Oddget Revenue Recognition Case Study

Darius J. Fatemi & Erin M. Masters

Northern Kentucky University

Stage 1 Fact Pattern

Oddget Inc. (hereafter, Oddget) manufactures and sells unusual gadgets and other

oddities. Most of the company’s sales are initiated online and through their product catalog,

which is distributed nationwide. Products include selfie sticks, the beef brander, which allows

people to personalize their steaks, and the wine necklace, which allows hands-free imbibing.

The company has one customer, Steaks R Us, in which Oddget just purchased a 10%

interest; however, the company does not influence Steaks R Us’ decision-making. Steaks R Us

also sells beef branders, but they often purchase them from the company because Oddget beef

branders have a leather tassel, while those of Steaks R Us do not. In addition, Steaks R Us

produces the wooden handle of its beef brander with its own equipment and the metal apparatus

with a machine on Oddget’s property. In exchange, Oddget produces the metal apparatus for its

beef branders in-house but uses Steaks R Us equipment for the wooden handle.

Stage 1 Activity

Prior to the class or training session:

a. Read the case.

b. Identify the accounting research tool that should be used.

c. Name a Topic in the FASB Accounting Standards Codification (“ASC”) that

should be

considered when accounting for this fact pattern.

During the class or training session:

d. Among the members of your group, identify a total of four Topics that should be
 considered.

e. Extra credit! Identify a fifth Topic.

Stage 2 Fact Pattern

As a reminder from Stage One, the company in our case study is Oddget Inc. (“Oddget”).

Oddget has had a successful business manufacturing and selling unusual gadgets and other

oddities.

In an attempt at diversification, and in light of the company’s reputation in the food

industry, management at Oddget has decided to begin constructing restaurant facilities and

entertainment venues. An early project involved a client that wished to begin its first restaurant,

Stoplight, so named for its specialty pairing of red wine with yellow curry and green vegetables.

Under the terms of the contract, Oddget will receive payment based on the initial inspection

score for the restaurant, with higher payments for higher scores. The contract stipulates that

Oddget is fully responsible for materials, labor, and any necessary project management services.

The contract identifies a range of goods and services such that Oddget will:

• Provide the architectural design

• Clear and grade the site

• Procure building materials

• Erect the restaurant structure

• Install equipment, with associated plumbing, HVAC, and electrical work

• Paint interior and exterior

• Perform finish carpentry

Stage 2 Activity

Prior to the class or training session:

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 a. Read the case.

b. Using the guidance in ASC Topic 606, Revenue from Contracts with Customers,

determine:

i. The number of performance obligations arising from the contract. (Consult

ASC Section 606-10-25.)

ii. Whether the contract terms comprise a situation of variable consideration.

(Consult ASC Section 606-10-32.)

During the class or training session:

a. Assume that Oddget is your client.

b. Among the members of your table, draft an email to your supervisor that explains

the arrangement between your client and its customer. Include the number of

performance obligations you considered, which number you believe is applicable,

and why. Also explain whether the accounting for variable consideration applies

to this situation.

Stage 3 Fact Pattern

As a reminder from Stage 1 and Stage 2, the company in our case study is Oddget Inc.

(“Oddget”). Oddget has had a successful business manufacturing and selling unusual gadgets and

other oddities.

In an attempt at diversification, and in light of the company’s reputation in the food

industry, management at Oddget decided to begin constructing restaurant facilities and

entertainment venues. An early project involved a client that wished to begin its first restaurant,

Stoplight, so named for its specialty pairing of red wine with yellow curry and green vegetables.

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In previous stages, we determined that the contract comprises a situation of variable

consideration.

The contract stipulates that Oddget will receive $200,000, with a $30,000 bonus if the

inspection score is 97 or higher. Oddget determines that this situation satisfies the criteria for

variable consideration, and it estimates that the likelihood of achieving the bonus is 55%, with a

45% chance of a score below 97.

Stage 3 Activity

Prior to the class or training session:

a. Read the case.

b. Read the email answer key from Stage 2.

During the class or training session:

a. Assume that Oddget is your client.

b. Using the guidance in ASC 606-10-32, determine the appropriate method of

estimating variable consideration in order to arrive at a transaction price for this

contract.

c. Among the members of your table, fill out a consultation workflow, including

bullet-point documentation of information needed by your reviewer, to submit to

your supervisor or manager. These bullet points should include: the relevant

facts/background; why ASC Topic 606 is applicable; why this is variable

consideration; which estimation method is appropriate and why, according to the

guidance; and the transaction price you have calculated.

Stage 4 Fact Pattern

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 As a reminder from Stages 1-3, the company in our case study is Oddget Inc. (“Oddget”).

Oddget has had a successful business manufacturing and selling unusual gadgets and other

oddities.

In an attempt at diversification, and in light of the company’s reputation in the food industry,

management at Oddget decided to begin constructing restaurant facilities and entertainment

venues. An early project involved a client that wished to begin its first restaurant, Stoplight, so

named for its specialty pairing of red wine with yellow curry and green vegetables. The contract

stipulated that Oddget would receive $200,000, with a $30,000 bonus if the inspection score was

97 or higher. Oddget determined that this situation satisfied the criteria for variable

consideration, and it estimated that the likelihood of achieving the bonus was 55%, with a 45%

chance of a score below 97. Oddget determined the transaction price to be $230,000. And in case

you were wondering: they achieved the bonus!

A second project involved a client that wished to build a similarly-sized restaurant, called

Yield. The contract stipulates that Oddget will receive $200,000, with a $30,000 bonus if the

inspection score is 97 or higher, a $20,000 bonus if the score is 94 or higher, and a $10,000

bonus if the score is 90 or higher. Oddget estimates that the likelihood of achieving a score of 97

or higher is 55%, with a 40% chance of a score between 94 and 97, and a 5% chance of a score

between 90 and 94.

Stage 4 Activity

Prior to the class or training session:

a. Read the case.

b. Read the answer key from Stage 3.

During the class or training session:

a. Assume that Oddget is your client.

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 b. Determine, as a class, the appropriate method of estimating variable consideration

in order to arrive at a transaction price for this contract.

c. As a class, adapt the outline for the new case.

d. Among the members of your table, draft a corresponding memo.

Stage 5 Fact Pattern

As a reminder from Stages 1-4, the company in our case study is Oddget Inc. (“Oddget”).

Oddget has had a successful business manufacturing and selling unusual gadgets and other

oddities. Management at Oddget later decided to begin constructing restaurant facilities and

entertainment venues.

An early project involved a client that wished to build a restaurant called Yield. The

contract stipulates that Oddget will receive $200,000, with a $30,000 bonus if the inspection

score is 97 or higher, a $20,000 bonus if the score is 94 or higher, and a $10,000 bonus if the

score is 90 or higher. Oddget estimates that the likelihood of achieving a score of 97 or higher is

55%, with a 40% chance of a score between 94 and 97, and a 5% chance of a score between 90

and 94.

Stage 5 Activity

Prior to the class or training session:

a. Read the case.

b. Read the associated memo that is provided to you.

c. Consider constraints on variable consideration.

d. Come up with comments for the memo

During the class or training session:

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a. Assume that Oddget is your client.

b. Review comments that your Standards reviewer has made and discuss how to

address these comments.

c. Among the members of your table, revise the memo and show tracked changes.

d. Among the members of your table, draft a corresponding memo.