4186
Computer Commodity, Inc. Barter Question
ExchangeofInventoryforBarterCredits (25 % of the grade)
CCIconductedastrategicreviewofitsproductlines duringthefourth quarter.Inconjunctionwiththisitfound$8million (atbookvalue) ofanoldermodelharddriveinthebackofthewarehouse.Newerinventoryhadbeenplacedover infrontoftheold inventoryandthe oldermodelhad notbeenshipped onatimelybasis.Newmodelsarenowfaster andmorereliable.CCIwasclose toclosingadealwithatraditionalcustomertosell theinventoryfor $5.5millionwhenmanagementfoundathird partybroker,SterlingVendors,whichspecializedinstructuringtransactionsinwhichcompaniesareabletoexchangeexcess merchandiseformuchneededgoods andservices.CCIdecidedtoacceptanofferonJune25,2016inwhichSterling VendorswouldpayCCI$9millionforitsoutdated inventory.
PaymentwasreceivedbyCCIintheformof$9millioninservicecredit, redeemablebyCCIforavarietyofservicesperformedbyotherclients ofSterlingsuchasofficecleaning,wastedisposal,andevencredits atamajorhotelchainthatcould beusedforbusinesstravel. Forexample,credits atamajorhotelchain orairtravelcouldbebookedatthemotelchains orairline’spublished rateatthetimethetravelisbooked. Note:thepublishedfaresrepresent faresthatareposted inhotelrooms ormaximumcoach fareforair travel.Theservice creditscannotbeconvertedtocashandshouldnotbeconsideredcashequivalents,anddonothaveanexpirationdate.
Required:
a. PrepareaonepagememoforSusanMadiganexplainingtheappropriateaccountingtreatmentforthesaleofinventorytoSterlingVendors. YourmemoshouldincludeajournalentrytobookthetransactionasofJune25,2016withsupportinglogic.
b. Separatelyaddresswhether itmaybepossibletoreachdifferentconclusionsabouttheappropriatefinancial accounting for thistransaction.
c. If it ispossiblethattherearedifferentconclusions,doesthismeanthatoneconclusioniscorrectandthattheothersarewrong?Ifnot,isoneopinion betterthantheothers? As you godownthislaterpath,explainwhatyoumeanbyabetterconclusion.
