When a Vendor Is Exposed to Continued Risks of Ownership

question 35

Multiple Choice

When a vendor is exposed to continued risks of ownership because of potential return of the product, which of the following accounting procedures should NOT be used?

• A) recording the sale, and accounting for returns as they occur in future periods
• B) not recording the sale until all return privileges have expired
• C) recording the sale, but reducing revenue by an estimate of future returns
• D) recording the sale, but ignoring future returns

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Definitions:

Partnership Agreement

A legal document that specifies the rights, responsibilities, and profit and loss distribution among business partners.

Transferable Shares

Shares of a company's stock that can be sold or transferred by the shareholder to another party without restrictions.

Partners

Individuals or entities engaged in business together under a formal agreement to share profits and losses.

Co-own

To have joint ownership or share the possession of a property or item with one or more parties.