You are the chief financial officer of Playthings, Inc., a newly organized, publicly owned manufacturer of toys and games. Roy Weber, the chairman of the audit committee of the company’s board of directors, asks you to consider at what point, under generally accepted accounting principles, the company can recognize revenue for “bill and hold” sales of toys to retailers. He stresses that it is imperative for the company to comply with federal and state securities laws.

Instructions Prepare a memorandum to answer the audit committee chairman after you have researched the following: