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Revenue Recognition Introduction: Question 10 Question 11 Question 12 The PDF file with financial statement information also includes Clorox's and Zoom's revenue recognition disclosures. Both

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Revenue Recognition Introduction: Question 10 Question 11 Question 12 The PDF file with financial statement information also includes Clorox's and Zoom's revenue recognition disclosures. Both firms saw increased revenues due to Covid-19. Use your intuition and analysis to answer the following questions. There is not a single correct answer to these questions. They introduce concepts we will discuss further in class. You will be graded on the quality of the explanation: In a single sentence, explain using your own words the point when each firm recognizes revenue. Which firm would you expect to have a significant amount of unearned or deferred revenue on the balance sheet? Explain your reasoning. Using information in the revenue footnote for Clorox on page 7, and the balance sheet, what is the gross amount of accounts receivable that Clorox is owed. Gross A/R Allowance for uncollectible Accounts Net A/R ?? Zoom Video Communications, Inc. NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition We derive our revenue from subscription agreements with customers for access to our video-first communications platform and services. Revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration that we expect to receive in exchange for these services. We determine revenue recognition through the following steps: 1.Identification of the contract, or contracts, with the customer We determine a contract with a customer to exist when the contract is approved, each party's rights regarding the services to be transferred can be identified, the payment terms for the services can be identified, the customer has the ability and intent to pay, and the contract has commercial substance. At contract inception, we will evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation. We apply judgment in determining the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer. 2.Identification of the performance obligations in the contract Performance obligations committed in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract. Our performance obligations generally consist of access to our video-first communications platform and related support services, which is considered one performance obligation. Our customers do not have the ability to take possession of our software, and through access to our platform, we provide a series of distinct software-based services that are satisfied over the term of the subscription. We also provide services, which include professional services, consulting services, and online event hosting, which are generally considered distinct from the access to our video-first communications platform. 3.Determination of the transaction price The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur. None of our contracts contain a significant financing component. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental entities (e.g., sales and other indirect taxes). Our video-first communications platform and related support services are typically warranted to perform in a professional manner that will comply with the terms of the subscription agreements. In addition, we include service- level commitments to our customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those service levels. These credits represent a form of variable consideration. Historically, we have not experienced any significant incidents affecting the defined levels of reliability and performance as required by the subscription agreements. We have not provided any material refunds related to these agreements in the consolidated financial statements during the periods presented. 4.Allocation of the transaction price to the performance obligations in the contract Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on each performance obligation's relative standalone selling price. As noted above, access to our video-first communications platform and related support services are considered one performance obligation in the context of the contract and accordingly the transaction price is allocated to this single performance obligation. 5.Recognition of the revenue when, or as, a performance obligation is satisfied Revenue is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer. Revenue is recognized in an amount that reflects the consideration that we expect to receive in exchange for those services. Fees for access to our video-first communications platform and related support services are subscription revenue and are considered one performance obligation, and the related revenue is recognized ratably over the subscription period as we satisfy the performance obligation. Professional services are time-based arrangements and revenue is recognized as these services are performed. Fees for services represent less than 2% of total revenue during the periods presented. CONSOLIDATED STATEMENTS OF EARNINGS The Clorox Company Years ended June 30 Dollars in millions, except per share data Net sales Cost of products sold Gross profit Selling and administrative expenses Advertising costs Research and development costs Goodwill, trademark and other asset impairments Interest expense Other (income) expense, net Earnings before income taxes Income taxes Net earnings Less: Net earnings attributable to noncontrolling interests Net earnings attributable to Clorox Net earnings per share attributable to Clorox Basic net earnings per share Diluted net earnings per share Weighted average shares outstanding (in thousands) Basic Diluted $ $ See Notes to Consolidated Financial Statements 2021 7,341 $ 4,142 3,199 1,004 790 149 329 99 (72) 900 181 719 710 $ 5.66 $ 5.58 $ 125,570 127,299 2020 6,721 $ 3,658 3,063 969 675 145 99 (10) 1,185 246 939 939 7.46 $ 7.36 $ 125,828 127,671 2019 6,214 3,486 2,728 856 612 136 97 3 1,024 204 820 820 6.42 6.32 127,734 129,792 CONSOLIDATED STATEMENTS OF EARNINGS The Clorox Company Years ended June 30 Dollars in millions, except per share data Net sales Cost of products sold Gross profit Selling and administrative expenses Advertising costs Research and development costs Goodwill, trademark and other asset impairments Interest expense Other (income) expense, net Earnings before income taxes Income taxes Net earnings Less: Net earnings attributable to noncontrolling interests Net earnings attributable to Clorox Net earnings per share attributable to Clorox Basic net earnings per share Diluted net earnings per share Weighted average shares outstanding (in thousands) Basic Diluted $ $ See Notes to Consolidated Financial Statements 2021 7,341 $ 4,142 3,199 1,004 790 149 329 99 (72) 900 181 719 710 $ 5.66 $ 5.58 $ 125,570 127,299 2020 6,721 $ 3,658 3,063 969 675 145 99 (10) 1,185 246 939 939 7.46 $ 7.36 $ 125,828 127,671 2019 6,214 3,486 2,728 856 612 136 97 3 1,024 204 820 820 6.42 6.32 127,734 129,792 Revenue Recognition Introduction: Question 10 Question 11 Question 12 The PDF file with financial statement information also includes Clorox's and Zoom's revenue recognition disclosures. Both firms saw increased revenues due to Covid-19. Use your intuition and analysis to answer the following questions. There is not a single correct answer to these questions. They introduce concepts we will discuss further in class. You will be graded on the quality of the explanation: In a single sentence, explain using your own words the point when each firm recognizes revenue. Which firm would you expect to have a significant amount of unearned or deferred revenue on the balance sheet? Explain your reasoning. Using information in the revenue footnote for Clorox on page 7, and the balance sheet, what is the gross amount of accounts receivable that Clorox is owed. Gross A/R Allowance for uncollectible Accounts Net A/R ?? Zoom Video Communications, Inc. NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition We derive our revenue from subscription agreements with customers for access to our video-first communications platform and services. Revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration that we expect to receive in exchange for these services. We determine revenue recognition through the following steps: 1.Identification of the contract, or contracts, with the customer We determine a contract with a customer to exist when the contract is approved, each party's rights regarding the services to be transferred can be identified, the payment terms for the services can be identified, the customer has the ability and intent to pay, and the contract has commercial substance. At contract inception, we will evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation. We apply judgment in determining the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical payment experience or, in the case of a new customer, credit and financial information pertaining to the customer. 2.Identification of the performance obligations in the contract Performance obligations committed in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services and the products is separately identifiable from other promises in the contract. Our performance obligations generally consist of access to our video-first communications platform and related support services, which is considered one performance obligation. Our customers do not have the ability to take possession of our software, and through access to our platform, we provide a series of distinct software-based services that are satisfied over the term of the subscription. We also provide services, which include professional services, consulting services, and online event hosting, which are generally considered distinct from the access to our video-first communications platform. 3.Determination of the transaction price The transaction price is determined based on the consideration to which we expect to be entitled in exchange for transferring services to the customer. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue recognized under the contract will not occur. None of our contracts contain a significant financing component. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental entities (e.g., sales and other indirect taxes). Our video-first communications platform and related support services are typically warranted to perform in a professional manner that will comply with the terms of the subscription agreements. In addition, we include service- level commitments to our customers warranting certain levels of uptime reliability and performance and permitting those customers to receive credits in the event that we fail to meet those service levels. These credits represent a form of variable consideration. Historically, we have not experienced any significant incidents affecting the defined levels of reliability and performance as required by the subscription agreements. We have not provided any material refunds related to these agreements in the consolidated financial statements during the periods presented. 4.Allocation of the transaction price to the performance obligations in the contract Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on each performance obligation's relative standalone selling price. As noted above, access to our video-first communications platform and related support services are considered one performance obligation in the context of the contract and accordingly the transaction price is allocated to this single performance obligation. 5.Recognition of the revenue when, or as, a performance obligation is satisfied Revenue is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer. Revenue is recognized in an amount that reflects the consideration that we expect to receive in exchange for those services. Fees for access to our video-first communications platform and related support services are subscription revenue and are considered one performance obligation, and the related revenue is recognized ratably over the subscription period as we satisfy the performance obligation. Professional services are time-based arrangements and revenue is recognized as these services are performed. Fees for services represent less than 2% of total revenue during the periods presented. CONSOLIDATED STATEMENTS OF EARNINGS The Clorox Company Years ended June 30 Dollars in millions, except per share data Net sales Cost of products sold Gross profit Selling and administrative expenses Advertising costs Research and development costs Goodwill, trademark and other asset impairments Interest expense Other (income) expense, net Earnings before income taxes Income taxes Net earnings Less: Net earnings attributable to noncontrolling interests Net earnings attributable to Clorox Net earnings per share attributable to Clorox Basic net earnings per share Diluted net earnings per share Weighted average shares outstanding (in thousands) Basic Diluted $ $ See Notes to Consolidated Financial Statements 2021 7,341 $ 4,142 3,199 1,004 790 149 329 99 (72) 900 181 719 710 $ 5.66 $ 5.58 $ 125,570 127,299 2020 6,721 $ 3,658 3,063 969 675 145 99 (10) 1,185 246 939 939 7.46 $ 7.36 $ 125,828 127,671 2019 6,214 3,486 2,728 856 612 136 97 3 1,024 204 820 820 6.42 6.32 127,734 129,792 CONSOLIDATED STATEMENTS OF EARNINGS The Clorox Company Years ended June 30 Dollars in millions, except per share data Net sales Cost of products sold Gross profit Selling and administrative expenses Advertising costs Research and development costs Goodwill, trademark and other asset impairments Interest expense Other (income) expense, net Earnings before income taxes Income taxes Net earnings Less: Net earnings attributable to noncontrolling interests Net earnings attributable to Clorox Net earnings per share attributable to Clorox Basic net earnings per share Diluted net earnings per share Weighted average shares outstanding (in thousands) Basic Diluted $ $ See Notes to Consolidated Financial Statements 2021 7,341 $ 4,142 3,199 1,004 790 149 329 99 (72) 900 181 719 710 $ 5.66 $ 5.58 $ 125,570 127,299 2020 6,721 $ 3,658 3,063 969 675 145 99 (10) 1,185 246 939 939 7.46 $ 7.36 $ 125,828 127,671 2019 6,214 3,486 2,728 856 612 136 97 3 1,024 204 820 820 6.42 6.32 127,734 129,792

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