Principal vs. agent (LO 3-5)

Online Auction Company (OAC) provides a platform for its users to buy and sell goods. Sellers post goods for sale and other users bid on them. They high bidder wins the auction and purchases the goods.

After each auction, the seller pays OAC a 10% fee and the buyer pays OAC a 5% fee. For example, if an auction closes with a high bid of $100, the buyer remits $105 (the winning bid of $100 plus the 5% buyers fee) and OAC pays $90 to the seller (the winning bid of $100 less the 10% sellers fee).

In 2019, customers completed auctions on OAC having an aggregate selling price of $100 million, and OAC had operating costs of $2 million. It prepared the following partial income statement (through operating income) for 2019.

Required:

1. Prepare a revised partial income statement that is consistent with ASC Topic 606 on revenue recognition.
2. Suppose OAC changes its user agreement so that when an auction ends, the seller is not charged a commission. Instead, the seller agrees to sell the auctioned item to OAC for 90% of the winning bid amount, and OAC immediately resells it to the high bidder at the page 158winning bid amount. OAC collects the winning bid amount and remits 90% of it to the seller, as before. Then the seller delivers the auctioned goods to the winning bidder on behalf of OAC. In this case, would the proper income statement be the original one provided or the revised one from requirement 1?