Employees at the Shady Sales Company disagree about the accounting for sales returns currently being used. The sales manager believes that implementing a more generous return policy will give the company a competitive advantage and increase sales revenue. The controller cautions that, depending on the terms granted, expanding return provisions might lead to non-GAAP revenue recognition policies. The company CFO would like you to research the issue to provide an authoritative answer.

Instructions

Using the student access to the FASB Codification provided in Blackboard, prepare professional responses to the following questions. Provide Codification references and paragraph citations for your responses.

1. What is the authoritative literature addressing revenue recognition when right of return exists?
2. What is meant by right of return? Bill and hold?
3. Describe the accounting when there is a right of return.
4. When goods are sold on a bill-and-hold basis, what conditions must be met to recognize revenue upon receipt of the order?