For simple orders (e.g., additional handsets or equipment), or when a customer has its own technical team to determine the necessary equipment, Company A's sales team verifies that the goods are consistent or compatible with the customer's previous purchases and Company A's knowledge of the customer's environment before placing the order.

For more complex orders (e.g., updating a network technology infrastructure), Company A's sales team and technical engineers may meet with the customer to understand the customer's business and telecommunication needs. To help the customer select an appropriate solution, the sales and technical engineers may consult with the customer to (1) gain an understanding of the current environment, (2) determine the functionality the customer is requesting, and (3) determine how the equipment will be integrated into the customer's current environment.

For certain large or complex customer situations, Company A involves the manufacturer's representatives directly to ensure the products selected will meet the customer's needs.

Once the sales and technical teams understand the customer's requirements and identify equipment from the various manufacturers, a solution is developed. This process consists of combining one or more standard products from existing manufacturer catalogs to meet the customer needs; there is no customization performed by either Company A or the manufacturer as a part of the process.

Once the customer's equipment needs are identified, Company A prepares a bill of materials and a quote for the customer. While the company may develop various solutions that meet the customer's requirements, the ultimate selection of the hardware and the manufacturer that will provide the hardware is at the sole discretion of the customer. The solution selected by the customer determines which manufacturer Company A will use.

Company A can order the goods directly from the manufacturer or any of the manufacturers' approved distributors. However, the company may not select a different hardware manufacturer after the customer has placed an order.

Pricing

Discounts that manufacturers provide to Company A vary based on the level of certifications, volume of business, and manufacturer's promotions. Company A then takes cost, manufacturer list price, competition, complexity of the product, and volume of business the customer provides into consideration when setting a price for the customer.

Shipping, Title, and Risk of Loss

The manufacturer is responsible for (1) shipping the goods, including the determination of when the goods ship; (2) the method in which the goods are shipped; and (3) the shipping carrier. The manufacturer also provides the primary warranties for its products.

********Company A purchases hardware from the manufacturer with "free-on-board" (FOB) shipping-point terms, and the hardware sold to the customer is shipped FOB destination. As a result, title passes from the manufacturer to Company A during shipping and from Company A to the customer upon delivery**************

Company A has legal title to the hardware while it is in transit even though the manufacturer makes the shipping arrangements; however, the company never takes physical possession of the hardware.

Ability to Redirect Goods

While in Transit Because customer orders and manufacturer purchases are linked in Company A's systems, Company A would need to cancel an original order and create a new order if it wants that order shipped to another customer. That is, Cmpany A has the ability to cancel an order before it is shipped but would not control the hardware before it is shipped to the customer. Rather, the manufacturer would retain control of the hardware before shipment.

Returns

Company A's return policy states that the company will only accept returns if it has return rights with the manufacturer. Company A's sales representatives assist customers with (1) determining the manufacturer's return policy and (2) communicating with the manufacturer regarding return requests.

Company A does not physically receive the equipment subject to return. The customer will send returned equipment directly to the manufacturer.

Required: Based on the facts given, should Company A recognize revenue on the sales of hardware and equipment on a gross or net basis.Fully explain the reasoning for your answer and cite appropriate justification where necessary.

Since company A works as an agent, they will only recognize the amount of commission- the net basis and the remainder will be a liability for the principal (ASC 606-10-55-36).