crazy computer
Accounting 712
Crazy computer case
Issue:
1. Should Crazy Computer recognize the commission revenue for sale of the extended warranty at the time of the sale, if CIC reinsures with TPI sold by CC.
Analysis: My opinion to this question is that the Crazy Computer Company cannot recognize the commission revenue at the time of the sale and the revenue should recognize on a timely basis and also the revenue should be amortized and recognize along with the time of the service period. Usually when Crazy Computer sold the extended warranty and it could recognize the revenue at the time of the sale. Because Crazy Computer has no obligation to the customers since it insure the extended warranty with TPI and reinsures all the risk assumed by the TPI with the CIC. The job for Crazy Computer was actually just for sale. And actually Crazy Computer has no obligation to the customer at all. So in this situation the commission revenue satisfy earned revenue and the Crazy Computer can recognize the revenue at the time of sale. according to the 83(b) of Concepts Statement 5: Revenues are not recognized until earned. An entity's revenue-earning activities involve delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations and revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. Gains commonly result from transactions and other events that involve no “earning process,” and for recognizing gains, being earned is generally less significant than being realized or realizable. However the CIC is a subsidiary company and wholly owned by the Crazy Computer, which means that the risk actually taken by the same group which include the Crazy Computer and the CIC. So in this situation, Crazy Computer’ role is not just for the sale of the extended warranty. The Crazy Computer actually the primary
Crazy computer case
Issue:
1. Should Crazy Computer recognize the commission revenue for sale of the extended warranty at the time of the sale, if CIC reinsures with TPI sold by CC.
Analysis: My opinion to this question is that the Crazy Computer Company cannot recognize the commission revenue at the time of the sale and the revenue should recognize on a timely basis and also the revenue should be amortized and recognize along with the time of the service period. Usually when Crazy Computer sold the extended warranty and it could recognize the revenue at the time of the sale. Because Crazy Computer has no obligation to the customers since it insure the extended warranty with TPI and reinsures all the risk assumed by the TPI with the CIC. The job for Crazy Computer was actually just for sale. And actually Crazy Computer has no obligation to the customer at all. So in this situation the commission revenue satisfy earned revenue and the Crazy Computer can recognize the revenue at the time of sale. according to the 83(b) of Concepts Statement 5: Revenues are not recognized until earned. An entity's revenue-earning activities involve delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations and revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. Gains commonly result from transactions and other events that involve no “earning process,” and for recognizing gains, being earned is generally less significant than being realized or realizable. However the CIC is a subsidiary company and wholly owned by the Crazy Computer, which means that the risk actually taken by the same group which include the Crazy Computer and the CIC. So in this situation, Crazy Computer’ role is not just for the sale of the extended warranty. The Crazy Computer actually the primary