Soorya Manufacturing Makes Educational Toys That Are Sold to Retailers

Soorya Manufacturing makes educational toys that are sold to retailers on the following terms: Each type of toy has a fixed wholesale price, is shipped F.O.B. shipping point, and payment is due 45 days after the shipment. The retailer may return a maximum of 45% of an order at the retailer's expense up to 6 months after delivery. Sales are made only to retailers that have a good credit rating. In Soorya's 11 years of existence, the company has experienced a return rate of approximately 15%, a bad debt expense of 5% of sales and an average collection period of 90 days. Soorya provides a bonus to its senior managers based on annual revenues, net of returns.
Required:
a. Identify three different revenue recognition points that Soorya could use to record revenue.
b. What revenue recognition criteria should Soorya use to determine when revenue should be recorded?
c. Discuss the pros and cons for 2 alternative recognition points mentioned in point (a). Remember to support your reasoning with case facts.
d. Recommend the recognition point that Soorya should use in its financial statements.