A Brief Note On Coax And Fiber Optical Cable Essay

1417 Words Nov 30th, 2016 6 Pages
CoAx is a publically traded company that manufactures and sells coaxial and fiber-optical cable. The company has two transactions where they must determine the appropriate way to recognize revenue. In Transaction 1, CoAx entered an agreement to sell 1,000 feet of 18 American wire gage coaxial cable for $3 a foot to CableCo. The agreement requires CoAx to hold the cable in its warehouse until CableCo can transport the cable to its own warehouse. CoAx concluded that risk of ownership have passed to CableCo, there is a legitimate reason for CoAx to hold the cable in their warehouse for CableCo, and CoAx has no other obligations related to CableCo’s purchase. CoAx will recognize revenue before CableCo takes delivery of the cable. In the Transaction 2, CoAx entered an agreement to sell 1,500 feet of fiber-optical cable for $3 a foot to TeleCo. CoAx collected payment before the order shipped. The title will transfer when the delivery company, DeliveryAx, takes the product. CoAx recently became 100 percent owner of DeliveryAx. In both Transaction 1 and Transaction 2, it is questioned whether CoAx appropriately recognized revenue.
In Transaction 1, the contract for the sale of the cable has been incorrectly classified by CoAx. The contract CoAx formed with CableCo should be regarded as a bill-and-hold arrangement. The contract allows CoAx, the entity, to bill CableCo, the customer, but still possess the product until it is transferred to CableCo in the future. This follows the…

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