26 Jun IDENTIFY ALTERNATIVE REVENUE RECOGNITION TESTS
E18-6B (Revenue Recognition on Book Sales with High Returns)Chester Books Co. publishes romance novels that are sold to bookstores on the following terms. Each title has a fied wholesale price, terms f.o.b. shipping point, and payment is due 90 days after shipment. The retailer may return a maimum of 20% of an order at the retailer’s epense. Sales are made only to retailers who have good credit ratings.Past eperience indicates that the normal return rate is 16%, and the average collection period is 97 days.Instructions(a) Identify alternative revenue recognition tests that Chester Books could employ concerning tetbook sales.(b) Briefly discuss the reasoning for your answers in (a) above.(c) In late October, Chester shipped books invoiced at 6,500,000. Prepare the journal entry to record this event that best conforms to generally accepted accounting principles and your answer to part (b).(d) In January, 725,000 of the invoiced October sales were returned according to the return policy, and the remaining amounts were paid. Prepare the entry recording the return and payment. on Fri, 2014-11-21 22:51 0 0 30.00 body preview (0 words)file1.doc preview (174 words) 18-6 recognize revenue at sale the time the sold f.o.b. point. Because of might in favor basis. returns can be estimated, one shipping point less returns.EERCISE (b) Based of any any of the criteria in were not met, correct treatment is report revenue the of shipment the amount factor. test of of title the GAAP. could be conservative the 30% return instead. Receivable 15,000,000 Sales Returns and Allowances* 1,800,000 for Sales Returns Allowances Allowances* 200,000 for and Accounts Receivable 13,000,000 debit Sales could also made here.
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