On December 1, 2012, 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, 2012 financial statements?
A)Sales of $5,000 should only be recognized in 2013 when the return privilege expires.
B)Sales of $5,000 should be recognized in 2012 as long as there is a reserve for returns.
C)Sales of $5,000 should be recognized in 2012, with future costs accrued as an estimated liability.
D)Sales should only be recognized as the related cash is collected.

Question

Quizplus · Accepted Answer

Since SuperTech has no past history to estimate returns, it cannot reasonably estimate the amount of returns. Therefore, revenue recognition should be deferred until the return privilege expires.

On December 1, 2012, SuperTech Sold 100 Locks for Laptop