Coax Vs Cableco Case Study

Facts of the Case CoAx and CableCo have entered into a binding written agreement for CableCo to buy 1,000 feet of coaxial cable for $3 per foot. However, CableCo is building a new warehouse, so they currently don’t have anywhere to store the cable. They have asked CoAx to store the cable in their warehouse until CableCo’s warehouse is completed in three months. CoAx agrees to do so. They store the cable in spools holding 10,000 feet of cable, which are considered finished goods ready to be shipped. They will not physically set aside the 1,000 feet of cable that CableCo ordered, but will denote the quantity as sold in their system so that it cannot be used to fill another order. They have determined that CableCo has assumed risk of ownership,
Typically, revenue should be recognized when the control of the goods has transferred from the seller to the buyer or upon delivery of the goods unless it is a bill-and-hold sale. Therefore, another issue of this case is whether or not the transaction between CableCo and CoAx qualifies as a bill-and-hold sale.
Application of the Rules Several uncertainties and issues of this case come to light when referencing the aforementioned ASC rules. As outlined in ASC 606-10-25-1, the requirements for a contract to exist are clearly met between CoAx and CableCo. ASC 606-10-25-14 and ASC 606-10-25-30 clarify that CoAx owes CableCo
If during the three months that CableCo’s warehouse is under construction, CoAx cuts, packages, and physically sets aside the specific amount of cable ordered by CableCo, they can recognize revenue at that point because all of the qualifications for a Bill and Hold Arrangement will then be met. If this occurs upon the day of delivery, then CoAx will have to wait until the day of delivery to recognize