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describe the five steps needed to achieve the core principle. Also,
describe how the core principle was not achieved in this situation.
[2] In your own words, explain the company’s reasoning for recording
$5.8 million as current revenue while recording the remaining $1.2
million as deferred revenue. Also, document where on the financial
statements the deferred revenue account would be presented.
[3] Assess the content of the separate letter issued by Longeta’s vice
president of sales to Magicon. Document your conclusion about how the
content of the letter affects or does not affect revenue recognition for
Longeta for the year ended September 30, 2015.
[4] Given that the letter from the vice president of sales was not attached
to or documented in the order letter submitted by Magicon to Longeta,
document your conclusion as to the impact, if any, the vice president’s
letter has on the accounting treatment for the transaction since it was not
part of the order letter.
[5] Research PCAOB Auditing Standards on the PCAOB’s website
(www.pcaob.org) to summarize the guidance for auditors in regards to
their assessment of the risk of material misstatement related to revenue
recognition. What do those standards require of auditors in regards to
their assessment of risk related to revenue recognition?
[6] Auditing standards describe three conditions that are usually found to
be present. What are those three conditions and what red flags, if any,
might be present at Longeta?
[7] The separate letter from the vice president of sales was emailed and
faxed to Magicon representatives. What would be the impact if
Longeta’s vice president had only provided that information orally to
Magicon representatives and not forwarded the information in written
form?
[8] As of September 30, 2015, Magicon had only submitted the order
letter. Document your conclusion about the impact on the accounting for
the transaction if Longeta and Magicon (a) sign the reseller agreement
within 30 days or (b) do not sign the reseller agreement within 30 days.