03 Oct Directions: Read and respond to the following questions in the attached exercise on revenue recognition issues for Survey Monkey. Assume that Black Squirrel Design, Inc., signs up for
Directions: Read and respond to the following questions in the attached exercise on revenue recognition issues for Survey Monkey.
- Assume that Black Squirrel Design, Inc., signs up for the Platinum plan at Survey Monkey on December 1, 2015. The customer pays the entire $780 on March 1. How will Survey Monkey record this customer’s payment? What asset and/or liability accounts are affected?
- Continue the same example from Item #1. If Survey Monkey has a December 31 year end, how much revenue related to the Platinum plan purchased by Black Squirrel Design will Survey Monkey recognize at December 31, 2015? How much revenue from the Black Squirrel Design purchase will be recognized during 2016?
Direction: Provide an argument as to why you agree or disagree.
3. The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle. They both determine the accounting period in which revenues and expenses are recognized. According to the principle, revenues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received.
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When does SurveyMonkey recognize revenue from its Platinum annual subscription plans?
SurveyMonkey is an online survey company that allows its subscribers to customize and administer surveys. It recently made the news for raising another $250 million in equity funding (“SurveyMonkey is worth $2 billion after new $250 million fundraising round, Fortune, December 15, 2014.) (Note: SurveyMonkey is privately held. The founder says the company will not go public because the related costs of being a publicly-held organization are too high.) SurveyMonkey’s basic services are free and include the ability to customize a survey containing a maximum 10 questions for up to 100 responses. Premium plans are also available through SurveyMonkey. Features of the Platinum SurveyMonkey plan include unlimited questions, unlimited number of responses, custom logos, and phone support. The Platinum plan costs $65 per month and is billed annually on the starting date of the plan for a total cost of $780. Questions
1. Assume that Black Squirrel Design, Inc., signs up for the Platinum plan at SurveyMonkey on December 1, 2015. The customer pays the entire $780 on March 1. How will SurveyMonkey record this customer’s payment? What asset and/or liability accounts are affected?
2. Continue the same example from Item #1. If SurveyMonkey has a December 31 year end, how much revenue related to the Platinum plan purchased by Black Squirrel Design will SurveyMonkey recognize at December 31, 2015? How much revenue from the Black Squirrel Design purchase will be recognized during 2016?
