Case 16-2: The Cable Guys
Case 16-2
The Cable Guys
Case Summary
CoAx company manufacture and sell coaxial and fiber-optical cable. In transaction 1, CoAx sold 1000 feet of 18 American wire gauge coaxial cable to CableCo. In transaction 2, they sold 1500 feet of fiber-optical cable to TeleCo. CoAx transaction with CableCo is complexed because the ownership is transferred to CableCo immediately, however, the product is undeliverable due to CableCo’s warehouse being incomplete. Accordingly, there is a written agreement between the two companies that allows CableCo to keep their purchased merchandise at CoAx until the point that CableCo’s distribution center is finished. In transaction 2, TeleCo paid for the products before it was shipped to them and CoAx company utilizes …show more content…
Typically this occurs when a product is delivered to the customer's delivery site (if the terms of the sale are "FOB destination") or when a product is shipped to the customer (if the terms are "FOB shipping point").”
By CoAx using FOB Shipping point, they are obligated to recognize revenue when the customer has received the product because the risks of ownership is fully transferred at the shipping point. However, CoAx acquired 100% of DeliveryAx for delivering its products to consumers. This means CoAx does not transfer responsibility at shipping point, but at destination. And until all obligations are satisfied, it is not suitable for CoAx to recognize revenue.
ASC 606, Revenue From Contracts With Customers, provides five steps to recognizing revenue; step 5 requires an entity to “recognize revenue when (or as) the entity satisfies a performance obligation.” Describe in general the key principles of this step (and any applicable implementation guidance) that would be relevant to determining how to recognize revenue for the transactions described in this
The Cable Guys
Case Summary
CoAx company manufacture and sell coaxial and fiber-optical cable. In transaction 1, CoAx sold 1000 feet of 18 American wire gauge coaxial cable to CableCo. In transaction 2, they sold 1500 feet of fiber-optical cable to TeleCo. CoAx transaction with CableCo is complexed because the ownership is transferred to CableCo immediately, however, the product is undeliverable due to CableCo’s warehouse being incomplete. Accordingly, there is a written agreement between the two companies that allows CableCo to keep their purchased merchandise at CoAx until the point that CableCo’s distribution center is finished. In transaction 2, TeleCo paid for the products before it was shipped to them and CoAx company utilizes …show more content…
Typically this occurs when a product is delivered to the customer's delivery site (if the terms of the sale are "FOB destination") or when a product is shipped to the customer (if the terms are "FOB shipping point").”
By CoAx using FOB Shipping point, they are obligated to recognize revenue when the customer has received the product because the risks of ownership is fully transferred at the shipping point. However, CoAx acquired 100% of DeliveryAx for delivering its products to consumers. This means CoAx does not transfer responsibility at shipping point, but at destination. And until all obligations are satisfied, it is not suitable for CoAx to recognize revenue.
ASC 606, Revenue From Contracts With Customers, provides five steps to recognizing revenue; step 5 requires an entity to “recognize revenue when (or as) the entity satisfies a performance obligation.” Describe in general the key principles of this step (and any applicable implementation guidance) that would be relevant to determining how to recognize revenue for the transactions described in this