FINANCE

Accounting 381

Project #2 Intermediate Accounting Research

Due: March 14th at 5:30 pm, Submit Via D2L

Background

In an effort to simplify research, the Financial Accounting Standards Board (FASB) organized and consolidated authoritative generally accepted accounting principles (GAAP) for nongovernmental entities into the FASB Accounting Standards Codification (“ASC” or the “Codification”). This process, which took over 5 years to complete, changed a standards-based model (with thousands of individual standards) to a topically based model (with roughly 90 topics). The intent of the Codification was to reduce the amount of time and effort required to solve an accounting research issue, mitigate the risk of noncompliance through improved usability of the literature, and provide accurate information with real-time updates as Accounting Standards Updates are released. (FASB ASC, About the Codification )

Assignment – Part 1

To introduce Accounting 381 students to the Codification, you will be required to read Chapter 1 of Shelby Collins ’Guide to Intermediate Accounting Research . Please document your answers from this text to the following questions, length of responses will not be considered in grading (quality over quantity!):

Chapter 1 – Review Questions:

#1-5, 13, 15-17, and 19-20

Chapter 1 – Exercises:

#1, 3, 4, 6a, 25 and 26d

Assignment – Part 2

To introduce Accounting 381 students to the responsibility and obligation of CPAs to perform research in the Codification, you will be required to analyze the case below:

You are newly certified public accountants recently hired by Williams Certified Public Accountants, LLP. Your client, Magnificent Marketers (MM) needs guidance on the application of the correct FASB pronouncement related to their situation. Your direct supervisor wants you to research the authoritative guidance related to this situation and determine the proper course of action before meeting with your client.

Magnificent Marketers (MM) is a marketing company that offers a variety of marketing offerings to its customers. Specifically:

· MM will create a TV commercial for $1M, build an app for $500K, and build a Facebook page for $250K. These amounts represent MM’s charges for these items when MM sells them separately to customers. The TV commercial, the app, and the Facebook page are not interrelated; that is, each functions independently of the other offerings.

· If a customer purchases all aforementioned items together, the total cost is $1.5M. Payment terms are 50 percent consideration due at contract signing, with the remaining 50 percent due over the rest of the development period (25 percent at mid-point, 25 percent at completion).

Stone, a customer, approaches MM with the hopes of reinventing its image to a younger customer base. Stone has a verbal agreement with MM that is based on MM’s unsigned quote to Stone on November 30, 20X8, for one TV commercial, one app, and a Facebook page. The agreement creates

enforceable rights and obligations pursuant to MM’s customary business practices. None of these items can be redirected by MM to another customer. MM performed a credit check on Stone and has determined that Stone has the intention and ability to pay MM for fulfilling its portion of the contract. Stone is required to pay MM for performance completed to date if Stone cancels the contract with MM for reasons other than MM’s failure to perform under the contract as promised. MM does not think

that the app will be downloaded 500K times in the first month because Stone’s customer base does not quickly accept newly developed technology. On the basis of its experience with similar technology, MM has determined that it takes over three months for Stone’s users to begin to download its apps.

MM’s CFO is trying to understand the new revenue recognition model and has turned to your firm to explain how MM would account for the above scenario under the new standard

Required for Part 2:

Each student must turn in their own solutions to this case, which needs to be written in your own words. However, since this is an out of class assignment, you may consult with other students if you need direction. To assure fairness to all students, instructor assistance on this case will not be available. The analysis required below should be NO longer than three pages, there is no minimum length requirement. Please be clear and concise with your responses.

1) List the Area and Topic number from the Codification that you will be researching to resolve your clients’ question.

2) Cite the proper ASC (XXX)-(YY)-(ZZ)-(PP) that lists the five-step revenue recognition process as set forth in the Codification.

3) For each of the five steps in the process , analyze in detail and support your conclusion for your client’s situation by citing the proper Codification reference as follows ASC

(XXX)-(YY)-(ZZ)-(PP). Specifically, include:

a. Step One – Is there a contract?

b. Step Two– Identify the performance obligations.

c. Step Three-Determine the transaction price.

d. Step Four-Allocate the transaction price to the performance obligations.

e. Step Five-Recognize revenue when (or as) the entity satisfies a performance obligation. Please just define the decision making process used to determine if revenue should be recognized over time or at a point in time and cite the proper Codification reference. The case above does not give you enough specifics to determine a specific course of action. However, it is your responsibility to give your client all the detail to draw their own conclusion.

Grading:

There will be three levels of achievable points related to this project:

Level 1: 20 points -substantial effort displayed related to the requirements for Parts 1 and 2. Thoroughly documented answers to the questions in Part 1 and in Part 2, four or more of the five-steps of the new revenue recognition process were properly addressed and cited. The project was well researched, properly documented, and showed proper grammatical usage.

Level 2: 10 points – partially address the requirements for Part 1 and Part 2. Incomplete/incorrect answers were documented in Part 1 and/or only three of the five-steps of the new revenue recognition process were properly addressed and cited in Part 2. However, the project showed an honest attempt to complete the requirements along with proper grammatical usage.

Level 3: 0 points– significantly lack of effort related to the requirements of the project. Incomplete/incorrect answers were documented in Part 1 and/or only two or less of the five steps of the new recognition process were properly addressed and cited in Part 2.

FASB Codification Access:

You may access the FASB Codification database through the American Accounting Association by logging in at http://www2.aaahq.org/ascLogin.cfm using the following:

Student Access: Username – AAA51686 Password – 7SMnx5J

Kieso Textbook Guidance: Chapter 18 – Revenue Recognition

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