Analyzing Unearned Revenue Changes Take-Two Interactive Software, Inc. (TTWO) is a developer, marketer, publisher, and distributor of video game software and content to be played on a variety of platforms. There is an increasing demand for the ability to play these games in an online environment, and TTWO has developed this capability in many of its products. In addition, TTWO maintains servers (or arranges for servers) for the online activities of its customers. TTWO considers that its products have multiple performance obligations. The first perfor- mance obligation is to provide software to the customer that enables the customer to play the game offline or online. That performance obligation is fulfilled at the point at which the software is provided to the customer. In addition, TTWO's customers benefit from online functionality that is dependent on our online support services and/or additional free content updates." This second performance obligation is fulfilled over time, and the estimated time period for which an average user plays the software product is judged to be a faithful depiction of the fulfillment of this perfor- mance obligation. At the beginning of the first quarter of fiscal year 2018, TTWO had a deferred net revenue li- ability of $566,141 thousand. When that quarter ended on June 30, 2018, the deferred net revenue liability was $466,429 thousand. Revenue for the quarter was $387,982 thousand. REQUIRED a. What would cause the deferred net revenue liability to go down over the quarter? b. What was the amount of online-enabled games purchased by TTWO's customers in the first quarter ended June 30, 2018? Were the purchases greater or less than the revenue recog- nized in the income statement? How might that information be useful for a financial statement reader? Analyzing Unearned Revenue Changes Take-Two Interactive Software, Inc. (TTWO) is a developer, marketer, publisher, and distributor of video game software and content to be played on a variety of platforms. There is an increasing demand for the ability to play these games in an online environment, and TTWO has developed this capability in many of its products. In addition, TTWO maintains servers (or arranges for servers) for the online activities of its customers. TTWO considers that its products have multiple performance obligations. The first perfor- mance obligation is to provide software to the customer that enables the customer to play the game offline or online. That performance obligation is fulfilled at the point at which the software is provided to the customer. In addition, TTWO's customers benefit from online functionality that is dependent on our online support services and/or additional free content updates." This second performance obligation is fulfilled over time, and the estimated time period for which an average user plays the software product is judged to be a faithful depiction of the fulfillment of this perfor- mance obligation. At the beginning of the first quarter of fiscal year 2018, TTWO had a deferred net revenue li- ability of $566,141 thousand. When that quarter ended on June 30, 2018, the deferred net revenue liability was $466,429 thousand. Revenue for the quarter was $387,982 thousand. REQUIRED a. What would cause the deferred net revenue liability to go down over the quarter? b. What was the amount of online-enabled games purchased by TTWO's customers in the first quarter ended June 30, 2018? Were the purchases greater or less than the revenue recog- nized in the income statement? How might that information be useful for a financial statement reader
