What is the appropriate revenue recognition, Business Law and Ethics

Moto Knappy is a manufacturer of automobile motors. The manufacturing process takes a couple of months. The company produces several standard and custom models. To simplify this case, assume the motors are sold without a right of return or any warranty of any kind. Moto Knappy is a publicly traded company headquartered in Lindsey, OK.

Transaction(s) #1

Jensen Jalopies assembles cars using many parts that it purchases from suppliers plus some additional parts it manufactures itself. On August 10, 2012, Jensen Jalopies signs a contract to buy 100 model 357 motors from Moto Knappy. The contract specifies the following:

• The motors will be ready for delivery on December 20, 2012. However, Jensen Jalopies has informed Moto Knappy that because its assembly process follows just-in-time practices, Jensen Jalopies may delay delivery until it is ready to use the motors. However, the customer must take delivery of all 100 motors no later than March 5, 2013.
• The purchase price is $900 per motor. The contract requires a 10% down payment at signing. The remainder of the price is due on December 20, 2012, provided that the 100 motors are ready to deliver.
• Any motors not delivered on December 20 will be stored in Moto Knappy's warehouse. One of its employees, Tom Wayne, is assigned to go to the warehouse once every two weeks and spin the crankshafts on all motors in storage to ensure they are properly lubricated and the internal parts do not seize. The contract does not reimburse Moto Knappy for any of the cost of storage or Mr. Wayne's maintenance of the motors.
• If Moto Knappy fails to deliver some of the motors, the purchase price for those motors will be refunded.
As of December 15, 2012, Moto Knappy has 100 model 357 motors in inventory. Jensen Jalopies takes delivery of 40 motors on December 20, 2012, 30 motors on January 20, 2013, and the final 30 motors on February 20, 2013. As per the contract, Moto Knappy collects the remainder of the purchase price on December 20, 2012. The model 357 is used by several customers of Moto Knappy; any additional orders for that model are expected to be supplied by making new motors, but if a rush order is received, Moto Knappy could use some of its existing inventory to meet the rush order and then build new motors to replenish its inventory.

Transaction(s) #2

Moto Knappy enters a contract on September 10, 2012, to sell 50 model 440 motors to Ayres Autos. The contract specifies the following:

• The motors will be shipped to Ayres Autos on December 15, 2012.
• The purchase price is $1,100 per motor. The contract requires a 10% down payment at signing. The remainder of the price is due on delivery. The deposit is refundable if Moto Knappy fails to deliver the motors.
As of December 13, 2012, Moto Knappy has 60 model 440 motors in inventory. Ayres Autos contacts Moto Knappy with the following information:
"We experienced a fire in our warehouse on December 10. As a result, we can only take delivery of 10 motors at a time until the warehouse is repaired."
Moto Knappy enters discussions with Ayres Autos, and as a result, the contract is modified (in writing) as follows:
• Ten motors will be shipped to Ayres Autos on December 15, 2012. Ayres Autos will take delivery of the remaining 40 motors when it has room or has repaired its warehouse or March 2, 2013, whichever is earlier.
• In the meantime, the remaining 40 motors are sent to Cuccia's Closet, a local storage facility. The contract with Cuccia's Closet lists Ayres Autos as the lessee. It allows access by Tom Wayne to spin the crankshafts; Ayres Autos will pay Moto Knappy $50 for each hour that Mr. Wayne spends spinning motors at Cuccia's Closet. The motors can only be removed from the premises by Ayres Autos employees.
• An insurance contract exists covering the motors at Cuccia's Closet against risk of loss due to fire, theft, or flood. Ayres Autos bought the contract and is the sole beneficiary.
• Moto Knappy collects the remainder of the purchase price for all 50 motors on December 15. The initial deposit becomes nonrefundable upon shipment of the first 10 motors.
• The revised agreement cannot be unilaterally cancelled by either party.

Required

1. Before diving into the codification, explain in basic terms the main concern to be addressed in determining the appropriate revenue recognition pattern for transactions 1 and 2. Use terms that a sophomore in Principles could understand. You are not expected to cite the ASC in answering this part, but if you find a passage that is clearly on point, you can.
2. For the transfers to Jensen Jalopies, what is the appropriate revenue recognition? Incorporate ASC citations in your discussion. Also, provide the journal entries related to revenue or deferred revenue (if any) at August 10, December 15, December 20, January 20, and February 20. You do not need to worry about journal entries related to the cost of manufacturing the motors or inventory and cost of goods sold.
3. For the transfers to Ayres Autos, what is the appropriate revenue recognition? Incorporate ASC citations in your discussion. Also, provide the journal entries related to revenue or deferred revenue (if any) at September 10 and December 15. Also, assuming Ayres Autos took delivery of the remaining 40 motors on January 15, what is the entry for that day? You do not need to worry about journal entries related to the cost of manufacturing the motors or inventory and cost of goods sold.

Posted Date: 3/5/2013 6:51:49 AM | Location : United States







Related Discussions:- What is the appropriate revenue recognition, Assignment Help, Ask Question on What is the appropriate revenue recognition, Get Answer, Expert's Help, What is the appropriate revenue recognition Discussions

Write discussion on What is the appropriate revenue recognition
Your posts are moderated
Related Questions
Fraudulent Trading: Under s.323, if the court finds that the business of a company in liquidation has been carried on with intent to defraud creditors or for any fraudulent pu

Determine the areas of open method of coordination The EU has indicated its intention to employ the OMC, but so far there is little evidence of progress. These areas include E

American citizens can utilize their Courts only under certain conditions and circumstances. That is, there are both formal and informal "barriers" to access the legal system.

Ways which affect the behaviour of the policy maker There may be at least three ways this uncertainty may affect the behaviour of the policy maker. a) He may chose mainly th

Question 1: "A revolutionary change is occurring in the theory and practice of public administration. The approach known as New Public Management is seen by many as the new par

Select a manufacturing organization and find out the ethical issues of the organization in the following areas: Production: Marketing & sales: Human Resources & employee relatio

The MV unfortunate was talking passengers to Lyme Cay when it receive a distress signal from a vessel nearby the master started to proceed towards the vessel but stop when he reali

International Peace and security Pacific settlement of disputes means to resolve disputes to avoid threats to International Peace and security so that such disputes do not beco

Strong and Weakness of Acts of Parliament: There an Act of Parliament may be said to possess the giving advantages: as; (i) Democratic in nature Now here it is democrati

Raising Of Capital: In commercial parlance, the word 'capital' is generally used to denote the amount by which the assets of a business exceed its liabilities. Conversely, in