Asked by Big Citric's World on Jul 03, 2024
Verified
GAAP specifies that for a seller to record revenue at time of sale when right of return exists the following conditions must be met except:
A) The seller's price to the buyer is substantially fixed or determinable at the date of sale.
B) The buyer has paid the seller,or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.
C) The buyer's obligation to the seller does not change in the event of theft or physical destruction or damage of the product.
D) The buyer is a special purpose entity established by the seller for the sole purpose of buying and reselling the seller's product.
Right Of Return
A policy that allows customers to return purchased goods under specified conditions.
Special Purpose Entity
A legal entity created for a specific objective, often to isolate financial risk or for securitization purposes.
- Determine the criteria necessary for acknowledging revenue when a right of return exists.
Verified Answer
RB
Rakesh BhagwanJul 06, 2024
Final Answer :
D
Explanation :
The other three conditions listed (fixed or determinable price, payment obligation, and non-changeable obligation) are all required for revenue recognition even when a right of return exists. The exception is when the buyer is a special purpose entity established solely to buy and resell the seller's product, in which case the seller may recognize revenue at the time of sale regardless of the right of return.
Learning Objectives
- Determine the criteria necessary for acknowledging revenue when a right of return exists.