The birth of the Internet in the 1990s led to the creation of a new industry of online retailers such as Amazon, Overstock.com, and PCM, Inc. Many of these companies often act as intermediaries between the manufacturer and the customer without ever taking possession of the merchandise sold. Revenue recognition for this type of transaction has been controversial.

Assume that Overstock.com sold you a product for $200 that cost $150. The company's profit on the transaction clearly is $50. Should Overstock recognize $200 in revenue and $150 in cost of goods sold (the gross method), or should it recognize only the $50 in gross profit (the net method) as commission revenue?

Required:

1. Access theFASB Accounting Standards Codificationat the FASB website (www.fasb.org). Determine the specific Codification citation that indicates what an entity assesses to determine whether the nature of its promise is to act as a principal or agent.
2. What indicators does the Codification list that suggest an entity is a principal? Determine the specific Codification citation.
3. Using EDGAR (www.sec.gov), access Alphabet, Inc.'s 2017 10-K. Locate the disclosure note that discusses the company's revenue recognition policy with respect to ads placed on Google Network Members' properties.
4. Do you agree with Alphabet's reasoning with respect to choosing whether it reports revenue gross versus net with respect to these advertising services? Indicate "yes" or "no," and provide your rationale.