Coax Revenue Recognition Case Study

The purpose of this memo is to evaluate the appropriateness of revenue recognition in the two given transactions for CoAx Cable Company. The two scenarios are in reference to a new standard ASC 606 called “Revenue from Contracts with Customers.” CoAx is a publicly traded company that sold coaxial cable to CableCo and TeleCo under different contract terms. Both companies have written agreements with CoAx to receive goods at a particular time and with a specific distribution method. In transaction one, the risk of ownership has been transferred to CableCo and CoAx retains no effective control of the goods according to ASC 606-10-55(81-84) “Bill and Hold agreement”. CoAx is just holding the cable in their warehouse until the construction of CableCo’s

Also, it can be challenging since guidelines created by Financial Accounting Standards Board (FASB) are complex and are subject to interpretation. To resolve this problem, in 2014, the FASB and the International Accounting Standards Board issued their final standard ASC 606 “Revenue from Contracts with Customers”. This new standard brought many changes in the way revenue is recognized by companies. This revenue recognition standard will require consumer products entities to reassess many of their existing accounting policies and practices. Also, the timing of revenue recognition could change under the new revenue recognition standard. The new standard requires extensive disclosures than recent revenue standards. Therefore, the consumer may need to revise their systems and processes to gather information about contracts with customers. These standard provide companies with clear instructions on how to account for revenue arising from contracts with customers. The main idea is to recognize revenue when control of the goods or services transfers to the customer, not when the risks and rewards transfer to the