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Lesson details
- Estimated study time
- 145 min
Learning objectives (8)
After rejecting over-time recognition, Linden Peak still must locate control transfer. The invoice, shipment, and customer acceptance occur on three dates. Shipment cannot settle the conflict while acceptance, payment, title, risk, or seller-redirection evidence remains open.
Assemble control evidence
For the promised asset, map present right to payment, legal title, physical possession, significant risks and rewards, customer acceptance, and any seller repurchase or redirection ability. Explain what each indicator says about the customer's ability to direct use and obtain benefits. A substantive acceptance test can matter; a ceremonial sign-off after objective specifications were met may not delay transfer.
Route rather than memorize special cases
| Arrangement | Facts that reopen ordinary delivery analysis |
|---|---|
| Bill-and-hold | substantive customer reason; separate identification; readiness; seller cannot use or redirect |
| Consignment | control before dealer's end-customer sale; unconditional payment; return and redirection rights |
| Repurchase | forward, call, or put terms; repurchase price; customer incentive; control and financing/lease path |
| License | promised IP; access versus use; functional or symbolic nature; activities that significantly affect benefit |
| Acceptance | objective specifications versus substantive customer discretion |
These are different branches. “Special arrangement” is not a common deferral rule.
Record a product return model completely
Suppose $100,000 of products with $60,000 carrying cost transfer, and expected returns are 5 percent with no material recovery cost or value decline. Under the supplied assumptions:
- recognized revenue is $95,000;
- refund liability is $5,000;
- cost of sales is $57,000; and
- recovery asset is $3,000, calculated as 5 percent of the $60,000 carrying cost.
Update both the consideration and recovery estimates. Recording only $95,000 revenue leaves the liability and asset path incomplete. Exchanges for products of the same type, quality, condition, and price may follow a different boundary.
Separate warranty promises
The standard one-year promise repairs manufacturing defects and is not sold separately. The optional three-year plan includes preventive calibration and is sold separately. The first is stipulated as assurance for this exercise and routes to the warranty-liability model; the second is a service performance obligation receiving transaction-price allocation. If one warranty contains both and the service cannot be separated reasonably, account for the combined promise under the service path.
Evidence challenge
Work through the Cedar Trail example. It separates control routing from return measurement and warranty classification. Then, for a device completed December 28 but held at Linden Peak at the customer's written request, list the facts needed for bill-and-hold recognition. Then add a seller repurchase call at a fixed amount and explain why the original conclusion must be reopened rather than adjusted with one more journal-entry line.
Complete the independent practice after you can identify which conclusions its return calculation accepts as supplied inputs.