Gibbs Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer's expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 15%, and the average collection period is 72 days.
Instructions
(a) Identify the revenue recognition criteria that Gibbs could employ concerning textbook sales.
(b) Briefly discuss the reasoning for your answers in (a) above.
(c) On July 1, 2014, Gibbs shipped books invoiced at $12,000,000 (cost $8,000,000). Prepare the journal entry to record this transaction.
(d) On October 3, 2014, $1.0 million of the invoiced July sales were returned according to the return policy, and the remaining $11.0 was paid. Prepare the journal entries for the return and payment.