Task:
If you should examine the proper recognition of revenue in different situations. For instance:
Problem 1: In 1981, Statement of Financial Accounting Standard (SFAS) No. 48 standardized revenue recognition, when the right of return exists. Prior to this, AICPA Statement of Position (SOP) 75-1 provided guidance, but was not mandatory. As a result, three methods were widely used to account for the following transactions:
(1) No sale recognized until the product was unconditionally accepted
(2) Sale recognized along with an allowance for estimated revenue
(3) Sale recognized with no allowance for estimated returns
Problem 2: SFAS No.48 mandated revenue recognition for sales subject to six conditions:
(1) Price is substantially fixed or determinable at sale.
(2) Buyer has paid or is obligated to pay the seller.
(3) Buyer's obligation would not be changed in the event of theft or physical damage to the product.
(4) Buyer acquiring the product for resale has economic substance apart from the seller.
(5) Seller has no significant obligations to bring about resale by the buyer.
(6) Future returns can be reasonably estimated.
REQUIRED:
(1)Described the underlying conceptual issues concerning revenue recognition when the right of return exists.
(2)Provided an analysis for or against the pre-SFAS No. 48 methods.
(3)Described the rationale for each of the SFAS No. 48 tests before revenue is recognized.
(4)Identified whether SFAS No. 48 is an example of finite uniformity or of circumstantial variables.
(5)Identified the role of future events in SFAS No. 48.