On September 1, 2012, 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, 2012 financial statements?

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Under the accrual accounting method, revenue should be recognized when it is earned, regardless of when the cash is received. In this case, Electric Depot earned the revenue of $75,000 when it sold the laptops in September 2012. However, due to the unconditional right of return, the company needs to make an estimate of the expected returns and create a reserve for returns. Therefore, the sales of $75,000 should be recognized in September with a reserve for returns of $750 (1% of $75,000). This will ensure that the financial statements reflect the true economic reality of the transaction.

On September 1, 2012, Electric Depot Sold 100 Laptop Computers