Josselin Inc. (Josselin)

is a manufacturer of computer game consoles. The company’s products are designed to the specifications of each customer. In 2014 Josselin entered into a number of bill and-hold arrangements with customers. Each arrangement is a bit different and management isn’t sure when revenue should be recognized in each case. Provide a report to management explaining when you think revenue should be recognized for each arrangement (perhaps whether revenue should be recognized on production, delivery, or some other point). Josselin’s year-end is December 31.

a. The customer signed a contract to purchase 100,000 consoles to meet expected increased demand for its products. The customer asked that the consoles be produced as soon as possible but not delivered until early the next year because of a shortage of space in its warehouse. The customer paid a deposit of 25 percent of the selling price and the contract states the customer must pay the agreed price in full for the consoles whether it needs them or not. The contract also specifies that 25,000 consoles are to be delivered on the 15th day of each of the first four months of 2015.

Josselin completed production of the consoles in mid-December and they are awaiting shipment. The price has been agreed to and normal payment terms apply.

b. The customer ordered 50,000 consoles and paid a deposit of 30 percent of the selling price. The deposit must be refunded if the customer decides to cancel the order. The order can be cancelled at the option of the customer for any reason.

The units ordered can be easily modified by Josselin and sold to other customers if need be. The contract also specifies that 12,500 consoles are to be delivered on the 15th day of each of the first four months of 2015. Josselin completed production of the consoles in mid-December and they are awaiting shipment. The price has been agreed to and normal payment terms apply.

c. To take advantage of some excess production capacity at its factory Josselin produced 200,000 consoles for one of its regular customers. The customer indicated in a conversation with Josselin’s president that it was highly likely that the units would be needed but the customer would not make a commitment to purchase them. Josselin’s management expects the units will be shipped to the customer by October of 2015 at the latest.