Fasb Barter Case

In: Business and Management

Submitted By tkhan
Words 414
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Cases on Recognition Measurement
The Barter Case
"Will that be cash?"

Ben Sawyer had started handcrafting replicas of antique furniture as a retirement hobby, but at the urging of friends he later opened a small shop to sell his products. It proved an immediate success, first with the "summer people" and then with dealers, several of whom encouraged Ben to supplement his line of small tables and bookcases with larger pieces. Ben decided to give it a try. After closing the shop for the winter, he worked in the basement of his home designing an impressive mahogany sideboard and building two of them by the shop's spring reopening. Materials costs (for wood) amounted to $700 for each; Ben's labor, priced at the going wage rate was $500 for each. No overhead costs were incurred.

Although familiar with the market for casual "antique" furnishings, Ben was uncertain about an appropriate price for his sideboards. From a review of catalogues offering pieces mass-produced from cheaper woods, he concluded that a figure of $3,000 to $4,000 was about right for handcrafted mahogany. Accordingly, he priced each sideboard at $3,000 ("and I'm ready to haggle if somebody's ready to buy," he told Mrs. Sawyer).

Within one week, Ben sold both sideboards with no haggling. He sold the first one on reopening day to Will Bascomb, a dealer he knew well. "Beautiful work, Ben," said Will. "I want it, but I'm going to be short of cash for a while. How about $1,000 down and the balance in quarterly installments for a year?" Done. Cash, a non-interest-bearing note, and sideboard changed hands.

The second sale came two days later. Seth Forester, Ben's wood supplier since the hobby-only days, dropped by to see if Ben needed any materials and was captivated by the sideboard. "I don't remember when I last had $3,000 in one lump," said Seth, "and I don't reckon to have it anytime soon. But…...

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