Running head: WEEK 3 DISCUSSION 1

Week 3 Discussion
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Institution
Date
WEEK 3 DISCUSSION 2

Explain how MoviePlus would account for its revenue if it did follow GAAP. Should

MoviesPlus use GAAP? Do you see this as an ethical issue? Explain.

Revenue is the backbone of business performance. Everything centers on sales.

MoviePlus would be able to account for its revenue if it follows the Generally Accepted

Accounting Principle. To achieve this, MoviePlus has to apply the revenue recognition principle.

This principle is a combination of the matching principle and accrual accounting, which

stipulates that revenue is only acknowledged when they are earned or realized, and not

essentially when received. By realizable, we mean that the services or goods have been received,

but the payments for the goods and services is expected at a later date. Therefore, MoviePlus

must be able to identify earned revenue, and this is because earned income accounts for services

and goods that have been performed and provided respectively. Also, MoviePlus must ensure

that the revenue generating activities have been primarily or fully completed before they include

it as revenue during that accounting period (Schipper et al., 2009). Also, there must be a realistic

level of confidence that the expected revenue will be received. Finally, through the use of

matching Principle, MoviePlus must ensure that all revenues and their associated costs must be

reported in that accounting period. Yes, this is an ethical issue because specific rules and

regulations of a business must be followed. Thus, by adhering to the GAAP, the business shows

standards of integrity, which is ethical.

Explain the meaning and importance of economic substance and how it relates to the

financial statements.

Economic substance is a transaction that has a drive other than the decrease of tax

obligation. This theory is used in the checkup of tax protections to see if they are taking

advantage of the tax laws. Economic substance is important because the corporate structure of an
WEEK 3 DISCUSSION 3

organization must have real substance, ans should not be Conduit Company or empty shell.

Hence, without economic substance tax authorities would ignore the company’s optimized tax

structure and the organization would lose benefits provided by contracts for the evasion of

double taxation (Mathur & Singh, 2017). Economic substance is related to financial statements

in that it ensures that the financial statements offer an accurate, relevant, and complete image of

events and transactions.

WEEK 3 DISCUSSION 4

Reference

Schipper, K. A., Schrand, C. M., Shevlin, T., & Wilks, T. J. (2009). Reconsidering

revenue recognition. Accounting Horizons, 23(1), 55-68.

Mathur, A., & Singh, K. (2017). Economic substance requirements and multinational

firm behavior (No. 918310). American Enterprise Institute.