Accounting for a Bill and Hold Arrangement
On December 30, Tricky Company segregated goods costing $145,000 for future shipment to one of its customers, Tracking Company. Tracking was billed $210,000. Make the journal entry necessary on Tricky’s books to record this action in each of the following situations. Treat each situation independently.
(a) Tracking is a regular customer, and Tricky has been expecting an order for the past 2 weeks. To make sure that sufficient goods are available when the order from Tracking finally does come, Tricky has segregated the goods.
(b) Normal procedure is for the purchasing agent for Tracking to sign a formal sales agreement as part of each purchase. That agreement is then countersigned by Tricky’s sales manager. The segregation of goods was arranged over the phone; Tricky plans to take care of the formal paperwork next week.
(c) Tracking has requested, in writing, that Tricky segregate the goods. Tracking is conducting temporary repairs to its storage warehouse, so Tracking has arranged to make its shipments directly from Tricky’s warehouse for the duration of the repairs. The goods have been carefully separated so that Tricky employees don’t accidentally ship them to another customer.
(d) The sales agreement between Tricky and Tracking requires that all goods be subjected to a quality control test by Tracking engineers. That quality control test is not expected to occur until early January.