Reporting Income for Dot-Coms

Topics: Revenue, Generally Accepted Accounting Principles, Income statement Pages: 3 (780 words) Published: August 5, 2008
1.At the moment Priceline recognizes revenue using the gross method whereby the offered price $250 net of taxes and fees is recognized as revenue and $200 is recognized as cost of goods sold. The alternative would be to use the net method where only the 20% commission is recognized as revenue. It is important to distinguish between who bares the risks and benefits of the transaction. (SEC Staff Accounting Bulletin #101, Q10). Despite Priceline being the merchant of record, they are only an agent and therefore do not assume the risks and rewards involved in the transaction. Consequently Priceline is inappropriately recording revenue under the gross method.

2.The alternative method would be to record it under the net method where $50 is recorded (20% of $250) is recorded as commission revenue.

3.I would recommend the company use the net method because that would be in better accordance with SAB 101 or GAAP. It would appropriately record the amount of revenue corresponding to their function as an agent. In addition if we opted for the gross method, in event of a restatement requested by the SEC, the company could suffer from a decline in market price. In choosing the net method the long term benefits definitely outweigh any short term benefits.

4.I would maintain my position in upholding the notion of conservatism.

StarMedia Network Inc.
1.There are two main options available. They could choose to record the revenue from the transaction at fair value if the surrender value is determinable from historical practices and also if the firm has received revenue from a similar transaction within 6 months (EITF 99-17 Par 4). The alternative option would be not recording the $5.5 million of reciprocal advertising arrangement as revenue because according to the EITF 99-17 Par 2: “Revenues that include barter transactions which have no ultimate realization in cash and no overall effect on net income, the practice may lead to overstated...
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