Estimating Revenue Recognition with Right of Return The Unlimited Company offers

Question

Estimating Revenue Recognition with Right of Return The Unlimited Company offers an unconditional return policy for its retail clothing business. It normally expects 3 % of sales at retail selling prices to be returned at some point prior to the expiration of the return period, and returned items cannot be resold. Assuming that it records total sales of $3,500,000 for the current period, how much net revenue would it report for this period? Estimating Revenue Recognition with Right of Return The Unlimited Company offers an unconditional return policy for its retail clothing business. It normally expects 3 % of sales at retail selling prices to be returned at some point prior to the expiration of the return period, and returned items cannot be resold. Assuming that it records total sales of $3,500,000 for the current period, how much net revenue would it report for this period? Estimating Revenue Recognition with Right of Return The Unlimited Company offers an unconditional return policy for its retail clothing business. It normally expects 3 % of sales at retail selling prices to be returned at some point prior to the expiration of the return period, and returned items cannot be resold. Assuming that it records total sales of $3,500,000 for the current period, how much net revenue would it report for this period?

Explanation / Answer

Total sales = 3500000

Expected return at retail selling price = 3%

Net revenue to be reported = 3500000*(100%-3%) = 3500000*97% = 3395000

Company is expecting return of goods of 3% of total sales before the expiration of return period. It means that return is quite certain and return items cannot be resold. So, net revenue is to be reported as total sales deducted by percentage of return goods.

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