Question

In: Accounting

Inventory Case JMI Industries (“JMI” or “the Company”), a publicly traded company, manufactures and sells coaxial...

Inventory Case

JMI Industries (“JMI” or “the Company”), a publicly traded company, manufactures and sells coaxial and fiber optical cable. JMI is contemplating two separate transactions for which it is evaluating the appropriate inventory and revenue recognition.

Transaction 1: BigWire, a customer of JMI,has entered into a binding written agreement to purchase 1,000 feet of fiber optic cable for $3.00 per foot. Because BigWire is constructing a new warehouse, it is unable to take delivery of the cable and has requested in writing that JMI store the cable in its warehouse until construction of BigWire's warehouse is completed. BigWire's warehouse will be completed three months from the time of purchase, at which time BigWire is required to take delivery of the cable. JMI stores fiber optic cable in 10,000-foot spools (spools of cable are considered finished goods and ready for shipment). JMI will not physically segregate the cable that BigWire will purchase; rather, the Company will designate the quantity in its inventory tracking system as "sold," thereby preventing the use of the cable to fulfill other customer orders. In other words, JMI will "virtually" segregate the inventory.

JMI and its auditors have concluded the following with respect to the arrangement with BigWire:

• Risks of ownership of the cable have passed to BigWire.

• BigWire has a substantial business purpose for requesting JMI to hold the cable at its warehouse (waiting on completion of the warehouse).

• JMI does not have additional performance obligations with respect to the cable purchased by BigWire.

JMI has concluded that it is appropriate to recognize revenue for Transaction 1 before the date on which BigWire takes delivery of the 1,000 feet of 18 AWG coaxial cable.

Transaction 2: Grant Telecom, a customer of JMI, entered into a binding written agreement to purchase 1,500 feet of fiber optic cable for $2.95 per foot. Grant Telecom's shipping terms are freight on board (FOB) shipping point, and JMI collected payment before the order shipped. Title transfers upon delivery to the carrier, and Grant Telecom will insure the product while it is in transit. Instead of using a third-party shipper (e.g., FedEx, UPS), JMI has elected to use its own logistics subsidiary, JMI Transit, to deliver the cable to Grant Telecom (JMI Industries owns 100 percent of JMI Transit). JMI Transit provides an array of shipping services to third-party customers outside the cable industry. Only 2 percent of JMI Transit's shipping revenue is expected to be derived from transactions with JMI in the current year.

Required:

Transaction 1

• Is it appropriate for JMI to recognize revenue before the date on which BigWire takes delivery of the 1,000 feet of 18 AWG coaxial cable? ( take a look at ASC 606-10-55-83)

If JMI and BigWire’s fiscal years end after the agreement is signed but before the cable is delivered, on whose balance sheet should the cable be shown?

Transaction 2

• Is it appropriate for JMI to recognize revenue upon transfer of the inventory to the carrier?

Would your answer change if 80% of JMI Transit’s shipping revenue came from transactions with JMI?

You should use the GAAP Codification database to answer these questions (and no other sources should be needed). To access the GAAP codification database, go to aaahq.org/FASB-GASB, and use the following access credentials:

Username:         AAA52009

Password:           7S8FrRw

Cite the section number of any relevant sections of the codification in your answer. Treat this assignment as though it were a research request in a professional setting.

Solutions

Expert Solution

According to the given question:

Transaction 1

606 Revenue from Contracts with Customers. Revenue shall be recognised if

a. The parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations.

b. The entity can identify each party's rights regarding the goods or services to be transferred.

c. The entity can identify the payment terms for the goods or services to be transferred.

d. The contract has commercial substance (that is, the risk, timing, or amount of the entity's future cash flows is expected to change as a result of the contract)

Thus it would be appropriate to recognise revenue before Big wire takes delivery of transferred transferred 1000ft of 18AWG coaxial cable .

Transaction 2:

Code 605- Revenue recognition lays out guidelines for revenue recognition. In the given case the title of the goods has transferred since goods have been delivered to the carrier. JMI Transit is ordinarily involved in providing an array of services and only 2% of its transactions are with JMI.

Thus it would be appropriate to recognise revenue upon transfer to the carrier.


Related Solutions

Booyah is a publicly traded company that sells both computer hardware and services. It has no...
Booyah is a publicly traded company that sells both computer hardware and services. It has no debt outstanding or cash. In the most recent year, the company reported the following information about its two businesses: Business              Revenues (in $ millions)               Enterprise Value/Sales Unlevered Beta Computer hardware       $800                                                               0.7 1.22 Computer services          $500                                                               1.9 0.7 The company also provides the breakdown of revenues geographically: Country Riskfree rate In local currency Equity Risk Premium Marginal tax rate Total Revenues (in...
Select a publicly traded company and a publicly traded, large partnership. Analyze how they are treated...
Select a publicly traded company and a publicly traded, large partnership. Analyze how they are treated for tax purposes. Describe the differences in taxation of their income, formation, dissolution, and liquidation, as well as the responsibilities borne towards creditors and taxing authorities by partners, shareholders, partnerships, and corporations. As a CPA in public practice, which type of business organization would you advise a client to adopt among sole proprietorships, various forms of partnerships, and various forms of corporations? MAKE A...
I would like you do identify a publicly traded manufacturing company. BY publicly traded it means...
I would like you do identify a publicly traded manufacturing company. BY publicly traded it means they have stock traded on an exchange such as the New York Stock Exchange. I would then like you to research a product they manufacture. Based on what you have found would they use process costing or job order costing. Why did you select the method they did. Please be sure to integrate terms and concepts you learned about in week three and four...
Use the Internet and/or Strayer Library to research a publicly-traded company that manufactures technology products. Recommend...
Use the Internet and/or Strayer Library to research a publicly-traded company that manufactures technology products. Recommend one (1) approach that your selected company can take to lower either the direct labor or direct material costs of technology products while remaining competitive with global markets. Provide a rationale for your recommended approach.
Tara’s Treasures Inc. is a publicly traded company that develops, manufactures, and distributes professional quality exercise...
Tara’s Treasures Inc. is a publicly traded company that develops, manufactures, and distributes professional quality exercise equipment. The firm was established in 1965 in Burlington, Vermont and went public in 1975. Sales were initially from only the Northeast region of the United States, but since going public the company has grown significantly and now supplies exercise equipment in all fifty states. In 2015 the company reported a market capitalization of $950 million. Recently, the company has decided to enter the...
Activity-Based Costing (ABC) in Service Industries Research a publicly traded company that engages in e-commerce activities....
Activity-Based Costing (ABC) in Service Industries Research a publicly traded company that engages in e-commerce activities. Write a 5–6-page paper in which you: Describe the company you researched in 1–2 paragraphs. Discuss how an Activity-Based Costing (ABC) system can be implemented in the company you researched and the benefits that the use will yield to the business performance. Assess how using an ABC system can provide a competitive advantage to the company in the e-commerce marketplace for which it competes...
Select AMAZON a publicly traded company that primarily sells tangible products. So, typically this would exclude...
Select AMAZON a publicly traded company that primarily sells tangible products. So, typically this would exclude banks, financial services companies, utilities etc. Post the name of your company in the Discussion Board section of the course website on Canvas. Look for the icon “Project Company Names” and post your company name under this icon by creating a new thread. Remember, you cannot work on a company that one of your classmates has already selected. Do not choose Target Corporation as...
Select Amazon a publicly traded company that primarily sells tangible products. So, typically this would exclude...
Select Amazon a publicly traded company that primarily sells tangible products. So, typically this would exclude banks, please consult the questions below and answer them accordingly. . Obtain electronic copies of the Annual Reports for the last two years. 10. What price is the share trading at on the date that you were conducting this research? Please note the date as well. (3pts)11. What was the highest price that the share traded at over the last 52 weeks? (3pts)12. What...
Develop a list of expense streams for a publicly traded sportswear company
Develop a list of expense streams for a publicly traded sportswear company
For the publicly traded U.S. company, Apple (AAPL), provide an introduction to the company and its...
For the publicly traded U.S. company, Apple (AAPL), provide an introduction to the company and its industry. Include relevant background information. Describe the organizational structure.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT