Fahey Company sells Stairmasters to a retailer, Physical Fitness, Inc., for $2,000,000. Fahey has a history of providing price concessions on this product if the retailer has difficulty selling the Stairmasters to customers. Fahey has experience with sales like these in the past and estimates that the maximum amount of price concessions is $300,000.
Instructions
(a) Determine the amount of revenue that Fahey should recognize for the sale of Stairmasters to Physical Fitness, Inc.
(b) According to GAAP, in some situations, the amount of revenue recognized may be constrained. Explain how the accounting for the Stairmasters sales might be affected by the revenue constraint due to variable consideration or returns.
(c) Some believe that revenue recognition should be constrained by collectibility. Is such a view consistent with GAAP? Explain.