A Series of Revenue Recognition Research Cases Using the Codification by R. Mark Alford, Teresa M. DiMattia, Nancy T. Hill, and Kevin T. Stevens
Case 1: Requirements
CCPC is considering how it should account for the Fresh & Bright coupon drop that took place on October 1, 2009. In doing so, CCPC asks for your help. Prepare a memo addressing the following questions. Base your analysis of the following questions on the relevant authoritative literature and discuss the support in that literature for your conclusions. Be sure to cite the relevant components of the Codification in your discussion. Citations are not required for journal entries.
1. What are the accounting issue(s) and the relevant components of the authoritative literature?
2. When should CCPC recognize the effects of the Fresh & Bright coupon drop in its financial statements?
3. What is the dollar amount of the effect of the Fresh & Bright coupon drop on CCPC's financial statements?
4. What would constitute ‘‘sufficient evidence'' to support CCPC's expected redemption rate of 2 percent?
5. What are the accounting implications if CCPC's estimated redemption rate changes to 2.5 percent at a later point in time?
6. How should the effects of the Fresh & Bright coupon drop be reflected in the income statement?
7. What are the necessary journal entries?
8. Prepare a PowerPoint presentation that covers the following points:
a. A summary of the case facts and an explanation of the accounting issue(s) that the case raises.
b. Identification and discussion of the relevant sections of the Codification that address the facts in the case.
c. Conclusions reached in applying the authoritative literature to the case facts and the questions above.
d. Any necessary journal entries.
Case Two: Requirements
Landline is considering whether it should recognize revenue related to its arrangement with PRU on a gross or net basis. In doing so, Landline asks for your help. Prepare a memo addressing the following questions. Base your analysis of the following questions on the relevant authoritative literature and discuss the support in that literature for your conclusions. Be sure to cite the relevant components of the Codification in your discussion. Citations are not required for journal entries.
1. What are the accounting issue(s) and the relevant components of the authoritative literature? Assume, for purposes of interpreting the Codification, that Landline is the ‘‘entity.''
2. Should Landline recognize revenue gross (i.e., as a principal) for the amount billed to the customer for their time spent using the ‘‘1-900'' number, or net (i.e., as an agent) for the net amount retained by Landline?
3. What journal entries are necessary to appropriately account for each minute a customer spends using PRU's ‘‘1-900'' number?
4. Prepare a PowerPoint presentation that covers the following points:
a. A summary of the case facts and an explanation of the accounting issue(s) that the case raises.
b. Identification and discussion of the relevant sections of the Codification that address the facts in the case.
c. Conclusions reached in applying the authoritative literature to the case facts and the questions above.
d. Any necessary journal entries.
Case Three: Requirements
ALI is concerned with revenue recognition issues related to its sales agreement with CMI. In its deliberations, ALI asks for your help. Prepare a memo addressing the following questions. Base your analysis of the following questions on the relevant authoritative literature and discuss the support in that literature for your conclusions. Be sure to cite the relevant components of the Codification in your discussion. Citations are not required for journal entries.
1. What are the accounting issue(s) and the relevant components of the authoritative literature?
2. What are the separate units of accounting in the sales agreement between ALI and CMI? Use the authoritative literature to explain your answer.
3. How much of the arrangement consideration should be allocated to each unit of accounting? Be sure to identify any other issues that must be resolved to determine how revenue should be allocated.
4. Now, assume that sufficient evidence exists to support the selling price of $95,000 for the assembly line system. However, there is some concern regarding the $12,000 charged for the installation services that ALI heard about from a prior customer. What type of analysis must be done related to the $12,000 price for installation services to decide whether it should be used to allocate revenue to the components in the sales agreement? Explain your answer.
5. If there are no other issues that would affect the timing of revenue recognition, how much revenue should be recognized in the following periods? Include journal entries in your answer. (Assume that ALI has early adopted any pending guidance included in the relevant sections of the Codification.)
a. The quarter ending September 30, 20X9?
b. The quarter ending December 31, 20X9?
c. The quarter ending March 31, 20Y0?
6. Prepare a PowerPoint presentation that covers the following points:
a. A summary of the case facts and an explanation of the accounting issue(s) that the case raises.
b. Identification and discussion of the relevant sections of the Codification that address the facts in the case.
c. Conclusions reached in applying the authoritative literature to the case facts and the questions above.
d. Any necessary journal entries.
Case Four: Requirements
ChemInc is considering when it should recognize the revenue related to its bill-and-hold transaction with Bond. In doing so, ChemInc asks for your help. Prepare a memo addressing the following questions. Base your analysis of the following questions on the relevant authoritative literature and discuss the support in that literature for your conclusions. Be sure to cite the relevant components of the Codification in your discussion. Citations are not required for journal entries.
1. What are the accounting issue(s) and the relevant components of the authoritative literature?
2. How does the fact that ChemInc has not shipped the MCA to Bond by the end of the year affect the recognition of revenue by ChemInc in 20X9? What other issues must be considered before deciding when ChemInc can recognize revenue? Explain your answer.
3. What are the necessary journal entries for the quarters ending December 31, 20X9, and March 31, 20Y0?
4. Prepare a PowerPoint presentation that covers the following points:
a. A summary of the case facts and an explanation of the accounting issue(s) that the case raises.
b. Identification and discussion of the relevant sections of the Codification that address the facts in the case.
c. Conclusions reached in applying the authoritative literature to the case facts and the questions above.
d. Any necessary journal entries.
Attachment:- revenue recognition cases.rar