Gallemore Corporation entered into a contract to sell a machine to Christiansen Corporation for $2 million. Christiansen pays for the equipment, but asks Gallemore to delay shipment under a "bill-and-hold" arrangement. Gallemore agrees.
Required:
Under each of the following independent scenarios, determine whether Gallemore may recognize sales revenue.
1. Because the machine Gallemore ordered is a standard model and Gallemore has many identical units, it does not physically set aside a machine for Christiansen, but rather notes that it should not let its inventory fall to zero, so that it will be able to ship a machine to Christiansen immediately upon demand.
2. Gallemore moves a machine to a separate area of the warehouse and labels it "SOLD TO CHRISTIANSEN CORPORATION." The warehouse manager is informed that if need be, he can sell the machine to someone else, as long as he is sure he can replace Christiansen's unit in the warehouse within 24 hours.
3. Gallemore moves a machine to a separate area of the warehouse and labels it "SOLD TO CHRISTIANSEN CORPORATION." The warehouse manager is informed that the company must be ready to ship the machine on one hour notice, so that under no circumstances should the machine be moved out of the warehouse, even if it means losing a sale to another party.