Immersive Case
Core 1 – Week 1 Immersive Case
Exhibit – Modern Design Co.

To: Asha
From: CPA
Date: January 10, 2015
Subject: Modern Design Co. (MD)

The following are explanations of the accounting issues as well as the analysis and recommendation to resolve the issue. Also included are the adjustments to the financial statements (Appendix A).

Barbor sofa order

Issue

On December 11, MD received an order for a total price of $22,100. Barbor Furniture Ltd. (Barbor) provided a deposit of $9,000 which was recorded as revenue when it was received on December 13. Barbor was not billed until January 2. The order was not shipped until after the year end on January 2. The remaining balance owing was recorded in accounts receivable and sales. The inventory was excluded from the ending inventory count as well. The issue is whether this is the appropriate time to record the revenue or if another time is more appropriate. The other issue is that the balance owing is not a receivable until the product has left the warehouse. The cost of the sofas should also be included in inventory.

Analysis

According to ASPE 3400, revenue cannot be recognized until:

1. The seller of the goods has transferred to the buyer the significant risks and rewards of ownership, in that all significant acts have been completed and the seller retains no continuing managerial involvement in, or effective control of, the goods transferred to a degree usually associated with ownership.

Not met: MD has not yet provided any goods to the customer, they still owe them an obligation. As such, the couches have not been transferred and the revenue recognition criteria have not been met.

2. Reasonable assurance exists regarding the measurement of the consideration that will be derived from the sale of goods, and the extent to which goods may be returned; and

Met: The