April 2018 — Question 46
A U.S. importer and a foreign manufacturer enter into a contract for 500 wooden tables. In the contract, the manufacturer agrees to provide 500 tables at a price of $500 per table. The tables are to be delivered in lots of 100 tables on the first of each month for a period of five months. The importer provided the foreign manufacturer with an assist in the form of special tools. The tools were purchased from an unrelated party in Chicago, and delivered for free to the manufacturer abroad. The tools have a useful life of 500 tables. Several weeks later, the first shipment under the contract, which contains the first 100 tables, arrives in the United States. Which of the following methods of apportioning the assist is NOT acceptable?
- AApportion the entire value of the assist to the first 100-table shipment
- BApportion the value of the assist over the entire anticipated production
- CApportion the entire value of the assist to the second 100-table shipment when it arrives✓ CBP's answer
- DApportion the value of the assist over the number of units produced up to the time of the first shipment
- EApportion the value of the assist in another manner in accordance with GAAP
Why this answer
19 CFR 152.103(e) governs apportionment of assists and lets the importer choose any method consistent with generally accepted accounting principles; it expressly permits apportioning the full value over the first shipment, over the entire anticipated production, over the units produced up to the time of the first shipment, or in another GAAP-consistent manner, which covers options A, B, D and E. Deferring the entire assist to the second shipment is not among the permitted methods, since the assist must be declared beginning with the first shipment of goods it produced. Option A tempts because front-loading looks aggressive, but the regulation explicitly authorizes it. Watch for: Rejecting option A because charging the whole assist to the first shipment seems too aggressive to be lawful.
Original CBLE Simulator explanation — the question and key above are CBP's; this analysis is ours. Verify against the current edition before relying on it in practice.
CBP's cited authority
Answer and citations as published in CBP's official answer key for the April 2018 examination.
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