Question

Please do this discussion report for me & follow all the instructions below! "Employees at Cutting Edge disagree about the accounting for sales returns. The sales manager believes that granting more generous returns can give the company a competitive edge an increase sales revenue. The controller cautions that, depending on the terms granted, loose return provisions might lead to non-GAAP revenue recognition. The company CFO would like you to research the issue to provide an authoritative answer. "
Required:
Prepare a research report using authoritative literature addressing revenue recognition when right of return exits and describe the accounting when there is a right of return. Include what is meant by “right of return” in your report. Your research report should include a discussion of the relevant FASB Codification section (s) that you used in developing report. Summarize what you discovered in your research in your own words – do not simply quote from the Codification. The research report should be no longer than two pages in length and contain proper citations following APA Style format.

Answer 1

a)An enterprise should account for sales of its product in which buyer has right to return the product. The Revenue from those sales transactions shall be recognized at time of sale only if all of the conditions specified by the Statement are met. If those conditions are not met, revenue recognition is postponed; if they are met, sales revenue and cost of sales reported in the income statement shall be reduced to reflect estimated returns and expected costs or losses shall be accrued.

b)The “right of return” means that the buyer of a product may return it to the seller. If a company sells a product and gives they buyer the right to return the product. For a return to be valid, the seller’s price should be determined at the date of sale, the buyer has paid the seller, and the buyer’s obligation to the seller would not be changed (Financial Accounting Standards Board, 2017).

c)A bill-and-hold arrangement is a contract under which an entity bills a customer for a product but the entity retains physical possession of the product until it is transferred to the customer at a point in time in future.A customer may request an entity to enter into such a contract because of the customer's lack od acvailable spacr for the product or because of delays in customer's production schedules
In some contracts an entity transfers control of a product to a customer and also grants the customer right to return the product for various reasons(such as dissatisfaction with the product) and receive any combination of the following:
1)A full or partial refund of any consideration paid
2)a credit that can be applied against amounts owed ,or that will be owed to the entity
3)another product exchange

d)Accounting For right to return:

When there is a right to return, sales revenue may or may not be recognized at the time of the sale. In order for the revenue to be recognized at the time of sale the following six conditions must occur  
•The sellers price must be fixed or determined at the time of the sale.
•The buyer has paid the seller or is obligated to do so
•The buyer’s obligation would not change due to theft or damage to the product
•The buyers acquisition of the product has to have economic substance
•The seller does not have significant future obligations to the buyer in regards to the sale
•The amount of future returns can be reasonably estimated

If these six conditions are not met then sales revenue may be recognized when all six are met or the right to return no longer exists, whichever occurs first. If these conditions are met than any losses that occur due to returns should be accounted for using normal loss contingencies.

To account for the transfer of products with a right to return(and for some services that are provided subject to a refund) , an entity should recognize all of the following
1)revenue for the transferred products in the amount of consideration to which the entity is reasonably assured to be entitled(considering the products expected to be returned)
2)A refund Liability
3)an asset(and corresponding adjustment to cost of sales) for its right to recover from customers on settling the refund liability