Homework: FASB Codification
The purpose of this homework is to complete the FASB Codification Homework. Complete Items I and II.
Item I
In conducting year-end inventory counts, your audit team is debating the impact of the client's right of return policy both on inventory valuation and revenue recognition. The assistant controller argues that there is no need to worry about the return policies since they have not changed in a while. The audit senior wants a more authoritative answer and has asked you to conduct some research of the authoritative literature before she presses the point with the client.
Instructions: Prepare responses to the following. Provide codification references for your responses.
• What is the authoritative guidance for revenue recognition when right of return exists?
• When is this guidance important for a company?
• Sales with high rates of return can ultimately cause inventory to be misstated. Why are returns allowed? Should different industries be able to make different types of return policies?
• In what situations would a reasonable estimate of returns be difficult to make?
Item II
Jones Co. is in a technology-intensive industry. Recently, one of its competitors introduced a new product with technology that might render obsolete some of Jones' inventory. The accounting staff wants to follow the appropriate authoritative literature in determining the accounting for this significant market event.
Instructions: Prepare responses to the following. Provide codification references for your responses.
• Identify the primary authoritative guidance for the accounting for inventories. What is the predecessor literature?
• List three types of goods that are classified as inventory. What characteristics will automatically exclude an item from being classified as inventory?
• Define "market" as used in the phrase "lower-of-cost-or-market."
• Explain when it is acceptable to state inventory above cost and which industries allow this practice.
Format your homework according to the give formatting requirements:
• The answer must be using Times New Roman font (size 12), double spaced, typed, with one-inch margins on all sides.
• The response also includes a cover page containing the student's name, the title of the homework, the course title, and the date. The cover page is not included in the required page length.
• Also include a reference page. The references and Citations should follow APA format. The reference page is not included in the required page length.