A policy providing a reserve for returned products at the original sales price rather than at replacement cost violates GAAP.

Question

Quizplus · Accepted Answer

According to GAAP, reserves for returned products should be measured at the estimated cost to obtain the inventory or the current replacement cost, whichever is lower. Valuing the reserve at the original sales price would overstate inventory and violate GAAP.

A Policy Providing a Reserve for Returned Products at the Original