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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Substitution Rights

RaleighTech enters into an arrangement with Bloomington Corp. to provide services, through a centralized data center. Because this involves a new secret project for Bloomington, it asks that RaleighTech maintain all of the information on a specified server, Server-XB22. RaleighTech maintains many 120 identical servers for Bloomington in its server farm located in Raleigh, NC. RaleighTech determines at the inception of the contract that it is permitted to, and easily can, substitute another server without the customer’s consent throughout the period of use consistent with its past business dealings with Bloomington. RaleighTech would substitute servers because it would benefit economically from substituting an alternative asset and because doing this would allow it to optimize the performance of its network at a nominal cost. In addition, RaleighTech has made it clear that it has negotiated this right of substitution as an important right included in the arrangement, and the substitution right affected the pricing of the arrangement.

Required:

  1. 1. Should RaleighTech consider Server-XB22 an identified asset?
  2. 2. Should Bloomington consider Server-XB22 an identified asset?
  3. 3. If Server-XB22 is customized to Bloomington’s specifications and RaleighTech does not have the practical ability to substitute another server throughout the period of use and it would not benefit economically from sourcing a similar server, would Server-XB22 be an identified asset?

1.

To determine

Identify whether R Tech considers server-XB22 as an identified asset or not.

Explanation

R Tech should not consider ServerXB-22 as an identified asset because R Tech has the practical ab...

2.

To determine

Identify whether Corporation B considers server-XB22 as an identified asset or not

3.

To determine

Identify whether the server-XB22 as an identified asset or not for the given situation.

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