Question

•You are an accountant working for Hotel Co. Your supervisor has asked you to research what amount of revenue Hotel Co. should recognize for transactions booked by customers on Expedia.com.

•Expedia generally collects the full transaction price from the customer, then withholds a small fee (say, $10) from each transaction and remits the balance to Hotel Co.

•Should Hotel Co. record the gross transaction fee or only the net amount it receives from Expedia.com? Use nonauthoritative firm guidance to assist in your response.

•Start off with the codifications (606?), then move to the non-auth. sources.

2-page email format.

Answer 1

As per codifications (606), the entity gives the agreed upon transaction price once an obligation is met. That price can be based on standalone selling prices as determined by the service or good which is defined within the contract. If that selling price is not apparent, the entity will need to estimate what it is. Transaction prices don’t always have to match the standalone selling price. Sometimes the contract will dictate that a discount is offered along with any other chosen variables. Requirements in ASC 606 detail when the entity can allot these variables to obligations, hence Hotel CO. should record only the net amount it receives from Expedia.com.

Some have argued that there may be a limited exception to the general rule that revenue from membership or other service transaction fees should not be recognized in earnings prior to the refund privileges expiring.