Question
Sales Arrangement with Mega Mart Ltd. RI entered into an agreement with Mega Mart Ltd., a large global retailer, to distribute a lower-end touch screen
Sales Arrangement with Mega Mart Ltd.
RI entered into an agreement with Mega Mart Ltd., a large global retailer, to distribute a lower-end touch screen for price-sensitive customers. This touch screen makes use of the BasalT technology. The sales agreement requires RI to deliver units of the touch screen to Mega Mart. Mega Mart will display the screens in a prime location and retain 20% of the per-unit sales price ($50 per unit), with the remaining 80% of the sales price to be sent to RI. Any unsold touch screens that are not sold by Mega Mart will be returned to RI. In addition, Mega Mart will provide RI an upfront payment of $250,000 in order to help offset working capital requirements.
According to the sales agreement, RI shipped 30,000 units to Mega Mart Ltd. in April 2020. At the time of delivery, RI recorded revenue of $1.2 million, debited cash for $250,000, and set up an accounts receivable for the remaining $950,000.
In order to complete your case analysis successfully, you must
- identify the role you are playing;
- assess the financial reporting landscape, considering the user needs, constraints, and business environment;
- identify the issues;
- analyze the issues (qualitatively and quantitatively); and
- provide a recommendation and conclusion.
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