Under what circumstances should a company with high rate of return on sales consider the inventory sold?
A) When the retailer gives a confirmation that the goods won't be returned
B) When the goods are sold on installment
C) When it can reasonably estimate the amount of returns
D) When the payment for goods is received

Question

Quizplus · Accepted Answer

A company should consider the inventory sold when it can reasonably estimate the amount of returns, especially if it has a high rate of return on sales. This estimation will allow the company to adjust their financial statements for the cost of returns and to have a more accurate picture of their true profitability. The other options, like retailer confirmation or payment for goods received, may indicate a transaction has occurred, but they do not necessarily address the issue of returns.

Under What Circumstances Should a Company with High Rate of Return