FEED BACK FROM PROFESSOR

Did not focus on the transaction price. On what basis in revenue recognized at 12-31-2018? The performance obligation as described in the problem; only one performance obligation exists: the delivery of the board game to the customer. Were any games delivered at 12-31-2018 that justify the recognition of revenue?

No basis for recognizing revenue over time.Ignored description of performance obligation and did not focus on transaction price as directed -14

Additional Guidance:

1. Note: You do not need to propose correcting or omitted entries to accounts that are marked as correct with an asterisk *. 3. You should re-read the original assignment carefully. 4. In reviewing the facts, here are some questions you should ask: Why did UPR sell the games through Kickstarter at $45 per game and everyone else at $50 per game? Why did UPR turn to Kickstarter to sell games before they were manufactured? What was Ian trying to obtain from traditional lenders before he turned to Kickstarter? 5. Remember the assumptions and focus of this problem (emphasis added): You can assume that a contract is in place and that only one performance obligation exists: the delivery of the board game to the customer. Thus, determining the Transaction Price is the issue that needs to be addressed. The principles for the determining transaction prices can be found in ASC Subtopic 606-10-32-2 through 606-10-32-27. You may also want to refer to the illustrations (examples) contained in ASC 606. A list of the illustrations can be found at ASC Subtopic 606-10-55-93. 6. To focus your research, read and understand ASC Subtopic 606-55-240, Example 29. It relates to determination of the transaction price found in ASC Subtopic 606-32-15: The Existence of a Significant Financing Component in the Contract 7. Many of you concluded that revenue should be recognized over time rather than when the games were delivered. The issue of revenue recognition at time of delivery versus over a period time is not a transaction price determination issue (Step 3), it is recognition issue (Step 5). To recognize the performance obligation over time, ASC Subtopic 606-10-25-27 requires: An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time, if one of the following criteria is met: a. The customer simultaneously receives and consumes the benefits provided by the entitys performance as the entity performs (see paragraphs 606-10-55-5 through 55-6). b. The entitys performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced (see paragraph 606-10-55-7). c. The entitys performance does not create an asset with an alternative use to the entity (see paragraph 606-10-25-28), and the entity has an enforceable right to payment for performance completed to date (see paragraph 606-10-25-29).

QUESTIONS TO BE ANSWERED

You must answer the following questions:

What are the additional entries or correct entries required on the following dates? If the entries made by the bookkeeper are correct, indicate Bookkeeper made correct entry. Otherwise use the Journal Entry template to record your answer and then paste into your answer:

June 1, 2018

December 31, 2018 Adjusting Journal Entry

December 1, 2019

2. Use the attached Excel Template, show the corrected comparative Balance Sheet and Income Statement at December 31, 2019 and December 31, 2018. Paste the template into your answer

3. Using references to ASC 606 explain how your arrived at your answers in 1 and 2 above.

Revenue is recognized when the performance obligation is satisfied according to ASC 606. In this case, the contract was for 5,000 board games to be delivered over a span of 18 months ( 6/1/18 - 12/1/19 ). In regards to inventory, as of 12/31/18 there was no other information on the percentage of work completed because the production was in a Work in Process status. By 12/31/18, 7 months have passed so revenue will be recognized for 7/18 of the contract value.

4. From the point of view of a potential investor or lender to UPR, do the corrected financial statements or the original financial statements prepared by UPRs bookkeeper better reflect the economics of UPR during its initial two years in business? Why?

From the point of view of a potential investor or lender, the corrected financial statements prepared better reflect the economics because the inventory account now correctly represents where UPR is in production. Also, by seeing this a potential investor or lender can more accurately calculate the risks and rewards in regards to product since revenue is recognized once the goods are delivered to the buyer, the corrected statements now accurately represent this.

FEED BACK FROM PROFESSOR

Did not focus on the transaction price. On what basis in revenue recognized at 12-31-2018? The performance obligation as described in the problem; only one performance obligation exists: the delivery of the board game to the customer. Were any games delivered at 12-31-2018 that justify the recognition of revenue?

No basis for recognizing revenue over time.Ignored description of performance obligation and did not focus on transaction price as directed -14

6/20*30 = 9

ELEMENT ACCOUNT DESCRIPTION DEBIT CREDIT 6/1/2018 (A) as $1,000 Capital Account $1,000 12/31/2018 (B) Inventory 100,000 as 100,000 12/1/2019 (C) Inventory $125,000 Cash $125,000 Revenue $75,000 Deferred Revenue $75,000 ELEMENT ACCOUNT DESCRIPTION DEBIT CREDIT 6/1/2018 (A) as $1,000 Capital Account $1,000 12/31/2018 (B) Inventory 100,000 as 100,000 12/1/2019 (C) Inventory $125,000 Cash $125,000 Revenue $75,000 Deferred Revenue $75,000