When Should Revenue Be Recognized?
Stan Crowfoot is a renowned sculptor who specializes in Native American sculptures. Typically, a cast is prepared for each work to permit the multiple reproduction of the pieces. A limited number of copies are made for each sculpture, and the mold is destroyed after the number is reached. Limiting the number of pieces enhances the price, and most of the pieces have initially sold for $2,000 to $4,000. To encourage sales, Stan has a liberal return policy that permits customers to return any unwanted piece for a period of up to one year from the date of sale and receive a full refund. Do you think Stan should recognize revenue (1) when the piece is produced and cast in bronze, (2) when the goods are delivered to the customer, or (3) when the period of return has passed? Justify your answer in terms of the FASB conceptual framework.