last thing.....can you read my final product and tell me if it's acceptable? Also, I highlighted a bit in red that I'm unsure about.

Running head: BO BROKER COMPANY TREATMENT OF REVENUES Bo Broker Company Treatment of Revenues Kana Ng A&M CT 1 BO BROKER COMPANY TREATMENT OF REVENUES Bo Broker Company Treatment of Revenues 2 The Issue 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. Bo Broker Company has facilitated a transaction between the two entities for which Bo Broker Company will receive compensation with a choice of four different types of payment instrument and is seeking advice from the accountant on the treatment of those payment instruments. The payment options are as follows: 1. 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 2. a non-negotiable note payable over the same time period 3. a commitment letter, not contingent upon the \"future event\" of the borrower receiving certain construction draws 4. a commitment letter, where the fees would be paid only if the borrower actually receives the draws for the construction from the lender When should revenue be recognized by the client? The Evidence FASB Statement of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, explains the recognition considerations for revenues and gains. During a specified period revenues are determined to be recognizable after they have met two considerations; being earned and being realized or realizable. To be recognized as earned, the entity has to deliver the required goods, service or contracted demands. To be realized or realizable, the form of payment has to have a certain level of liquidity and value. BO BROKER COMPANY TREATMENT OF REVENUES The Analysis 3 According to the Accounting Standards codification, applying the (FASB) Concepts Statement No. 5, Recognition and Measurement in Financial Statements of Business Enterprises, paragraphs 83 and 84, to the specific situations, revenue would be recognized as follows: 1. Negotiable Note Income would be recognized when the services have been performed and billed which may be prior to receipt of the negotiable note. 2. Nonnegotiable Note The terms of the nonnegotiable note are comparable to the negotiable note, and revenue would be recognized in a similar manner. 3. Commitment Letter, Not Contingent on Future Events Such a letter would be evidence that the services have been rendered and are now \"billable\" therefore, the fee has been earned and income should be recognized. 4. Commitment Letter, Contingent on Future Draws The agreement between the client, borrower, and lender, in this case, do not consider all the services rendered until actual borrowings take place even though the client does not need to do anything else. A portion of the fees are deferred until the stipulated draw provisions have been met. 5. Commitment Letter, Contingent on Future Draws backed by an escrow account The agreement between the client, borrower, and lender, in this case, do not consider all the services rendered until actual borrowings take place even though the client does not need to do anything else. A portion of the fees is deferred until the stipulated draw provisions have been met. The Conclusion BO BROKER COMPANY TREATMENT OF REVENUES Payment option one is optimal if the desired result is high liquidity and immediate 4 recognition. The recognition remains the same with options two and three; however, the liquidity is not as desirable. Option four is the least secure due to the lack of liquidity and because there is no fair market value, as it is unsecured, there will be difficulty selling it should the need arise, and collectability is not considered when paying taxes. However, option four becomes desirable when backed with an escrow account, insurance or a trust as in option number five. The treatment is the same and the value becomes secure. The Results Collectability of the instrument is of no consequence to taxation and the tax consequences of each option are the same (KPMG, 2013). All of the options have the potential to yield the most attractive financials impact. Therefore, the choice for method of payment under these circumstances is contingent on the desired financials impact, collectability and security. The desired results will determine the outcome. Option one has the highest liquidity; option five has the highest security. Option one and five are equally collectible, however option one shows up on the balance sheet as a current liability and option five is off-balance sheet activity. BO BROKER COMPANY TREATMENT OF REVENUES References KPMG. (2013). Defining issues [KPMG Newsletter]. Retrieved from http://www.kpmginstitutes.com/financial-reporting-network 5