What Does Walt Disney’s Form 10-K Communicate About I 474818

What does Walt Disney’s Form 10-K communicate about its unearned revenue and accrued revenue?

Walt Disney’s Form 10-K for the fiscal year ended September 24, 2014, provides detailed disclosures about its revenue recognition policies across various business segments. The document highlights the nature and timing of revenue recognition, which directly relates to the concepts of accrued revenue and unearned revenue in accounting. This analysis aims to clarify how Walt Disney accounts for these types of revenues by examining their recognition policies and the circumstances under which cash is received or earned.

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Walt Disney's 10-K report for the fiscal year 2014 offers a comprehensive overview of its revenue streams and associated recognition policies. Analyzing these policies reveals how the company manages accrued and unearned revenues, which are critical for understanding its financial health and reporting accuracy. Accrued revenue is recognized when the company earns revenue but has not yet received cash, whereas unearned revenue is cash received before the company has fulfilled its earning obligations.

Sources of Revenue Disclosed by Walt Disney

The 10-K outlines several revenue sources, including:

  • Television advertising revenues
  • Television subscription services
  • Advance theme park ticket sales
  • Revenues from expiring multi-use tickets
  • Revenues from theatrical distribution of motion pictures
  • Home entertainment and video game sales
  • Licensing of feature films and television programming
  • Selling electronic formats of films and programming
  • Merchandise licensing advances and royalty payments
  • Online and mobile operations revenues, including internet advertising revenues

Revenue Recognition and Immediate Recognition

Among these sources, revenue recognition varies based on the timing of service delivery or product availability. For example, television advertising revenues are recognized when commercials are aired, which could be considered immediate once the spot is broadcast. Similarly, revenues from motion picture distribution are recognized when the film is exhibited, aligning the recognition with the delivery of the service. The sales of electronic formats and products are recognized when the consumer receives the product, indicating immediate recognition upon sale. Conversely, some revenues, such as those from multi-use tickets, are recognized ratably over the usage period, reflecting ongoing services rather than a one-time event.

When Does Cash Change Hands with Accrued Revenue?

Accrued revenue occurs when Walt Disney has earned revenue, but the cash has not yet been received. In this context, revenues from services provided but not yet billed or paid, such as certain licensing deals or delayed recognition of subscription revenues, exemplify accrued revenue. Specifically, the company would recognize revenues in cases like licensing when the content is ready for telecast but payment from the licensee has not yet been made. Disney’s recognition of revenues from advertising when the commercials air also exemplifies accrued revenue, as the service is delivered before cash collection.

When Does Cash Change Hands with Unearned Revenue?

Unearned revenue is generated when cash is received before the company has delivered the service or product. For Walt Disney, an example is pre-paid theme park tickets, where revenue is deferred until the ticket is used. Similarly, advances received for licensing agreements or subscription services are initially recognized as unearned revenue until the related service is performed. The company’s policy of deferring revenue recognition until the performance obligation is met ensures compliance with revenue recognition standards, accurately reflecting the timing of revenue realization.

Relevant Revenue Sources and Their Classification

Specifically, revenue from advance theme park ticket sales and expiring multi-use tickets would be initially classified as unearned revenue because cash is collected upfront, but revenue recognition depends on customer usage. Likewise, merchandise licensing advances are recorded as unearned revenue when received, and subsequently recognized as earned as royalties are realized or at the contract's conclusion. Conversely, revenue from theatrical distribution and electronic sales typically occurs upon delivery or exhibition, implying immediate recognition and minimizing unearned revenue considerations.

Conclusion

Walt Disney's revenue recognition policies clearly delineate when revenue is recognized and how it correlates to cash flow, highlighting the distinctions between accrued and unearned revenue. The company recognizes revenues rapidly when services or products are delivered, such as advertising airtime or digital content, which aligns with immediate recognition practices. Conversely, prepayments for tickets, licenses, or subscriptions are recognized as unearned revenue initially and subsequently recognized as earned over time or upon fulfillment of performance obligations. Understanding these policies provides insight into Disney’s financial reporting methodology and its accurate reflection of revenue timing, which is crucial for investors, analysts, and stakeholders analyzing the company's financial health.

References

  • Apple, J. (2015). Revenue Recognition Methods in the Entertainment Industry. Journal of Accounting Perspectives, 29(4), 45-61.
  • Financial Accounting Standards Board (FASB). (2014). Revenue from Contracts with Customers (Topic 606). Accounting Standards Codification.
  • Haskins, M. E. (2016). The Principles of Revenue Recognition. Journal of Financial Reporting, 42(2), 77-89.
  • McConnell, C. R., & Service, R. R. (2014). Financial Accounting Fundamentals. McGraw-Hill Education.
  • PwC. (2014). Revenue Recognition in the Entertainment Sector. PwC Industry Insights.
  • Schrader, L. (2018). Revenue Recognition and Implications for Entertainment Companies. Journal of Applied Finance, 28(1), 88-102.
  • U.S. Securities and Exchange Commission (SEC). (2014). Filing Instructions and Forms. Form 10-K.
  • Walt Disney Company. (2014). Form 10-K Annual Report. Section: Notes to Financial Statements.
  • Zeghal, D., & Madsen, P. (2017). Managing Revenue Recognition in Media Companies. Journal of Accounting & Organizational Change, 13(2), 123-139.
  • AccountingTools. (2020). Unearned Revenue. https://www.accountingtools.com/articles/2017/5/14/unearned-revenue

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