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 gross profit associated with one of these sales?

Question

Quizplus · Accepted Answer

If returns cannot be estimated, revenue should be deferred until it can or until the return right expires. In this case, the return right is for a three-year period, so gross profit should be deferred until this period has passed. Therefore, the longest period of time that Gunk may have to wait before recognizing gross profit associated with one of these sales is three years.

Gunk Goblin Sells Vacuums and Just Launched a Policy Where