Gunk Goblin sells vacuums and just launched a policy where customers have the right to return a vacuum during a three-year period following purchase. Gunk management has no experience under this sort of policy and does not believe it can accurately estimate returns. What is the longest period of time that Gunk may have to wait before recognizing revenue associated with one of these sales?
A) No time delay, recognize revenue upon delivery.
B) Gunk should recognize revenue as cash is received.
C) Gunk should defer revenue recognition until costs are recovered.
D) Three years, after the right of return has expired.

Question

Quizplus · Accepted Answer

If returns can't be estimated, the constraint on recognizing variable consideration applies, and revenue should be deferred until returns can be estimated or until the return of right expires.

Gunk Goblin Sells Vacuums and Just Launched a Policy Where