Acct 598 Final paper
Class Act
Class Act has concluded that the full agreement consideration of $5 million should be recorded as revenue upon signing the agreement. I do not think this is appropriate method to recognize revenue. According to FASB, a company would apply the following five steps to achieve the core principle: (1) identify contract with the customer. (2) Identify separate performance obligations. (3) Determine transaction price. (4) Allocate transaction price. (5) Recognize revenue when performance obligation is satisfied. Class Act recognized all $5 million up signing the agreement, how about if the performance of Broadway Venues doesn’t satisfy the agreement. The article shows that the agreement is silent as to whether any payments are refundable if the tour never commences.
According to GAAP, there are two criterion must meet before it can record revenue on its books. The first one is that a company can recognize revenue from a transaction when the buyer of the company’s good or service agrees to a purchase and the amount that the customer is going to pay is determined. Broadway Venues doesn’t make a one-time payment; instead, Broadway Venues paid $1 million to Class Act upon signing of the agreement in 1997. The remaining amount is to be paid in periodic installments and payment is expected to be completed within twelve months of signing the agreement. On the other hand, if a service contract is awarded to an engineering firm to build a major highway over five years, there is a more complex arrangement made. Depending on the service contract and how the municipality pays for the new highway, the engineering firm could record revenues in a few different ways, but the end result would still be the same.
In one word, Class Art should recognize the revenue when Broadway Venues complete the performance and pay the money to company rather than record revenue upon signing the agreement.
Class Act has concluded that the full agreement consideration of $5 million should be recorded as revenue upon signing the agreement. I do not think this is appropriate method to recognize revenue. According to FASB, a company would apply the following five steps to achieve the core principle: (1) identify contract with the customer. (2) Identify separate performance obligations. (3) Determine transaction price. (4) Allocate transaction price. (5) Recognize revenue when performance obligation is satisfied. Class Act recognized all $5 million up signing the agreement, how about if the performance of Broadway Venues doesn’t satisfy the agreement. The article shows that the agreement is silent as to whether any payments are refundable if the tour never commences.
According to GAAP, there are two criterion must meet before it can record revenue on its books. The first one is that a company can recognize revenue from a transaction when the buyer of the company’s good or service agrees to a purchase and the amount that the customer is going to pay is determined. Broadway Venues doesn’t make a one-time payment; instead, Broadway Venues paid $1 million to Class Act upon signing of the agreement in 1997. The remaining amount is to be paid in periodic installments and payment is expected to be completed within twelve months of signing the agreement. On the other hand, if a service contract is awarded to an engineering firm to build a major highway over five years, there is a more complex arrangement made. Depending on the service contract and how the municipality pays for the new highway, the engineering firm could record revenues in a few different ways, but the end result would still be the same.
In one word, Class Art should recognize the revenue when Broadway Venues complete the performance and pay the money to company rather than record revenue upon signing the agreement.