Boomerang Computer Company Sells Computers with an Unconditional Right to Return

question 84

Multiple Choice

Boomerang Computer Company sells computers with an unconditional right to return the computer if the customer is not satisfied. Boomerang has a long history selling these computers under this returns policy and can provide precise estimates of the amount of returns associated with each sale. Boomerang most likely should recognize revenue:

• A) When Boomerang delivers a computer to a customer, ignoring potential returns.
• B) When Boomerang delivers a computer to a customer, in an amount that is reduced by the expected returns.
• C) When Boomerang receives cash from the customer.
• D) When a customer returns a computer.

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Definitions:

Common Stock

Equity security that represents ownership in a corporation, giving holders the right to vote and share in the company's profits.

Retained Earnings

Profits that are not distributed as dividends but are instead reinvested into the business.

Net Income

Net Income is the total earnings of a company after subtracting all expenses, taxes, and costs from its total revenue.

Dividend

A portion of a company's earnings distributed to shareholders, typically in the form of cash or additional shares.