Nova Industries, Inc. is a public company with a December 31 fiscal year end. Novas business is 100% comprised of the resale of software owned by Egghead Software, Inc. Nova has a contract with Egghead whereas Nova has the right to sell Eggheads software. This contract provides that for all sales it makes of Eggheads software, Nova is able to charge customers whatever amount it can get. Nova then keeps 40% of the customer proceeds and must remit 60% of the proceeds to Egghead. For simplicity, all customer receipts are made to a lockbox under control of Egghead and checks from the lockbox are remitted monthly to both Nova and Egghead for their respective shares of the revenue. The following is Novas income statement for the year ended 12/31/16

Revenue $60,000,000

Cost of sales 36,000,000

Gross margin 24,000,000

Selling general and admin expenses 14,000,000

Pretax income 10,000,000

Tax expense 6,000,000

Net income 4,000,000

Required: Fully discuss and evaluate the significant technical accounting issue in the above situation and conclude on what you believe the appropriate accounting is.