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KTSB Manufacturing and Distributions Company Inc

Accounting

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KTSB Manufacturing and Distributions Company Inc. (KTSB) has entered into an agreement to sell computers to Ramesses II stores. You will review the attached scenario and agreement for potential accounting issues related to Topic 606, Revenue from Contracts with Customers, in the Accounting Standards Codification (the Codification) from the Financial Accounting Standards Board. Once you have identified the issues, you will write a memo to KTSB’s management in which you will summarize the agreement’s relevant facts, describe the specific accounting issue(s), identify the appropriate authoritative guidance, analyze the issue(s), and recommend an accounting treatment.

 

SCENARIO

KTSB Manufacturing and Distribution Company, Inc. (KTSB) manufactures and distributes two computers. Model E is its basic model that is designed for everyday use. Model G is designed for the dedicated gamer. Both models come with a three-year manufacturer’s warranty, which covers the basic functionality of the product. Only 5% of customers historically have filed claims related to the computers. The models are currently sold across the country via KTSB’s website, social media, and targeted TV ads. The company has two manufacturing plants, one in the Pacific Northwest and one in the Pacific Southwest. The company does not have retail stores. The company’s sales of the two products have remained stable through its website, but anticipated growth has not materialized.

On April 17, KTSB’s management entered into an agreement to sell Model E to Ramesses II. Ramesses II is a well-established retail chain and has stores in every state in the continental U.S. It offers personal computers, computer peripheral equipment, and consumer video and audio products. The agreement is vital to the growth of KTSB (see the attached “KTSB and Ramesses II Agreement”).

REQUIREMENTS

Your submission must be your original work. No more than a combined total of 30% of the submission and no more than a 10% match to any one individual source can be directly quoted or closely paraphrased from sources, even if cited correctly. The similarity report that is provided when you submit your task can be used as a guide.

You must use the rubric to direct the creation of your submission because it provides detailed criteria that will be used to evaluate your work. Each requirement below may be evaluated by more than one rubric aspect. The rubric aspect titles may contain hyperlinks to relevant portions of the course.

Tasks may not be submitted as cloud links, such as links to Google Docs, Google Slides, OneDrive, etc., unless specified in the task requirements. All other submissions must be file types that are uploaded and submitted as attachments (e.g., .docx, .pdf, .ppt).

 A.  After reviewing the specifics of the agreement between KTSB and Ramesses II in the attached “KTSB and Ramesses II Agreement,” list the potential accounting issues related to KTSB’s recognition of revenue on the sale of the computers to Ramesses II, including the following for each accounting issue:

• the characteristics of the agreement that generated the revenue recognition issue

• the revenue recognition issue generated

 

B.  Prepare a memo to KTSB’s management in which you address each of the issues you listed in part A by doing the following:

1.  Summarize the relevant facts of the scenario and agreement.

2.  Describe the specific accounting issues.

3.  Identify the appropriate authoritative guidance (topic, subtopic(s), section(s), and subsection(s)) for each issue using the ”FASB Accounting Standards Codification Database” web link.

4.  Analyze the research for the accounting issues.

5.  Recommend an accounting treatment for each accounting issue.

 C.  Acknowledge sources, using APA-formatted in-text citations and references, for content that is quoted, paraphrased, or summarized.

 D.  Demonstrate professional communication in the content and presentation of your submission