Question

Braun Computer Company sells computers with an unconditional right to return the computer if the customer is not satisfied. Braun 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. Braun most likely should recognize revenue:

a. When Braun delivers a computer to a customer, ignoring potential returns.
b. When Braun delivers a computer to a customer, in an amount that is reduced by the expected returns.
c. When a customer returns a computer.
d. When Braun receives cash from the customer.

Answer 1

Braun Computer Company should recognize revenue when it delivers a computer to a customer, in an amount that is reduced by the expected returns. This approach aligns with standard revenue recognition principles, taking into account the company's historical rates of returns.

Step-by-step explanation:

The student is asking when Braun Computer Company should recognize revenue for the sale of computers under an unconditional return policy. The correct answer to this question is b. When Braun delivers a computer to a customer, in an amount that is reduced by the expected returns. This is in accordance with revenue recognition principles, which state that revenue should be recognized when it is earned and realizable, and any estimated returns should be deducted from the sales revenue. This means that at the point of sale, Braun would record the revenue net of the estimated returns, reflecting the company's historical experience with customers returning computers.

For educational purposes, we can expand briefly on the other answer options:

• a. This option is incorrect because ignoring potential returns does not comply with proper revenue recognition practices.
• c. Recognizing revenue on returns is not appropriate, as the original transaction is effectively canceled.
• d. Receipt of cash is relevant but does not dictate revenue recognition alone, especially when a right of return is involved.