Uddin Publishing Co. publishes college textbooks that are sold to bookstores on
ID: 2423534 • Letter: U
Question
Uddin Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer's expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 12%, and the average collection period is 72 days
A) Identify the revenue recognition criteria that Uddin could employ concerning textbook sales.
B) Briefly discuss the reasoning for your answers in (A) above.
C) On July 1, 2014, Uddin Shipped books invoiced at $15,000,000 (cost $12,000,000). Prepare the journal entry to record this transaction.
D) On October 3, 2014, $1.5 million of the invoiced July sales wre returned according to the return policy, and the remaining $13.5 million was paid. Prepare the journal entries for the return and payment.
Explanation / Answer
A) and B) The revenue recognition criteria which Uddin could employ concerning textbook sales is accounting for revenue on sale or return basis. Since the sales are only made to retailers who have good credit ratings and the maximum quantity which can be returned is 30% of an order, hence the revenue recognition policy employed by Uddin Publishing Co. should be as under : Uddin Publishing Co. recognises revenue on sale or return basis. Revenue is booked when the sales are effected to retailers, and the books reach their premises. The retailer may return upto 30% of an order individually, with the return expenses being borne by him. Collections are to be received against each shipment, 60 days after the same reaches the retailer's premises. C) Entry on July 1 (All amouns in $) Accounts Receivable A/c DR 15000000 To Sales A/c 15000000 Cost of Goods Sold A/c DR 12000000 To Inventory A/c 12000000 D) Entry on October 3, 2014 Sales Returns A/c DR 1500000 To Accounts Receivable A/c 1500000 Cash/Bank A/c DR 13500000 To Accounts Receivable A/c 13500000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.