Transaction 2

DO NOT COPY OTHER ANSWERS FROM CHEGG AND USE FASB CODIFICATION REFERENCE.

TeleCo, a customer of CoAx, entered into a binding written agreement to purchase 1,500 feet of fiber-optical cable for $3 per foot. TeleCos shipping terms are freight on board (FOB) shipping point, and CoAx collected payment before the order shipped. Title transfers upon delivery to the carrier, and TeleCo will insure the product while it is in transit. Instead of using a third-party shipper (e.g., FedEx, UPS), CoAx has elected to use its own logistics subsidiary, DeliveryAx, to deliver the cable to TeleCo.

CoAx acquired 100 percent ownership interest in DeliveryAx in the previous year. DeliveryAx provides an array of shipping services to third-party customers outside the cable industry. Only 2 percent of DeliveryAxs shipping revenue is expected to be derived from transactions with CoAx in the current year.

Is it appropriate to recognize revenue upon transfer of the inventory to DeliveryAx in Transaction 2?