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Nov 24, 2024

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1 Revenue recognition is the practice of attributing economic benefits to an organization following the terms of its contracts with its customers ( Ali & Tseng, 2023) . We will use the five- step revenue recognition methodology provided in ASC 606 to determine how to properly account for income from Presto Hospitality's concession arrangement with Stadium Co. This contract does not meet the requirements to be considered a lease. Step 1: Determine the Customer Contract (ASC 606-10-25-1): The concession agreement that Stadium Co. has with the parties creates rights and responsibilities that are legally binding, which is what makes it a contract. It provides a list of the conveniences that will be provided by Presto Hospitality, such as concessions at events. Step 2: Determine the Contract's Performance Obligations (ASC 606-10-25-14): The contract's provisions may impose more than one responsibility for Presto Hospitality to fulfill in terms of performance. This could involve providing catering services, product sales, or concession stands, each with its own unique set of responsibilities ( McCallum & McCallum, 2022) . Step 3: Determine the Transaction Price (ASC 606-10-32-2): The transaction price refers to the amount of money that Presto Hospitality estimates it will receive from Stadium Co. in exchange for supplying Stadium Co. with goods and services. The predetermined costs associated with the contract will be a part of this.

2 Step 4: Allocate the Transaction Price to the Performance Obligations in the Contract (ASC 606-10-32-5): If there are many performance obligations, the transaction price needs to be broken down into the individual selling prices of each one. For example, if the catering and the product are separate obligations, each should receive a distinct percentage of the total transaction price. Step 5: Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation (ASC 606-10-25-30): It is necessary to keep track of revenue whenever Presto Hospitality transmits a promised good or service to Stadium Company to meet a performance obligation for both parties ( McCallum & McCallum, 2022) . This may take place all at once or gradually develop over time. The point of sale is where revenue should be recorded; for instance, if a customer buys a hot dog at the stadium, the revenue should be recorded there. The retail price of the hot dog would be $6, and Presto would take half of that amount for itself; the amount of money made from each transaction would be $3. In conclusion, Presto Hospitality must follow the five-step revenue recognition process defined in ASC 606 for the Stadium Co. concession. This requirement is practical immediately. To accomplish this, the contract and the performance tasks, transaction price, allocation, and revenue recognition upon obligation fulfillment must be identified. For some transactions that fit inside the jurisdiction of the contract, such as the sale of a hot dog, it is recommended that revenue recognition take place at the point of sale, which is when the promised good (a hot dog) is supplied to the consumer. This is the time when the transaction is considered complete.

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3 Implementing Accounting Standards Codification 606 (ASC 606) may affect the timing of revenue recognition in Presto Hospitality's financial statements. It is of the utmost importance to check that the financial statements adhere to the requirements for revenue recognition outlined in ASC 606-10-50 and include all required disclosures.

4 References. Ali, W., & Tseng, A. (2023). Identifying the Timing of Revenue Recognition and the Effects of ASC 606. Georgetown McDonough School of Business Research Paper , (4084006). McCallum, B., & McCallum, C. (2022). Revenue Recognition Accounting: Understanding the Impact of ASC 606. McCallum, Brent, and Chloe McCallum. "Revenue Recognition Accounting: Understanding the Impact of ASC , 606 , 31-45.

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