CASE 53 Revenue Recognition Bonanza Trading Stamps, Inc., was formed early this year to sell trading stamps throughout the Southwest to retailers, who distribute the stamps free to their customers. Books for accumulating the stamps and catalogs illustrating the merchandise for which the stamps may be exchanged are given free to retailers for distribution to stamp recipients. Centers with inventories of merchandise premiums have been established for redemption of the stamps. Retailers may not return unused stamps to Bonanza. The following schedule expresses Bonanzas expectations of the percentages of a normal months activity that will be attained. For this purpose, a normal months activityis defined as the level of operations expected when expansion of activities ceases or tapers off to a stable rate. Bonanza expects to attain this level in the third year and to average $2 million per month in stamp sales throughout the third year. Merchandise Month Actual Stamp Premium Purchases Stamp Redemptions Sales (%) (%) (%) 6 30 40 10 12 60 60 45 18 80 80 70 24 90 90 80 30 100 100 95 2. Discuss the accounting alternatives that should be considered by Bonanza Trading Stamps for the recognition of its revenues and related expenses. 3. For each accounting alternative discussed in (b), give balance sheet accounts that should be used and indicate how each account should be classified.