On September 1,2018,Electric Depot sold 100 laptop computers at $750 each with a 120-day unconditional right of return.Customers have 90 days to pay.Based on past experience,Electric Depot estimates that approximately 1% will be returned.Which of the following is TRUE regarding Electric Depot's December 31,2018 financial statements?

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Quizplus · Accepted Answer

Under the revenue recognition principle, revenue can be recognized when it is earned and reasonably certain to be collected. In this case, Electric Depot can recognize the revenue from the sale of 100 laptop computers, which is $75,000 ($750 x 100), in September 2018 when the sale was made. However, because there is an unconditional right of return, Electric Depot must estimate the number of units that will be returned and establish a provision for refund liability. Based on past experience, 1% of the units are estimated to be returned, which is one unit. Therefore, Electric Depot should recognize sales revenue of $74,250 ($75,000 - $750) and establish a provision for refund liability of $750 in September 2018.

On September 1,2018,Electric Depot Sold 100 Laptop Computers at $750