Problem
Cadenhead presented an approach to uniformity referred to as circumstantial variables. Circumstantial variables are environmental conditions (conditions beyond the control of the individual firm that are applicable to the particular industry that the firm is in), Circumstantial variables lead to problems relative to either (1) costliness of to prescribed method in the particular event situation or (2) a 100v degree of verifiability because estimates yard widely relative to the prescribed method. For example, Cadenhead notes that the existence of a ready market with regularly quoted prices would facilitate inventory valuation if realizable value were not used relative to inventories, but the absence of such a market would allow a firm to use another type of inventory/ cost of goods sold measurement. In the four situations discussed here, classify each situation according to whether it involves finite uniformity, rigid uniformity, flexibility, or circumstantial variables.
a. Research and development costs: SFAS No. 2 requires that all research and development costs (some of which will have future cash flow benefits and others will not) be written off to expense as incurred. Are there any other accounting principles that are present here? Discuss,
b. Unusual rigid of return U)customers: SFAS No. 48 covers those industries (of which there are not many) where buyers have an unusual right of return due to industry practices that cannot be avoided by ognized at time of sale, provided that the future returns can be reasonable estimated (there are five other conditions that must also be met but they are of no concern here). If sales returns cannot be reasonably estimated, then sales revenues are not recognized until returns can be reasonably estimated or (more likely) the return privilege has substantially expired. Hence, it is not cash flow differences that are at issue but rather the ability to estimate the expected returns that is the key point.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.