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revenue recognition

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Lookhere.Com and StopIn.Com enter into a reciprocal agreement whereby (1) StopIn.Com is given valuable advertising space on the home page of Lookhere.Com and (2) Lookhere.Com is given valuable advertising space on the home page of StopIn.Com. The main source of revenue for both StopIn.Com and Lookhere.Com is sales of advertising on their respective websites. Both companies recognize advertising revenue received from the other company and recognize advertising expense paid to the other company. Accounting regulators express support for the accounting treatment applied by these companies.
Required:

a. Do you believe these companies should be allowed to recognize revenue in conjunction with the advertising agreements described above?

b. Why do you believe these companies want to record revenue along with its offsetting expense for these transactions?

c. How would you assess such transactions in an analysis of these companies?

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Solution Preview

Q. Do you believe these companies should be allowed to recognize revenue in conjunction with the advertising agreements described above?

A: Yes, as long as the swap has economic substance and is not a related party scheme to show activity that is not arms length.

Q. Why do you believe these companies want to record revenue along with its offsetting ...

Solution Summary

Your response is 168 words and explains the hard part of recording revenue with advertising swaps. The discussion is in everyday language (no jargon).

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See Also This Related BrainMass Solution

Revenue recognition: Identify the point of revenue recognition the five listed situations.

See attached problem

1. Identify point of revenue recognition.

The following independent situations require professional judgment for determining when to recognize revenue from the transactions.

Southwest Airlines sells you an advance-purchase airline ticket in September for your flight home at Christmas.

Ultimate Electronics sells you a home theatre on a "no money down, no interest, and no payments for one year" promotional deal.

The Toronto Blue Jays sell season tickets online to games in the Skydome. Fans can purchase the tickets at any time, although the season doesn't officially begin until April. The major League baseball season runs from April through October.

You borrow money in August from RBC Financial Group. The loan and the interest are repayable in full in November.

In August, you order a sweater from Sears using its online catalog. The sweater arrives in September, and you charge it to your Sears credit card. You receive and pay the Sears bill in October.

Instructions:

Identify when revenue should be recognized in each of the above situations.

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