Chapter 6, Problem 6.9DMP

Requirement – 1

To determine

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.

The revenue recognition principle

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.

Case summary:

AC.Com sells the used products which are collected from different suppliers. A customer purchases a used bicycle from AC.Com for $300. AC.Com agrees to pay the supplier $200, and the bicycle is shipped from the supplier to the customer directly.

To determine: The amount of revenue recognized at the time of the sales to the customer, and assume AC.Com takes control on used bicycle.

Requirement – 2

To determine

The amount of revenue recognized at the time of the sales to the customer, and assume AC.Com never takes control on used bicycle.

Requirement – 3

To determine

The amount of revenue recognized at the time of the sales to the customer, and assume AC.Com promises to pay $200 to the supplier.