Topic 10 Revenue Recognition
On day 1, Clothes Co. sells clothing to Link Corp. for $40,000. Clothes ships the clothing on day 1 and Link is obligated to pay Clothes within six months. Link is given 12 months to return any of the clothing for a refund if it experiences low demand. Link is also given 18 months to exchange any clothing due to low demand. At the time of sale, Clothes cannot reasonably estimate returns, but estimates $5,000 in exchanged goods. Clothes should recognize revenue for the aforementioned transaction:
a. On the day of the sale.
b. Six months after the date of sale.
c. 12 months after the date of sale.
d. 18 months after the date of sale.