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Homework answers / question archive /  Case 5–10 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue; reporting revenue as a principal or as an agent The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock

 Case 5–10 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue; reporting revenue as a principal or as an agent The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock

Accounting

 Case 5–10

FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue; reporting revenue as a principal or as an agent

The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock.com , and PC Mall, Inc. Many of these companies often act as intermediaries between the manufacturer and the customer without ever taking possession of the merchandise sold. Revenue recognition for this type of transaction has been controversial.

Assume that Overstock.com sold you a product for $200 that cost $150. The company’s profit on the transaction clearly is $50. Should Overstock recognize $200 in revenue and $150 in cost of goods sold (the gross method), or should it recognize only the $50 in gross profit (the net method) as commission revenue?

Required:

1. Access the FASB Accounting Standards Codification at the FASB website (asc.fasb.org). Determine the specific Codification citation that indicates the key consideration determining whether revenue gross versus net. (hint: this is related to principal versus agent considerations).

2. What indicators does the Codification list that suggest a net presentation is appropriate? Determine the specific Codification citation.

3. Using EDGAR ( www.sec.gov ), access Google, Inc. ’s 2013 10-K. Locate the disclosure note that discusses the company’s revenue recognition policy.

4. Does Google discuss determining whether they should report revenue on a gross versus net basis with respect to any of their products or services? What is the reason Google provides for its choices? Do you agree with Google’s reasoning?

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