Ramses II Industries manufactures the Sphinx-Multiplayer gaming system. The System is a multiplayer gaming device allowing players to compete with each other over the Internet. The Sphinx-gaming System includes the physical Sphinx-Box module as well as a one-year subscription to the Sphinx-Net Internet platform of Internet-based games and other applications. Ramses II Industries sells individual Sphinx-Box modules for $360. Customers can use the Sphinx-Box to access the Sphinx-Net platform as well as other multiuser gaming platforms. Ramses II Industries also sells individual one-year subscriptions to the Sphinx-Net platform for $240. Customers can access the Sphinx-Net using a Sphinx-Box module as well as other gaming modules. As a package deal, Ramses II Industries sells the Sphinx-Multiplayer System (module plus subscription) for $500. Contract with Cleopatra: On January 1, 2021, Ramses II Industries delivers 1,000 Sphinx-Box Systems to Cleopatra Inc. at a price of $500 per system. Ramses II Industries receives $500,000 from Cleopatra Inc. on January 25, 2021. Contract with Nefertiti: Additionally, Ramses II Industries enters into a contract with Nefertiti Gaming Company to add Nefertitis online games to the Sphinx-Net network. Nefertiti Gaming Company offers some very popular games and wants those games to be available on the Sphinx-Net platform. The terms of the contract are: On January 1, 2021, Nefertiti Gaming Company pays Ramses II Industries an up-front fixed fee of $300,000 for six months of featured access Nefertiti Gaming Company also will pay Ramses II Industries a bonus of $180,000 if the Sphinx-Nets users access Nefertitis games for at least 15,000 hours during the six-month period At the inception of this contract Ramses II Industries estimated that it has a 25% chance to achieve the usage target and receive the $180,000 bonus. As the usage increased from 2,000 hrs in January, to 3,000 hrs in February, to 4,000 hrs in March, Ramses II Industries revised their estimate starting in April to 75%. Ramses II Industries kept monitoring the usage over the last three months which came as follows: 3,000 hrs in April, 2,000 hrs in May, and 1,000 hrs in June. On July 5th Ramses II Industries received the $180,000 cash bonus.

Applying the five steps framework for revenue recognition discussed in class, show how would Ramses II Industries account for the revenue on a monthly basis in both contracts. You need to support any of your suggestions/calculations with clear references to the FASB Codification. The Codification can guide you through the process of recognizing the revenue over the time periods covered by both contracts. Hint: there are several appropriate ways to allocate revenue in both contracts. The more valid ways you can think of allocating revenue, the better grade you will earn. 2. Now assume that the hours used by customers in June to access the Uni-Net platform turned to be short by 500 hours, i.e., the usage during June was 500 hours only and not 1000 hours, which means that Universal is not eligible for the $180,000 bonus. What kind of a problem would such scenario cause. Show how Ramses II Industries would account for this new information at the end of June. Hint: Journal entry/entries might be helpful answering this question. 3. Use your searching skills to find real world evidence for public firms that had to reverse revenue that was recognized in ealier periods. This evidence should be accounted for in accordance with the new revenue recogition standard ASU No. 2014-09, i.e., 2018 or later. Hint: Students are expected to access various web pages and electronic databases (e.g., SEC EDGAR, Capital IQ) to find such evidence. CAPITAL IQ is a web- and Excel-based research platform that combines information on companies, securities, and markets worldwide with tools for fundamental analysis, surveillance, and trend analysis, financial modeling, market analysis, screening, and targeting. Capital IQ provides easy and friendly access to firms financial statements in Excel format and all SEC filings. Capital IQ will assist you in completing this portion of your case analysis. You can get access to Capital IQ through our Market Information Lab (MIL) located on the first floor in BIF