1. Kidlet Toys Ltd. designs and manufactures toys for the early childhood education market. The company sells its products to national toy retailers as well as to independent toy stores across North America. The company allows its customers to return any unsold products within 90 days of receiving the products from Kidlet. The rationale for this policy is to stimulate sales, especially among the independent toy stores. Returned toys are discarded.

Explain when Kidlet would recognize revenue under the contract-based approach. Also explain what the company would have to do to determine the amount of revenue that could be recognized.