If you only have a problem going from P to R and from D to R, you do NOT need a new tranny. I had the same problem myself, and I would even describe it as more than a clunk. When was the last time you changed your ATF?

I remember when I test drove an 95 850 Turbo Sedan a couple years ago and it did the same thing. The salesman said it was because the tranny needed to be broken in. Obviously, when I first test drove the 850, the tranny didn't shift as badly as my 855T a year and a half ago before I did my ATF change.

When I changed my ATF, this clunking almost disapeared. It was still there, but at about the same level of clunk as a new 8K demo 95' 850 Turbo Sedan.

Another thing I noticed is that coming to a complete stop and shifting from D to R doesn't produce the smoothest shift. I stop the car, and when the actual velocity has stopped and the car is still leaning forward from brake squat, I shift quickly into R, and voila, no clunk what so ever. Similarly form P, I go straight to N before the tranny can engage R, and go from N to R. Absolutely no clunks this way. I never tried this on another 850 before so I don't promise this will hold with your 850. All I can recommend is flushing and filling your ATF, it does more than you could imagine. But like I said, it doesn't totally take it away. And regarding this dealership, walk away. If they know Volvo 850's, they are trying to cheat you, 'cause every 850 does this to a certain extent unless you get lucky and the tranny shifts smoothly, the way it does once in a while.