The document describes a sale of a yacht by Fancy Yachts to a buyer, Vistas LLC, that did not go through due to the buyer defaulting on payments. This caused Fancy Yachts to incur substantial costs over several years to maintain, modify and eventually sell the yacht to a new buyer. The original buyer, Vistas LLC, had a history of fraudulent behavior and placing liens on the yacht, resulting in legal costs for Fancy Yachts to resolve.

1. Job_Profit_LossFancy Yachts: Job Profit / (Loss)LC:Hull
No.70-07Broker Info:Customer Name:Third Party
BuyerAddressCity, State, ZipPhoneCommission:Contract
Date:11/25/11Sales PriceBase Boat:$
1,450,000.00DateAmountOptions:Deposits:11/28/11$
145,000.00Duty Fees:4/22/12$ 36,250.00Discounts:$ -
05/22/12$ 1,238,750.00Adjustments:5/22/12$ 30,000.00Total
Sales Price:$ 1,450,000.00Less: Factory Invoice$
1,198,140.00Gross Profit:$ 251,860.00Total Deposit:$
1,450,000.00Less: Vend/Jost Cost$ 483,262.84Total Sales
Price$ 1,450,000.00Less: Freight$ 70,000.00Less Payments:$
(1,450,000.00)Net Profit/ (Loss)$ (301,402.84)A/R$ - 0Total
Cost$ 1,751,402.84Shipped Date:Arrival Date:Sales / Title
Transfer12/1/12
CashReceipt_Vistas, LLCDateLine
DescriptionAmount8/5/08Initial deposit163,000.005/7/09
progress deposit100,000.006/1/09 progress
deposit63,000.0011/5/09 progress deposit25,000.0011/6/09
progress deposit25,000.0011/12/09 progress
deposit15,000.0011/13/09 progress deposit30,000.0011/25/09
progress deposit20,000.0011/27/09 progress
deposit10,000.003/16/10reimbursement for duty/customs for
importation of Davits314.66451,314.66Deposits from 1st buyer
Fancy Yachts
Cash Receipts Report
Default Buyer
CashReceipts_NewBuyerDateLine
DescriptionAmount11/28/111st deposit 70-
07145,000.004/22/12Payment direct to Broker
commission36,250.005/22/12Deposit made directly to pay down
LC1,238,750.005/22/12Prepaid Repair Account for warranty 3
yrs.30,000.001,450,000.00Deposits from 2nd buyer
Fancy Yachts

2. Cash Receipts
Sergi
Fancy Yachts - Case Study
On August 1, 2008, Fancy Yachts entered into a contract with
Vistas, LLC to deliver a 70 foot yacht in exchange for
consideration of $1,600,000. This boat was given the hull
number 70-07. Fancy Yachts received a deposit of $163,000
with the signed contract. The yacht was manufactured and
shipped from the Taiwanese factory on October 6, 2009 and
arrived in the United States (Port of Everglades, Miami) on
October 29, 2009. The buyer had 72 hours to inspect the boat
and make arrangements for the final payment (less a small hold-
out to be paid upon title transfer) due on October 31, 2009.
On the required date of final payment, the customer indicated
that he was having difficulty with financing and asked for an
extension of time. The owners of Fancy Yachts agreed. It was
not uncommon for a customer to need additional time; a week or
so to liquidate investments or transfer funds. They also had no
other choice given the large sum of money involved!
Keep in mind, that this contract was entered into a month before
the September, 2008 financial collapse. Even a year later, when
the final balance was due, the economy had not yet recovered.
The once available credit markets had all dried up. According to
the principal of Vistas, LLC, his net worth decreased from $8
million to $2 million dollars. It was not a good time to liquidate
investments and banks were not lending. Especially for luxury
items.
Vistas, LLC continued to “string along” Fancy Yachts with
small payments (see deposit schedule) along with promises to

3. pay the entire balance. This continued until Fancy Yachts
decided that although they wanted to avoid a costly lawsuit,
they couldn’t wait any longer. They decided to sell the boat to a
third party using a marine broker. A contract was signed by
Fancy Yachts and a third party buyer on November 25, 2011.
When Vistas, LLC learned of the pending sale, the owner had
liens placed on the boat. These liens prevented Fancy Yachts
from selling the boat with clear title. To remove the liens,
Fancy Yachts was required to take legal action. The liens were
finally removed during the month of April, 2012 and the boat
was finally sold to the third party buyer on December 1, 2012,
over three years after the boat arrived in the U.S.
After a year, the sale to the third party buyer was finalized.
During that time, many problems were addressed. The liens
were cleared. The boat had substantial work done. It had been
sitting in the water for a substantial amount of time until it was
placed in dry dockage. The bottom was repainted, modifications
and other repairs were made. Routine maintenance was
performed. Batteries were checked regularly and changed when
needed, the generator was checked, the boat was washed
frequently, the lines were checked, the bottom was cleaned, and
the stainless steel and teak was polished. Prospective buyers
made appointments to view the boat. Some on very short notice.
The boat had to be “show ready.” Lastly, extensive
modifications were made to the interiors. The dancer’s pole was
removed, the fabrics in the cabins, headliners, and the galley
changed, and many other alterations were made to make it
attractive to prospective buyers.
During those three years, Fancy Yachts made significant outlays
of cash to have the boat docked, insured, maintained, and
modified.
In addition, the company had an outstanding line of credit of

4. $1.2 million dollars that they made required monthly interest
payments. A sales commission was paid to a broker, legal fees
were incurred to obtain clear title, and the company accepted a
lower selling price due to the boat being a three year old model.
What was originally a profitable sale now turned into a
substantial loss. The excel file provided has a worksheet that
outlines the loss on the boat. However, many of the cost
incurred weren’t classified as direct (inventoried) job costs.
Some examples are, travel, interest, exchange rate fluctuations,
and legal expenses. When incorporating these costs into the
equation the loss is much higher than the job loss of $301,000
(inventoried costs) indicated on the worksheet.
Below is a summary of incremental expenses incurred by the
company that are directly related to the default by the original
buyer, Vistas, LLC.
· Lower selling price $210,000
· Broker commission 72,500
· Line of credit interest 234,000
· Additional interest 38,000
· Exchange rate losses 248,000
· Legal fees 150,000
· Travel 21,000
· Boat modifications 220,000
· Dockage & storage 60,000
· Boat insurance 21,000
· Routine maintenance 26,000
The owner of Vistas, LLC was a lawyer and involved in many
business over the years. A “mover and shaker” of sorts. At one
point, he owned a brokerage firm and a film company. It was
rumored that he had a role in the development and distribution
of a Kim Kardashian exercise video, entitled, “Fit in your Jeans

5. by Friday”.
The owner of Vistas, LLC also had a dark side. Criminal
charges brought against him in a fraud case. He was a defendant
in a case in the United States District Court for the District of
Connecticut. The criminal charge was one count of knowingly
executing a scheme to defraud a financial institution by means
of false representations. The thrust of the government's case
was that the defendant, an attorney and businessman, induced,
an employee of a Connecticut bank, to authorize payment of a
check despite insufficient funds in his account by falsely
representing that he would provide funds to cover the check.
The check at issue was written for $82,500 on June 5, 1989. The
check was drawn on the film company’s business account held
at a Connecticut bank. The check was payable to Wall Street
Clearing Co., a clearinghouse for the defendant’s brokerage
firm. In mid-May 1989, the defendant purchased $1,000,000
face value of bonds issued by a Savings and Loan Association
for $82,500. At that time, he also held $1,266,000 face value of
the savings and loan’s bonds that he had purchased previously
through his brokerage firm. On June 5, he received a telegram
from Wall Street Clearing Co. demanding that he either pay the
$82,500 by the following day or face liquidation of his bonds.
To pay for the bonds, the defendant sent a check for $82,500
drawn on the Connecticut bank account, although that account
held only $610. The following day, he wrote a second check for
$82,500 drawn on his personal account at Citibank, payable to
his business. The government alleged that the defendant was
aware that neither the Connecticut bank account nor the
Citibank account had adequate funds to cover either check.
On June 9, 1989, the defendant called the interim branch
manager of the Connecticut bank. The manager testified that she
was familiar with the defendant, who “always kept very, very
high balances” and was an “excellent customer.” When asked
about the phone conversation, she testified at trial that the
defendant “said that he had written a check for $82,500, he
asked me to pay the check, and said he was wiring me money”

6. from his available funds. She also stated that she believed the
wire would arrive shortly, and that he never asked her to “hold”
the check, which would have been impossible and contrary to
bank regulations.
The defendant did not wire any funds to the Connecticut bank.
On June 12, however, the Citibank check was deposited at the
Connecticut branch, although the funds were unavailable at that
time. On the same day, the Connecticut check was presented for
payment to Connecticut. Because the account lacked sufficient
funds to cover the check, it appeared on the bank’s overdraft
list prepared on the morning of June 13. The list indicated
that $82,500 in unavailable funds had been deposited. Although
the interim bank manager was aware that the Connecticut
account contained insufficient funds, she authorized payment on
the check. She testified that she did so because of the
defendant’s request on June 9 and his assurance that he would
wire funds. The manager testified that she knew that he had
not wired the funds, but was not concerned because she assumed
that he simply deposited the funds. Had the defendant wired the
funds, she testified, they would have been available for deposit
and the check would not have appeared on the overdraft list.
The interim manager ordered payment on the check even though
she knew she was authorized to pay only up to $5,000 on
accounts with insufficient funds.
Several days later, Citibank refused to honor the Citibank check
because the defendant had insufficient funds in that account. He
had also written a check for $82,500 dated June 12 on his
account at a third bank, for deposit at Citibank. The third bank
refused to make payment on this check because of insufficient
funds in that account. On June 20, he wrote another check on
the third bank account for the same amount for deposit with
Citibank, which again was not honored because of insufficient
funds.
Accordingly, the only bank to make payment on any of the four
checks was the Connecticut bank. On June 20, the defendant,
the interim bank manager, and the new branch manager, met to

7. discuss the check. The new manager testified that the defendant
said that his broker had purchased the bonds without his
permission, and that he had to make immediate payment to
avoid trouble with the SEC. According to the new branch
manager, the defendant stated that he planned on covering the
check with a large interest payment that was scheduled on the
bonds on June 15. Those interest payments were never made,
however, because on June 14 federal regulators seized the
bonds, which was insolvent. An assistant vice-president at the
Connecticut bank, testified that at a subsequent meeting on June
23, the defendant said that he did not ask the interim branch
manager to pay the check, but instead asked her to hold it.
The defendant never covered the Connecticut bank check, and
the bank thereby incurred a loss of $82,500.
At trial, in addition to proof of the June 9 phone conversation
and surrounding events, the government produced substantial
evidence regarding allegedly false exculpatory statements that
the defendant made to bank employees and to FBI officials. The
defendant, who did not testify or present any witnesses, was
convicted after a three-day trial on the single count in the
indictment. He was sentenced to twelve months' imprisonment,
subject to appeal.
Note: The notes to Fancy Yacht’s 2011 financial statements are
presented below.

8. Notes to the Financial Statements
December, 2011
General Background
Fancy Yachts is a custom yacht builder located in
Massachusetts. The company sells custom-built sailing yachts in
sizes ranging from 46 – 70 feet. The boats are manufactured by
a contract firm located in Taiwan and sold to retail customers,
brokers, and investors who reside in the United States and
abroad. The boats may be purchased for personal use,
investment, or resale.
Customer Deposits
The company generally requires a 10% deposit with a signed
sales contract. Three weeks prior to shipping from Taiwan,
another 10% is due. The balance of 80% is due within 72 hours
of the arrival to the U.S. These requirements may be modified at
management’s discretion.
Customers who fail to adhere to the terms of the contract are
subject to forfeiture of their deposits.
Revenue Recognition

9. Revenue is recorded on the completed contract method at the
time of closing. No progress billings are made. Deposits
received are classified as Customer Deposits (unearned revenue)
and are reflected as liabilities on the balance sheet until the sale
is finalized. Closing is defined as when the risk and rewards of
ownership pass to the customer.
Contingencies -Pending Litigation
At December 31, the Company was facing the prospect of
pending litigation with the original prospective buyer of Hull
70-07. This buyer was unable to obtain financing for the
purchase of the boat and the company ultimately found a third
party to purchase it. Upon learning of this, the original
prospective buyer filed Uniform Commercial Code (UCC) liens
on the boat. It was then incumbent upon the Company to file a
motion in US District Court to force the prospective buyer to
terminate those UCC liens. The Company’s motion in US
District Court was granted on April 30, 2012.
Legal costs associated with this matter were largely incurred in
2012, so no provision has been made for those costs in the
financial statements. As it is not possible to determine the
eventual economic impact of this legal decision with any degree
of certainty, no consideration has been given to recognizing a
gain or loss with respect to this decision in the accompanying
financial statements.
Note – Subsequent Events
As discussed in the note above, the Company prevailed in its
initial legal confrontation with the original prospective buyer of
Hull Number 70-07. As a result, it was able to proceed with the

10. sale of the Hull Number 70-07, and this was consummated on
May 22, 2012. The Company used the proceeds from this sale to
immediately reduce its outstanding line of credit by $1.2
million. With the sale completed, The Company has begun steps
toward filing a lawsuit ($1.3m) against the original prospective
buyer for breech of contract and other harmful acts that resulted
in significant financial loss to the Company on this transaction.
Sequence of Events
August 1, 2008 Vistas, LLC entered into a contract to
purchase a 70Ft yacht with Fancy Yachts for $1,600,000 and
gave an initial deposit of $163,000. Note additional deposits
were received. The total equaling $451,000. See the
accompanying cash receipts journal for detail and dates.
October 6, 2009 Yacht shipped from Taiwan
October 29, 2009 Yacht arrived in the United States
October 31, 2009 Balance due on contract. Official default
date.
December 31, 2009 Forfeit $451,000 deposit received by
Vistas, LLC
November 11, 2011 Employed lawyer to eliminate UCC lien.
Gave $5,000 retainer.
November 25, 2011 Negotiated a fixed price contract with a
third party buyer.
December 1, 2012 Transferred risk and rewards of ownership
to new buyer.

11. Read through the background information above and the
supplementary information found on the excel file provided for
this case and answer the questions below.
Case Questions
1. In general, identify the risks and rewards of ownership.
2. Did Fancy Yachts satisfy its performance obligation with
Vistas, LLC?
3. What are changes in control indicators? In the case with
Vistas, LLC were change of control indicators met?
4. Explain the accounting treatment difference between Vistas,
LLC and the third party buyer.
5. If you were the business owner in this situation what
different actions would you have taken to avoid the lawsuit and
three years of “bleeding expenses.”
6. Was a loss or gain contingency reported in the 2011 financial
statements? Discuss contingencies in general and the specifics
in this case.
7. Prepare journal entries for the deposits received (in total)
from each customer. Not necessary to do by date just in total for
each customer. Use the information from the excel file
provided.
8. Explain the concept of the deposit forfeiture. Prepare a
journal entry for the forfeiture of Vistas, LLC deposits.
9. Prepare a journal entry for the final sale of 70-07 to the third

12. party buyer. Use the job loss worksheet to find the numbers and
data needed.
Note: Questions 7-9 require journal entries. Use the following
accounts.
· Cash (asset)
· Boat Sales (revenue)
· Cost of Goods Sold (expense)
· Customer Deposits (liability)
· Inventory (asset)
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