Coax Case Study

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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 …show more content…
We used the new revenue recognition standards to identify the performance obligation. In this case, CoAx’s performance obligations to CableCo are the production of 1,500 feet of fiber-optical cable for $3 a foot and delivery of the cable to the carrier. According to Deloitte’s Heads Up: Revenue Standard Finally Recognized: Boards Issue Guidance on Revenue from Contracts with Customers, “Under the ASU, a performance obligation is satisfied (and the related revenue recognized) when “control” of the underlying goods or services (the “assets”) related to the performance obligation is transferred to the customer.” CableCo is using freight on board shipping point so CableCo has control as soon as the cable was delivered to DeliveryAx. Even though DeliveryAx is 100 percent owned by CoAx, we determined that DeliveryAx is a separate entity. CoAx does not take into account the performance obligation of DeliveryAx because the delivery company is a separate entity from CoAx. DeliveryAx would record the revenue from delivering the cable on its financial statements. CoAx has satisfied its performance obligations when the order for 1,500 feet of fiber-optical cable is complete and transported to DeliveryAx. CoAx can then record the payment collected before the order shipped as revenue when DeliveryAx receives the

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