Larson Industries: A Case on Identifying and Researching Revenue Recognition Issues

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I. Project 3: Research: Revenue Recognition at Larson Industries

II. Introduction:

You did such a great job on Project I that Rosalie Gerst, your immediate supervisor (the professor) now feels confident you can conduct professional accounting research using the FASB Accounting Standards Codification (ASC). She called an impromptu meeting Wednesday morning to discuss one of the firm’s largest clients, Larson Industries; a manufacturer of carpentry and other premium handheld and mechanical tools. Rosalie asks, “could you prepare a report that addresses multiple complex revenue recognition issues facing Larson Industries’ new contract with Dynamic Wholesale, Inc.?” Further, Rosalie agrees to provide the details of the contract between Larson and Dynamic in a separate document (case study file). Rosalie, who started her career at NTL in Washington, DC, is a strong believer in the benefits of creating diverse multicultural teams for generating out-of-the-box solutions and the most effective and efficient decisions. She has added you to a team along with a few of your colleagues (students). Introduce yourself to the other team members (LEO Study Group - under Discussions). Rosalie stated, “you and your team may brainstorm the relevant case issues within your Study Group only. Communication about this client (project) outside of the office (LEO) is strictly forbidden due to confidentiality with our clients (academic integrity). Further, all team members must demonstrate evidence of participation by collaboratively discussing revenue recognition issues presented in the detailed case study. Rosalie warns that non-participatory team members are rarely successful in research projects such as this due to the complexity of the issues. Eager to prove you’re a born researcher with the writing skills of James Baldwin, you begin planning the research process you’ll use to impress your team and ultimately Rosalie. Knowing that Rosalie earned a graduate degree in English before becoming a CPA, you wisely plan to submit a draft of your report to the editing department (writing tutors) before delivering your final work to her. You also plan to submit a draft of your memo before her requested due date to read feedback from Turnitin. Steps to Completion: Step 1 – Review the grading rubric to ensure you understand how your deliverable will be graded. The rubric is located in You will find the rubric in LEO under Content>Assessments: Projects, Discussions, Quizzes, & Rubrics>Project 3

Step 2 – Read the case study thoroughly. You may need to read the case several times to fully understand the multifarious revenue recognition issues presented by the authors.

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Larson Industries: A Case on Identifying and Researching Revenue Recognition, published by Casey J. McNellis, Gerhard J. Barone, and Joshua Herbold.

Step 3 – Use the FASB ASC

• You should have begun the process of learning how to use the ASC in Week 1. If you have not already done so, you need to learn how to use the Codification to complete this project. You will find the login credentials and this document: How to Use the Codification in Content/Course Resources/Subscription-Based Resources.

• Use the login credentials to access the FASB Accounting Standards Codification (ASC)

• Browse the ASC and begin looking for accounting standards on revenue recognition. Make notes.

• Step 4 – Develop a research plan

• Discuss Project 3 with your online Study Group.

• The case is complex and requires colleagues of diverse backgrounds to derive the correct solutions.

• Begin discussing how you plan to work collaboratively to research the case issues. Consider scheduling Zoom meetings. I will be happy to set up the Zoom meetings in my UMGC Zoom account.

• Keep track of all resources used in your research because you will need the information to prepare the Reference list. Some students use reference management software; one free option is Zotero.

Step 5 – Conduct Research

• You will use the FASB ASC as the reporting framework to evaluate the contractual agreement. Ignore all references to IFRS.

• Review the specifics of the agreement between Larson and Dynamic and identify four (4) potential accounting issues related to Larson’s recognition of revenue on the sale of AM300 to Dynamic. The case presents more than four issues, but you are to focus on four issues only for your report. The table in Appendix A may be helpful in organizing your research process.

• For each of the 4 items in your list, specify: o the characteristic of the agreement that generates the revenue recognition

issue, and o the revenue recognition issue generated.

• Research the authoritative revenue recognition guidance (i.e., the FASB accounting standards) to help determine which characteristics of the agreement will bring about revenue recognition issues.

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• Make extensive notes related to the issues you chose to include in your report.

• If needed, to enhance your understanding of specific revenue recognition codification subtopics, consider reviewing the Wiley GAAP: Interpretation & Application of GAAP text in O’Reilly.

Step 6 – Discuss your Research Findings with Colleagues

• Return to your Study Group to discuss your research findings.

Step 7 – Make informed decisions

• Consider positions raised in your collaborative group sessions o Which positions do you want to address in your individual report? o Which do you want to ignore?

• Use your critical thinking skills by asking questions, such as: o What problem(s)/questions am I trying to solve? o Have I actively sought help from my colleagues? o Have I researched relevant and reliable resources to find possible

answers? o What assumptions am I making, if any? Are they justifiable or self-serving

assumptions? o Have I collected sufficient evidence to develop an effective decision? o Which evidence supports my decisions? Am I ignoring evidence that

disputes my decisions? If so, why? o Would my decision be different if I spent more time researching? o Would my decision remain constant over time assuming the ASC does not

change?

• Base your decision on objective evidence found in the FASB ASC. Step 8 – Prepare a draft of your report

• Use the 7th edition of APA to guide your writing.

• Prepare a report to Rosalie Gerst identifying and analyzing the four accounting issues in the Larson-Dynamic contract while recommending the appropriate accounting treatment.

• You should prepare your report in a format that specifically addresses the following components for each accounting issue:

o A summary of relevant case facts; o A description of the four specific accounting issues you will address in the

report; o An identification of the appropriate authoritative guidance (i.e., FASB

Codification i.e. accounting standards);

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o An analysis of the issue, including a consideration of alternative accounting treatments, if applicable; and

o A concise conclusion including your recommendation among the accounting alternatives.

• Ask family and or friends to read your deliverable for clarity, to check for missing words or duplicate words, and other writing errors we often miss when re-reading our own work. Ask for a constructive feedback.

• Submit your draft to the writing tutors early enough to receive their feedback.

• Submit your draft in your LEO folder early enough to receive a Turnitin Similarity Score.

Step 9 – Prepare your Final Deliverable

• Review and incorporate feedback you received from the writing tutors to improve your final report.

• Review your Turnitin Similarity Score and make edits if necessary. Information on Turnitin is located in Content/Course Resources/Writing Resources/Turnitin. Do not submit a graded assessment with a high similarity score unless you are positive the content was written in your own words.

• Review the grading rubric one more time to ensure you understand how your report will be graded.

• Prepare and submit your final report.

IV. Deliverables:

• Address the report to Rosalie Gerst, Immediate supervisor

o Use the 7th edition of APA style formatting; o Approximate length of the report is 6 to 8 pages, excluding the cover page

and reference list; o Correct spelling is mandatory; and o English grammar must be clear, correct, and concise.

V. Hints and Tips:

• Read the grading rubric before beginning the project to fully understand the requirements; ask questions about the requirements if needed.

• Read the case study until you fully understand it. • All of the answers can be found in the FASB ASC. • Use the Wiley GAAP eText for interpretation and clarification of the ASC. • The case study may not provide some information that is needed to make a

definitive decision on every issue. Use your professional judgment when necessary and state any assumptions you may have used.

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• To properly guide you, I need to read your thoughts and interpretations of the ASC, which demonstrate your comprehension of the learning goals and ability to perform the competencies. Your paper may include citations to support your thoughts. Those citations must be correctly cited. Your grade will be based on what you write.

• Review and refresh your memory of APA style. • You will find many APA resources at APA Style.

• Demonstrate through your writing that you have gained a/an: • deeper understanding of the FASB ASC guidelines for revenue

recognition. • applied professional judgment and decision-making skills to the complex

scenario described in the case study and have enhanced your professional research skills using the FASB ASC, and other academic resources.

• Ask a classmate, friend, or family member to read your report and share constructive feedback on the quality of your writing.

• Submit your report to the UMGC writing tutors and use their guidance to improve your final deliverable.

• Submit the deliverable on or before the due date. • Review the Late Policy, which will be strictly enforced. It is located in Course

Resources/Late Policy. • Ask your professor questions as needed.

VI. Rubric: You will find the rubric in LEO under Content>Assessments: Projects, Discussions, Quizzes, & Rubrics>Project 3

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Appendix A

Sample Table

Contractual Agreement Characteristics and Revenue Recognition Issues

Issue #

Agreement Characteristics/Facts

Revenue Recognition Issue / Question(s)

1 •

2 •

3 •

4 •