Tecco Inc is a firm that manufactures multiplayer gaming systems allowing players to compete with each other over the Internet. Tecco is getting ready to launch its new system, the Max-Box. The firm believes this product will be quite successful. Shelly Gordon, the President of Tecco Gaming, located at 4000 Teco Avenue, Miami FL 33121 is your client. You are a newly hired staff member of FIU, Inc., an accounting firm located at 123 Main Road, Miami, FL 33121. Because Shelly is unfamiliar with the revenue recognition principle and proper accounting treatment regarding revenue recognition according to US GAAP she has hired FIU, Inc. to explain the accounting treatments specified by US GAAP.
Your firm has delegated to you the task of determining the treatment of revenue recognition, and has asked that you prepare a four (4) page typed memo including a works cited page (the 4th page of your memo should be designated as the works cited page; use MLA Format for your works cited page) to the client explaining
1 The standards that govern US GAAP treatment of revenue recognition.
2 The core revenue recognition principle and how to apply the principle.
3 The concept of performance obligation and how to determine whether to recognize revenue at a single point in time or over a period of time.
4 How to recognize revenue for contracts that contain multiple performance obligations (See information below regarding a transaction that particularly concerns the President of Tecco).
5 The required financial statement note disclosures regarding revenue recognition.
In addition, you are to formulate a question to ask the client that would help you determine the different types of customer-related contract transaction(s) it is involved in, and include that in the conclusion of your memo.
Information regarding one of Tecco's transactions that particularly concerns Shelly regarding revenue recognition is as follows:
• The Max-Box includes the physical Max-Box unit as well as a one-year subscription to the multiuser Sys-Net platform of Internet based applications and games.
• Tecco sells individual Max-Box units for $375.
• Tecco sells individual one-year subscriptions to the Sys-Net platform for $125.
• As a package deal, Tecco sells the Max-Box System (unit plus subscription) for $450.
• On January 1, 2015, Tecco delivered 1,000 Max-Box Systems to Comp USA at a price of $450 per system. Tecco received $450,000 from Comp USA on January 30, 2015.
This memo is expected to be professional and informative. Remember the purpose of the memo and the audience that it is addressing when you write it.
Follow the proper format for a memo, as presented in May & May, Effective Writing: A Handbook for Accountants. 10th ed. I will allow sub-headings in your memo.