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E18-6B (Revenue Recognition on Book Sales with High Returns)Chester Books Co. publishes romance novels that are sold to bookstores on the following terms. Each title has a fixed wholesale price,

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E18-6B (Revenue Recognition on Book Sales with High Returns)Chester Books Co. publishes romance novels 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 90 days after shipment. The retailer may return a maximum of 20% 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 16%, and the average collection period is 97 days.;Instructions;(a) Identify alternative revenue recognition tests that Chester Books could employ concerning textbook sales.;(b) Briefly discuss the reasoning for your answers in (a) above.;(c) In late October, Chester shipped books invoiced at $6,500,000. Prepare the journal entry to record this event that best conforms to generally accepted accounting principles and your answer to part (b).;(d) In January, $725,000 of the invoiced October sales were returned according to the return policy, and the remaining amounts were paid. Prepare the entry recording the return and payment.

 

Paper#75369 | Written in 18-Jul-2015

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