Eyebrow Technologies Ltd. (Eyebrow) is a Canadian-owned developer of computer hardware and software. Eyebrow is owned by 20 private investors, most of whom aren’t involved in the day-to-day management of the company. Eyebrow has borrowed extensively from banks, and management believes additional loans will be required in the near future. Senior executives own a small number of Eyebrow’s shares and are compensated with a salary plus a bonus based on the performance of the company.

Eyebrow is completing development of a new product. The product combines a modification of Eyebrow’s existing computer hardware with a newly developed proprietary software program. The new product is targeted at firms in the financial services industry (firms such as Canadian banks, mid- to large-sized trust companies, and insurance companies). The design of the product requires that customers purchase both Eyebrow’s hardware and software (a customer can’t purchase only the software and the hardware isn’t useful without the software).

The new product (hardware and software) sells for $325,000. Eyebrow has 12 firm orders for the new product. In January 2014 Eyebrow shipped the computer hardware component to the 12 customers. The software will be provided to customers when it’s completed in May 2014. The software was originally expected to be ready in February 2014 but unexpected programming problems delayed its completion. Eyebrow now expects to complete testing and debugging of the software in time to meet the May shipping date. Costs of the product include the hardware, software development, and marketing, sales, and administrative costs.

Customers have already paid 25 percent of the cost of their orders. They will pay an additional 60 percent 30 days after the product is delivered and operating, and the balance six months after that.

Eyebrow’s year-end is February 28.

Required:

a. Identify the stakeholders who would have an interest in the financial information of Eyebrow. Explain each stakeholder’s interest in the information (i.e., why would they want it?).

b. Identify possible objectives of financial reporting that Eyebrow’s management might have. Explain why each objective might be relevant.

c. Identify possible critical events that Eyebrow could use to recognize the revenue on the new product. (In answering this question, consider whether the new product is really two products instead of one.)

d. Select two of the stakeholders and recommend a revenue and expense recognition policy to Eyebrow’s management that might satisfy the information needs of each of the two stakeholders. (Note: You should come up with two different policies, one for each stakeholder.) Fully explain your choices by justifying them in terms of the constraints, facts, and objectives.