Question
Bo Broker Company charges a fee for bringing together the Acme Construction Company and the First Bank Company. The parties agree that Bo earns her
Bo Broker Company charges a fee for bringing together the Acme Construction Company and the First Bank Company. The parties agree that Bo earns her fee when Acme and First agree to the terms of the construction mortgage. However, Bo can receive four types of documents to settle this matter: (a) a non-interest bearing, unsecured negotiable note in payment of the fees earned, which is payable over the time period of the related construction mortgage; (b) a non-negotiable note payable over the same time period as in case (a); (c) a commitment letter, not contingent upon the future event of the borrower receiving certain construction draws; or (d) a commitment letter, where the fees would be paid only if the borrower actually receives the draws for the construction from the lender. Bo asks the accountant when to recognize revenues under each of these four scenarios.
1. Restate the facts in your own words. 2. Identify the specific accounting issue(s) raised in the case. 3. Discuss the relevant authorities and their application to the given facts (ex: FASB Codification, Accounting Standards Updates, etc.). Use the FASB Codification and ASU's to explain when to recognize revenue under each of the four scenarios. Make sure to cite the source for each scenario. 4. Conclusion
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