Case 93

1. SEC Staff Accounting Bulletin No. 101 states the four criteria must be satisfied for revenue recognition: (1) Persuasive evidence of an arrangement exists, (2) Delivery has occurred or services have been rendered, (3) The seller’s price to the buyer is fixed or determinable and (4) Collectibility is reasonably assured.

2. The 5.8 million recorded as current revenue reflects the portion of the order that was for the software that was shipped by year end, and is current revenue for Longeta. The remaining balance of the agreed order (1.2 million) is for updates and technical support services not year rendered, which means it does not meet the criteria of SEC SAB No. 101, and is therefore deferred revenue. This deferred revenue should be presented on the balance sheet as a liability, either current or long-term, depending on what length of time the support services are to be provided for.

3. The letter gives Magicon the ability to not pay the commitment if mutually agreed upon terms cannot be reached. Therefore, collectability is not reasonably assured in this case, violating one of the SEC SAB criteria for revenue recognition. Also, the line in the letter “The order letter gives us 30 days to reach mutually agreeable terms and conditions” means that no real agreement has been reached between the two parties. So the first of criteria of SAB No 101 also has not been met, as there is no real arrangement in place yet.

4. Regardless of the letter being attached to or documented in the order letter, it was still an agreement made by the vice president of sales, on company letterhead, with Magicon. The agreement is binding, and affects the ability of the company to recognize the revenue, as all criteria are not met.

5. If any agreement is made, either written or orally, that change the original agreement of the contract, or the terms of collectibility, then this must be taken into consideration for revenue recognition.

6. If Magicon signed the reseller...