Sale recognized with no allowance for estimated returns

SFAS No.48 mandated revenue recognition for sales subject to six conditions:

(1)Price is substantially fixed or determinable at sale.
(2)Buyer has paid or is obligated to pay the seller.
(3)Buyer's obligation would not be changed in the event of theft or physical damage to the product.
(4)Buyer acquiring the product for resale has economic substance apart from the seller.
(5)Seller has no significant obligations to bring about resale by the buyer.
(6)Future returns can be reasonably estimated.

REQUIRED:
(1)Described the underlying conceptual issues concerning revenue recognition when the right of return exists.
(2)Provided an analysis for or against the pre-SFAS No. 48 methods.
(3)Described the rationale for each of the SFAS No. 48 tests before revenue is recognized.
(4)Identified whether SFAS No. 48 is an example of finite uniformity or of circumstantial variables.
(5)Identified the role of future events in SFAS No. 48.

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Financial/Accounting
If you should examine the proper recognition of revenue in different situations.For instance:
In 1981, Statement of Financial Accounting Standard (SFAS) No. 48 standardized revenue recognition, when the right of return exists. Prior to this, AICPA Statement of Position (SOP) 75-1 provided guidance, but was not mandatory. As a result, three methods were widely used to account for the following transactions:

(1)No sale recognized until the product was unconditionally accepted
(2)Sale recognized along with an allowance for estimated revenue
(3)Sale recognized with no allowance for estimated returns

SFAS No.48 mandated revenue recognition for sales subject to six conditions:

(1)Price is substantially fixed or determinable at sale.
(2)Buyer has paid or is obligated to pay the seller.
(3)Buyer's obligation would not be changed in the event of theft or physical damage to the product.
(4)Buyer acquiring the product for resale has economic substance apart from the seller.
(5)Seller has no significant obligations to bring about resale by the buyer.
(6)Future returns can be reasonably estimated.

REQUIRED:
(1)Described the underlying conceptual issues concerning revenue recognition when the right of return exists
The underlying issues concerning revenue recognition are that revenues are recognized only when they are realizable or earned even though cash may not be received. When right of return exists, the goods may be returned ...

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This answer provides you an excellent discussion on revenue recognition

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Similar Posting

Revenue recognition: Identify the point of revenue recognition the five listed situations.

See attached problem

1. Identify point of revenue recognition.

The following independent situations require professional judgment for determining when to recognize revenue from the transactions.

Southwest Airlines sells you an advance-purchase airline ticket in September for your flight home at Christmas.

Ultimate Electronics sells you a home theatre on a "no money down, no interest, and no payments for one year" promotional deal.

The Toronto Blue Jays sell season tickets online to games in the Skydome. Fans can purchase the tickets at any time, although the season doesn't officially begin until April. The major League baseball season runs from April through October.

You borrow money in August from RBC Financial Group. The loan and the interest are repayable in full in November.

In August, you order a sweater from Sears using its online catalog. The sweater arrives in September, and you charge it to your Sears credit card. You receive and pay the Sears bill in October.

Instructions:

Identify when revenue should be recognized in each of the above situations.

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