On December 1,2018,SuperTech sold 100 locks for laptop computers at $50 each with a 90-day unconditional right of return.Since this is a new product for SuperTech,it has no past history regarding estimated returns.Which of the following is TRUE regarding SuperTech's December 31,2018 financial statements?
A)Sales of $5,000 should only be recognized in 2019 when the return privilege expires.
B)Sales of $5,000 should be recognized in 2018 as long as there is a reserve for returns.
C)Sales of $5,000 should be recognized in 2018,with future costs accrued as an estimated liability.
D)Sales should only be recognized as the related cash is collected.

Question

Quizplus · Accepted Answer

A)The right of return means that the revenue to be recognized is variable in nature.Given the uncertainty,revenue cannot be recognized until the amount of variable consideration is known which is when the right of return expires.

On December 1,2018,SuperTech Sold 100 Locks for Laptop Computers at $50