CLC Assignment: Company Analysis Group 3 Professor Stephen ✓ Solved

CLC Assignment: COMPANY ANALYSIS Group 3 Professor Stephen

The GAAP provided new guidelines regarding revenue recognition, in order to simplify the financial statements. The objective of the new guidance is to establish the principles to report useful information to users of financial statements about the nature, timing, and uncertainty of revenue from contracts with customers. This paper will discuss the revenue recognition criteria of various companies and how they comply with rules of FASB codification.

Microsoft Corporation

Microsoft Corporation is the largest company that deals with the manufacturing and sale of electronic devices like iPhones, iPads, laptops and other devices worldwide. It leads in producing personal computer software. Its financial statements signify strong performance in the investment sector. From the balance sheet, the short-term investments in the financial year 2020 were $136,527; in 2019, they were $133,819; and in 2018, the investments totaled $133,768, marking a growth of 2.02%, 0.04%, and 0.59% respectively (Warren et al., 2020).

The notes indicate an investment of $150 in producing more electronic devices. An additional amount of $100 was allocated towards purchasing shares and reinvesting dividends in 2019 (Mayes, 2020). The Financial Accounting Standards Board (FASB) has laid out new policies for companies to follow. Microsoft adheres to the principle of impracticability in its operations as it believes that excessive costs should be included (Tysiac, 2018, p. 105). Moreover, the company follows the accounting of non-monetary transactions based on the fair values of the assets, exempting transactions lacking commercial substance as per FASB standards.

Microsoft's substantial investments and adherence to FASB standards when preparing financial statements demonstrate its commitment to accurate financial reporting.

Amazon

Amazon is the second most valuable company in the United States, trailing only Apple, with a market cap exceeding $1.7 trillion. The company recognizes revenue once four criteria are met: 1) evidence of an arrangement or contract exists, 2) delivery has occurred or services have been rendered, 3) the selling price is fixed or determinable, and 4) collectability is assured (sec.gov). Determining whether to report revenue as gross sales and costs or net commission sales relies on the transaction specifics.

Amazon typically records revenue as gross sales when it is obligated in a transaction. Discounts accepted by customers are deducted from the transaction price; sales revenue is recognized using a fixed percentage, fixed payment, or a combination (sec.gov). Product sales revenue includes sales and related shipping costs, with return allowances estimated based on past experiences. The most complex revenue to record involves prime memberships offering extensive services.

Under GAAP regulations, all revenue is not recognized until all parts of the contract are fulfilled. Amazon's total revenue for 2019 was $280.5 billion, a significant increase from 2018. This information assists users of financial statements in understanding revenue recognition and calculation methods. Amazon ensures compliance with FASB codification, providing a clear picture of its financial standing.

Tesla

Tesla manufactures, sells, designs, and develops high-performance fully electric vehicles and solar energy products. Revenue comprises automotive sales, automotive leasing, and energy solutions. Upon revenue recognition, Tesla reduces the transaction price and records a sales return reserve for estimated future product returns. Customers can exercise a buyback option, leading to deferred revenue recognized as a liability.

The 2020 balance sheet indicates deferred revenue of $1,258 (September 30) and $1,163 (December 2019). Total sales revenue, including automotive sales and leasing, amounted to $8,771 in 2020, up from $6,303 in 2019. Listing deferred revenue informs consumers of the company's expectations regarding buyback options, based on market value and historical experience. Tesla adopted ASC 606 in 2018, recognizing revenue to accurately reflect the transfer of promised goods or services in line with the FASB standards (FASB).

Conclusion

In conclusion, Microsoft, Amazon, and Tesla have adhered to FASB codification and GAAP regulations concerning revenue recognition on their financial statements. The new revenue recognition policies enhance transparency, enabling investors and the public to better understand the financial health of these companies, ultimately benefiting all stakeholders involved.

References

• Mayes, T. R. (2020). Financial analysis with Microsoft Excel. Cengage Learning.
• Warren, C. S., Jonick, C., & Schneider, J. (2020). Accounting. Cengage Learning.
• Tysiac, K. (2018). 6 key areas of change for accountants and auditors. Journal of Accountancy, 225(3), 57-63.
• Amazon 10-K retrieved from: [Link]
• Tesla 10-K, Tesla 10-Q retrieved from: [Link]
• FASB Codification retrieved from: [Link]