Route Cedar Trail's held product and return right

Problem

Cedar Trail completes a standard sensor on December 27. The customer asks in writing that Cedar Trail hold it until January because the customer's secure room is unavailable. A serial number marks the sensor as the customer's, and pickup can occur at once. Cedar Trail has no right to use or redirect it. The customer owes payment and bears the ownership risks under the contract.

A side agreement also gives Cedar Trail a call option to repurchase that same sensor. Counsel has not yet confirmed whether the option is enforceable or its price. Analyze the bill-and-hold facts and the repurchase conflict before using a recognition date.

For separate ordinary sales whose control transfer is established, transferred sales are $150,000 and carrying cost is $90,000. The supported return estimate is 8 percent. Expected recovery costs are $600, and returned goods are expected to lose $300 of value.

Products include one year of defect-only coverage required by law. Customers may also buy a separately priced two-year calibration plan.

Route control before measuring revenue

The written customer request supplies a substantive reason for delayed delivery. Separate identification, readiness, and lack of seller use or redirection satisfy the additional bill-and-hold conditions. Payment, title, and risks also support customer control.

The unresolved seller call blocks release of that conclusion. An enforceable forward or call can prevent the customer from obtaining control and require a lease or financing model. The owner must obtain the option terms and repurchase price before recognizing bill-and-hold revenue.

Measure the supplied return estimate

For the separate ordinary sales, the return model produces:

Revenue less cost of sales gives $54,300 of gross profit. Update the return estimate, refund liability, recovery costs, value decline, and recovery asset at each reporting date.

Separate the warranties

The required defect-only promise assures that the product meets specifications. It follows the product-warranty liability path under the supplied facts. The separately priced calibration plan provides an added service. It is a performance obligation that receives transaction-price allocation and follows its service transfer pattern.

Verification boundary

The calculation verifies the supplied return amounts. It does not establish control, bill-and-hold criteria, repurchase terms, the return estimate, recoverability, or either warranty classification.

Read ASC 606-10-25-30 for point-in-time indicators, 55-23 through 55-35 for returns and warranties, and 55-66 through 55-84 for repurchase, consignment, and bill-and-hold. Then complete the independent Northstar practice.