Case5-11

Facts: Company z enters into an arrangement with Customer A to deliver Company Z's products to Customer A on a consuming basis. Pursuant to the terms of the arrangement, Customer A is a consignee, and title to the products does not pass from company Z to customer A until Customer A consume the products in its operations. Company Z delivers product to Customer A under the terms of their arrangement. May Company Z recognize revenue upon delivery of its product to Customer A? Company R is a retailer that offers "layaway sales to its customer. Company R retains merchandise, sets in aside in its inventory, and collects a cash deposit the customer. Although Company purchase. R may set a time period within which the customer must finalize Company R does require customer to enter into an installment note or other fixed payment commitment or agreement when the to the initial deposit is received. The merchandise generally is not released to the customer until the customer pays the full purchase price. In the even, that the customer fails to pay the remaining purchase price, the customer forties its cash deposit. In the event the merchandise is lost. Damaged or destroyed Company R either must refund the cash deposit to the customer or provide replacement merchandise. Question: When may Company R recognize revenue for merchandise sold under its layaway program? Many companies sell products allowing their customers the right to return merchandise if they are not satisfied Because the return of merchandise can retroactively negate the benefits of using made sale the seller meet certain criteria In-fore revenue is recognized in situations when the right of return exists. Obtain the relevant authoritative literature on accounting for the right to return merchandise from the IASS website (www ifrs.org). from your school library, or from some other source. Summarize the requirements that must be met before revenue can he recognized when the right of return exists. What factor do you think may impair the ability to make a reliable estimate of returns? Access the most recent annual reports or 10-K reports for Hewlett-Packard Company and for Advanced a Micro Devices. Inc. from the companies' websites or by accessing EDGAR at www.sec.gov. Search for the revenue recognition policy to determine when these two companies recognize revenue for product sales allowing customers the right of return. Using y our answers to requirements 1 and 2. speculate why the two revenue recognition policies differ The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon Overstock.com. and play.com Many of these companies often act as intermediaries between the manufacture and the customer without ever taking possession of the merchandise sold. Revenue recognition for this type of transaction has been controversial. Assume that Overstock sold you a product for $200 that cos, $150. The company's profit on the action clearly is $50. Should Overstock recognize $200 in revenue and $150 in cost of goods sold the method), or should it recognize only the $50 in gross profit (the net method)as commission revenue