Discuss the underlying conceptual issues concerning revenue

Assignment Help Finance Basics
Reference no: EM13566522

Revenue recognition, when the right of return exists, was standardized in 1981 by SFAS No. 48. Prior to this, SOP 75-1 provided guidance but was not mandatory (which is why the FASB has brought various SOPs into the accounting standards themselves). As a result, three methods were widely used to account for this type of transaction: (1) no sale recognized until the product was unconditionally accepted, (2) sale recognized along with an allowance for estimated returns, and (3) sale recognized with no allowance for estimated returns. SFAS No. 48 mandated revenue recognition for such sales subject to six conditions: (1) price is substantially fixed or determinable at sale date; (2) buyer has paid or is obligated to pay the seller, and payment is not contingent on resale of the product; (3) buyer's obligation would not be changed in the event of theft or physical damage to the product; (4) buyer acquiring the product for resale has economic substance apart from the seller; (5) seller has no significant obligations to bring about resale by the buyer; and (6) future returns can be reasonably estimated.

Required:

a. Discuss the underlying conceptual issues concerning revenue recognition when the right of return exists. Can any (or all) of the pre-SFAS No. 48 methods be justified?

b. Indicate the rationale for each of the SFAS No. 48 tests before a revenue is recognized.

c. Is SFAS No. 48 an example of finite uniformity or of circumstantial variables as developed by Cadenhead?

d. Discuss the role of future events in SFAS No. 48.

Reference no: EM13566522

Questions Cloud

What is the general formula used to calculate the price of : what is the general formula used to calculate the price of a share of a stock? what does it
What is the key economic principle involved in calculating : what is the key economic principle involved in calculating the present value and future value of multiple cash
What is the difference between the expected rate of return : what is the difference between the expected rate of return and the required rate of return? what does it mean if they
What is the difference between a perpetuity and an : what is the difference between a perpetuity and an
Discuss the underlying conceptual issues concerning revenue : revenue recognition when the right of return exists was standardized in 1981 by sfas no. 48. prior to this sop 75-1
What is the difference between a growing annuity and a : what is the difference between a growing annuity and a growing
What is the definition of current liabilities why is it : what is the definition of current liabilities? why is it important to distinguish between current and long-term
What is the correct way to annualize an interest rate in : what is the correct way to annualize an interest rate in financial decision
What three different models are used to value stocks based : what three different models are used to value stocks based on different dividend

Reviews

Write a Review

Finance Basics Questions & Answers

  Calculate the total return on your investment

what would your return have been if you had invested $1,000 in Big's stock instead of the bond?

  Find the markup percentage

During the month, the department received merchandise that cost $95,000 with a 51% markup. Find the markup percentage.

  Q 1 the following accounts billions are taken from balance

q. 1 the following accounts billions are taken from balance sheet of the well-known depository financial institutionnow

  What is the value of the firm current liabilites

A firm's balance sheet shows current assets of $410, net fixed assets of $685, long-term debt of $320, and owners' equity of $590. What is the value of the firm's current liabilites?

  How health care organizations interpret the corporate cost

Discuss how health care organizations interpret the corporate cost of capital and how that interpretation would be applied to capital investment decisions. explain your rationale.

  What is the incremental profit over the profit earned

At the price calculated in part a, what is the incremental profit over the profit earned before the introduction of the RoverPlus branded dog food?

  In this assignment you will conduct an evaluation of a

in this assignment you will conduct an evaluation of a company based on its annual report. this assignment will provide

  What would the annual interest rate from the company

A payday loan company charges 4 percent interest for a two week period. What would the annual interest rate from the company.

  Define what is the bond yield to maturity

A 10 year, 12% semiannual coupon bond with a pair value of $1,000 may be called in a 4 years at a call price of $1,060. The bond sells for $1,100 (assume that the bond has just been issued)

  What is the price of each bond today

The bond pays a 7 percent coupon, has a YTM of 5 percent, and has 17 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a 5 percent coupon, has a YTM of 7 percent, and also has 17 years to maturity.

  Which strategy works best if a bidding war erupts

If you were Smith's financial advisor, which strategy would you advise he establish? Or would you argue that he not speculate on this takeover?

  What is standard deviation of the returns for this period

A company had annual returns of 16 percent, 9 percent, -4 percent, and 13 percent over the past 4 years. What is the standard deviation of the returns for this period?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd