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:

Tax Proration

The division or allocation of taxes between parties (such as buyers and sellers) based on their period of ownership or usage.

Annual Tax Bill

The total amount of tax owed by an individual or corporation in a given fiscal year.

Taxable Income

The amount of income that is used to calculate how much tax an individual or a company owes to the government.

Part-time Janitor

A Part-time Janitor is an individual employed on a less than full-time basis to perform cleaning and maintenance duties in a building or facility.