Question: Analyst A argues that these unknown obligations are an important item left out of Netflix’ financial statements and that they are essential to understanding the company’s performance. She hence wants to adjust Netflix’ financial statements by recognizing the mid-point of the range provided (i.e., $2.5 billion). Recognize $2.5 billion worth of Content Liability in a Journal Entry. Analyst B counters that these obligations, while unknown, are similar to other ‘in- production content’, so do not really matter when analyzing Netflix’s financial statements. Task: Present the journal entry(-ies) for Analyst A’s adjustment and explain if you agree with A’s or B’s position. Answer: Accounting: Journal Entries: Written Response: Do you Agree with Analyst A or B?
Topic: Recognize $2.5 billion worth of Content Liability in a
Context: Netflix distinguishes between self-produced and licensed content. The latter includes shows that are produced by other studios. When the license period begins, costs are known, and the show is available for streaming, the firm recognizes the license fee as a ‘content asset’ along with a corresponding ‘content liability’. This accounting also means that Netflix regularly enters contractual obligations for the acquisition of (future) content, where it will obtain shows at some point in the future at unknown costs. This suggests that certain contractual obligations are excluded from the firm’s balance sheet.
The firm explains that “these unknown obligations are expected to be significant, and we believe could include approximately $1 billion to $4 billion over the next three years.”.
Question: Analyst A argues that these unknown obligations are an important item left out of Netflix’ financial statements and that they are essential to understanding the company’s performance. She hence wants to adjust Netflix’ financial statements by recognizing the mid-point of the range provided (i.e., $2.5 billion). Recognize $2.5 billion worth of Content Liability in a Journal Entry.
Analyst B counters that these obligations, while unknown, are similar to other ‘in- production content’, so do not really matter when analyzing Netflix’s financial statements.
Task: Present the journal entry(-ies) for Analyst A’s adjustment and explain if you agree with A’s or B’s position.
Answer: Accounting: Journal Entries:
Written Response: Do you Agree with Analyst A or B?
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