Crazy Computers

Crazy Computers Case The question at matter is if CIC reinsures extended warranty contracts with TPI sold by CC, is it appropriate for CC to recognize commission revenue at the time of sale of the extended warranty contracts? I believe you really have to determine who the true obligator is, whether it is still the third party insurer or if it would now be Crazy Computers because of having a wholly owned subsidiary that is reinsuring warranties sold by Crazy Computers. Since customers have the option to buy the warranty from Crazy Computers (CC) and there is an obligation that CIC, the wholly owned subsidiary of CC, could reinsure the extended warranty risk of the third party transaction then I believe that CC is the primary obligor. Now as for how the recognition is handled, ASC 605 talks about accounting for warranties. It states that “sellers of extended warranty or product maintenance contract have an obligation to the buyer to perform services throughout the period of the contract.” Basically this means that revenue should be recognized proportionately over the length of the warranty obligation. In my opinion Crazy Computers is the primary obligor and because of this the recognition of revenue should be deferred and recognized appropriately over the period of obligation.

SolvGen Inc. This case discusses the company Direct Drugs Inc. and their plans to acquire SolvGen Inc. SolvGen Inc. has two material agreements with Careway Pharma Inc. One of the case requirements asks what the deliverables for the arrangement described in the case study were. These being the research and development agreement and a license and distribution agreement. The next requirement asked when the milestone payments received to date by SolvGen were to be recognized as revenue. The nonrefundable milestones include an exclusive negotiation payment of $1 million dollars paid on December 1, 2009, contract signing payment of $2 million paid on January 1, 2010, a commercial