When would L.L. Bean recognize sales revenue from the sale of its backordered Bean boots?

A photo of LL Bean boots

Source: Wendy Tietz

L.L. Bean operates two factories that produce its popular Bean boots (also known as “duck boots”) in its home state of Maine.  Since L.L. Bean prides itself on manufacturing its boots in Maine and not outsourcing, backorders for its boots can be high. In 2014, L.L. Bean sold about 450,000 pairs of the boots. At one point during 2014, it had a backorder level of about 100,000 pairs of boots. L.L. Bean can manufacture about 2,200 pairs of its duck boots each day with its factories running 24/7.

In 2015, L.L. Bean expects to sell more than 500,000 pairs of its duck boots. As of late November 2015, the backorder quantity for Bean Boots was estimated to be about 50,000 pairs.

Questions

  1. Assume that a pair of 8” Bean Boots are ordered on December 3, 2015. The order price is $109.  The sales tax rate in the state in which the boots are order is 7%. L.L. Bean ships the boots on January 29, 2016.  Assume same-day shipping for the sake of simplicity.  On what day would L.L. Bean recognize the sales revenue for this order?
  2. Now assume there is a 7% sales tax rate in Ohio, where the customer who ordered the boots is located. The sales tax on the order would be $7.63, which L.L. Bean adds to the invoice total. Is the $7.63 added to L.L. Bean’s sales revenue?  Why or why not?
  3. Now assume that 5% of the L.L. Bean boots are returned by customers for various reasons. L. Bean has a 100% refund policy for returns, no matter what the reason. What would the journal entry be to accrue L.L. Bean’s sales returns for this one pair of boots? (Note: L.L. Bean most likely will make monthly/quarterly adjusting entries for the total sales returns accruals, but here we will just look at the accrual associated with the sale of one pair of boots.)
  4. Assume another customer has returned a pair of duck boots (original cost $109) to L.L. Bean. What journal entry would L.L. Bean make to process the return and refund the original purchase price to the customer (assume that there was no sales tax charged in the original transaction)?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

2 Responses to “When would L.L. Bean recognize sales revenue from the sale of its backordered Bean boots?”

  1. tmolinari@clarku.edu Reply January 19, 2016 at 12:33 pm

    Hi Wendy,

    These articles and the accompanying PP are great. Are there also accompanying solutions?

    Best,
    Toni

    • Dr. Wendy Tietz, CPA, CMA, CGMA Reply January 19, 2016 at 12:37 pm

      Hi Toni! I don’t have any way to control the release of solutions to only instructors – and, in many cases, there is not one right answer. If you have a particular question, send me your thoughts and I can let you know my thoughts. Have a nice day! Wendy

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