Reference no: EM132776389

Problem 1: Micrium, a computer chip manufacturing company, sells its products to its distributors for onward sales to the ultimate customers. Due to frequent fluctuations in the market prices for these goods, Micrium has a "price protection" clause in the distributor agreement that entitles it to raise additional billings in case of upward price movement. Another clause in the distributor's agreement is that Micrium can at any time reduce its inventory by buying back goods at the cost at which it sold the goods to the distributor. Distributors pay for the goods within 60 days from the sale of goods to them. When should Micrium recognize revenue on sale of goods to the distributors?

a. When the goods are sold to the distributors.

b. When the distributors pay to Micrium the cost of the goods (i.e., after 60 days of the sale of goods to the distributors).

c. When goods are sold to the distributor provided estimated additional revenue is also booked under the "protection clause" based on past experience.

d. When the distributor sells goods to the ultimate customers and there is no uncertainty with respect to the "price protection" clause or the buyback of goods.