In which of the following cases, under GAAP, will a company usually not be able to recognize revenues at the time of shipment?
A) The customer has the right to return products. In the past, product returns have ranged from 5% to 7% of sales.
B) The customer has bought on credit. In the past, bad debts have ranged from 3% to 5% of sales.
C) The customer has bought on credit and has the right to return the goods for up to one year. This is a new market for the company.
D) The customer has bought on credit, and has one year to pay. In the past, 93% of customers have in fact paid.

Question

Quizplus · Accepted Answer

Under GAAP, revenue recognition at the time of shipment becomes uncertain if the sale involves significant rights of return, especially in a new market where the company cannot reliably estimate returns. Choices A, B, and D involve situations where historical data can help estimate returns or bad debts, allowing for revenue recognition with adjustments for estimated returns or bad debts.

In Which of the Following Cases, Under GAAP, Will a Company