Chapter 5, Problem 5.10BYP

Requirement – 1

To determine

Financial Accounting Standards Board (FASB)

FASB is an independent 7 member board of accounting professionals overseeing the creation of financial statement. FASB standards are generally known as GAAP.

The revenue recognition

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.

Principal

Principal is the legal owner of goods or service which is transferred to the customer for legal consideration.

Agent

Agent is a facilitator for transferring goods and service from seller to buyers. Agent receives commission from principal for the service rendered.

Performance obligation

Performance obligation is the promise made by the seller to supply the goods and service to the customer on or before the contract.

To indicate: The specific Codification citation that discusses the factors assessed by an entity to decide whether the nature of promise is to act as a principal or agent.

Requirement – 2

To determine

To indicate: The specific codification citation which indicate that an entity is a principal, and mention the indicators.

Requirement – 3

To determine

To indicate: The location of note for G Incorporation’s revenue recognition policy.

Requirement – 4

To determine

To discuss: The G Incorporation’s reason for its revenue recognition choices, also explain whether G Incorporation’s reasoning is acceptable.