Sales by Knight Inc. to major customers are as follows Customer State of Illinoi

Question

Sales by Knight Inc. to major customers are as follows Customer State of Illinois Cook County, Illinois U.S. Treasury Department U.S. Department of Defense Bank of England Philips NV Honda Sales Reporting Segment Computer hardware $2,770,000 3,670,000 Computer software 4,070,000 Service contract 2,400,000 Service contract 4,730,000 Computer software 3,010,000 Computer hardware 5,470,000 Computer hardware Required Assume if worldwide sales total $43,100,000 for the year, what amount of Knight's sales from major customer should be disclosed under the following reporting segments? Service contracts Computer software Computer hardware

Explanation / Answer

Disclosures regarding major customers under reporting segments fall under the purview of Accounting Standard Codification 280, or commonly called ASC 280.

ASC 280 states that all public entities are required to disclose information about their dependence on the business they secure from their major or material customers. A material customer has been defined as an external customer providing business of 10% or more of the entity's revenue. However, group entities falling under or sharing same control shall be considered as a single customer. Also, different tiers of government i.e. Fed, State, and Local Government shall be counted as single customer, provided they are governed under shared control.

Hence in the given problem, any customer providing to whom sales have been made to the quantum of $4,310,000 or more ($43,100,000x10%) shall be considered as major customer. Accordingly, disclosure as per reporting segments should be as follows:

Service Contracts: $6,470,000 (Refer Point 2 of Notes to the Solution)

Computer Software: $4,730,000 (Bank of England)

Computer Hardware: $5,470,000 (from Honda)

Notes to the Solution:

1. Cook County, Illinios has been assumed as a different and independent entity from the State Government of Illinios, since counties generally do not fall under the control of state government.

2. The amounts of sales made to US Treasury Department and US Department of Defence has been combined because they both are under the common control of US Government.

3. Philips NV doesn't qualify as major customer, since the revenue derived from it falls short of the threshold established for recognition of major customer.

Please feel free to ask for any further clarification! :)

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.