Terms are specified as FOB delivery. In the scenarios below, describe which element of the revenue recognition model is
Posted: Fri Jul 01, 2022 8:50 am
Terms are specified as FOB delivery. In the scenarios below,describe which element of the revenue recognition model is violatedby recognizing revenue and why. (One or two sentences willsuffice!)
a. Super Micro asked a distributor (customer) to agree to acceptapproximately $104,000 of goods before the end of FY 2015 in orderto recognize revenue during that period. The customer, however, didnot need additional product at the time and did not have space forthe product. Super Micro ultimately arranged to pay for trailerswhere the goods would be stored. At least some of the goodsremained in the trailers for approximately six months.
b. Super Micro—at the end of quarters—shipped goods on multipleoccasions prior to the delivery dates agreed with, or specified by,its customers in order to record and recognize the revenue prior toquarter-end.
c. Super Micro wanted to ship goods to a customer at the end ofthe second quarter of FY 2016. However, Super Micro was unable toget all of the units to function properly before quarter end. Inorder to recognize the revenue in the second quarter of FY 2016, aSuper Micro sales employee instructed Super Micro employees to putgreen stickers on eight mis-assembled units. At the time ofshipment, the sales employee knew that Super Micro might have totake back and repair or replace the tagged units.
d. Super Micro offered its customers the ability to purchaseextended warranties on its products. At times, these warrantieswere purchased separately from the cost of Super Micro products andlisted separately on invoices. With respect to certain types ofproducts sold by Super Micro, however, customers received anextended warranty covering periods ranging from one to five yearsbeyond the standard warranty, the cost for which was built into theprice of the hardware products purchased. These warranties were notexplicitly listed in the invoice, purchase order or any otherdocuments provided to accounting.
a. Super Micro asked a distributor (customer) to agree to acceptapproximately $104,000 of goods before the end of FY 2015 in orderto recognize revenue during that period. The customer, however, didnot need additional product at the time and did not have space forthe product. Super Micro ultimately arranged to pay for trailerswhere the goods would be stored. At least some of the goodsremained in the trailers for approximately six months.
b. Super Micro—at the end of quarters—shipped goods on multipleoccasions prior to the delivery dates agreed with, or specified by,its customers in order to record and recognize the revenue prior toquarter-end.
c. Super Micro wanted to ship goods to a customer at the end ofthe second quarter of FY 2016. However, Super Micro was unable toget all of the units to function properly before quarter end. Inorder to recognize the revenue in the second quarter of FY 2016, aSuper Micro sales employee instructed Super Micro employees to putgreen stickers on eight mis-assembled units. At the time ofshipment, the sales employee knew that Super Micro might have totake back and repair or replace the tagged units.
d. Super Micro offered its customers the ability to purchaseextended warranties on its products. At times, these warrantieswere purchased separately from the cost of Super Micro products andlisted separately on invoices. With respect to certain types ofproducts sold by Super Micro, however, customers received anextended warranty covering periods ranging from one to five yearsbeyond the standard warranty, the cost for which was built into theprice of the hardware products purchased. These warranties were notexplicitly listed in the invoice, purchase order or any otherdocuments provided to accounting.