Peace Book Distribution Division

Our book distribution division sells to national bookstores. Our division allows for up to 25% of sales in returns. For the past 4 years, returns have averaged 20%. We record revenue based on revenue recognition when the right of return exists.

Total Sales for 2012 .........................................................$9,000,000

Sales Still Available for return for six months .................$2,000,000

Actual Returns on Sales not returnable .......................................21%

2011 Sales collected in 2012 ............................................$2,500,000

2011 Sales returned in 2012 .......................................................19%

Required:

(a) We have studied several methods of revenue recognition. Define and describe each of the following methods of revenue recognition, and indicate whether each is in accordance with generally accepted accounting principles.

Point of sale.

Completion-of-production.

Percentage-of-completion.

Installment-sales.

(b) Calculate the revenue to be recognized in fiscal year 2012 for each division of Patty Corporation in accordance with generally accepted accounting principles. Show all calculations for full credit.