In conducting year-end inventory counts, your audit team is debating the impact of the client's right of return policy both on inventory valuation and revenue recognition. The assistant controller argues that there is no need to worry about the return policies since they have not changed in a while. The audit senior wants a more authoritative answer, given the recently issued standard on revenue recognition. You have been asked to conduct some research of the authoritative literature before she presses the point with the client. Instructions If your school has a subscription to the FASB Codification, log in and prepare responses to the following. Provide Codification references for your responses. a. What is the authoritative guidance for revenue recognition when right of return exists? b. When is this guidance important for a company? That is, for which of steps in the five-step revenue recognition model does right of return come into play? c. Does the FASB literature provide an example of the accounting for right of return? If so, summarize the example. d. What are the general guidelines for constraining estimates of the transaction price (variable consideration)?
In conducting year-end inventory counts, your audit team is debating the impact of the client's right of return policy both on
Instructions
If your school has a subscription to the FASB Codification, log in and prepare responses to the following. Provide Codification references for your responses.
a. What is the authoritative guidance for revenue recognition when right of return exists?
b. When is this guidance important for a company? That is, for which of steps in the five-step revenue recognition model does right of return come into play?
c. Does the FASB literature provide an example of the accounting for right of return? If so, summarize the example.
d. What are the general guidelines for constraining estimates of the transaction price (variable consideration)?
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