| Course | ACC 423 Intermediate Financial Accounting III (ACC/423) |
|---|---|
| Week | 2 |
| Paper type | Investments and revenue recognition paper |
| Length | about 1,047 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 423 Week 2
A Treasury Portfolio and a Hotel Contract: Classifying and Measuring Investments and Allocating a Bundled Sale Under the Five-Step Revenue Model at a Composite Fitness Equipment Maker
[Student Name]
University of Phoenix
ACC/423: Intermediate Financial Accounting III
Week 2 Assignment
[Instructor Name]
[Date]
The company, its investee, its customer and all figures are composites written for a model paper; accounting rules and research findings come from the sources listed.
A composite company designs and builds commercial treadmills, bikes and strength equipment for gyms, hotels and corporate fitness centers. After a strong year, its treasury team holds several investments, and its sales team has signed the company's largest hotel contract to date. The same principle runs through both halves of this paper: the accounting follows what the company intends and what it has promised. This paper records the investments at year end and applies the revenue model to the hotel contract.
A Bond Held to Maturity
The company bought $2 million of five-year corporate bonds at par, intending and able to hold them until they mature, when the money will fund a planned factory expansion. They are classified as held-to-maturity and carried at amortized cost. At year end their fair value is $1.94 million because rates rose, but no adjustment is made, since the company will receive the full principal at maturity. Only an expected credit loss, of which there is no sign, would reduce the carrying amount.
A Bond Available for Sale
The company also bought $1 million of municipal bonds at par as a reserve it might sell if cash is needed. They are available-for-sale and reported at fair value. At year end their fair value is $970,000. The $30,000 decline is due to interest rates, not credit, so it is recorded in other comprehensive income, debiting unrealized holding loss and crediting a fair value adjustment. Net income is not affected until the bonds are sold.
Equity Shares Held for Return
The company holds 5,000 shares of a publicly traded apparel company, bought at $40 each. At year end the shares trade at $46. Current rules send fair value changes on equity investments without significant influence straight to earnings (Financial Accounting Standards Board, 2016). The company records a $30,000 unrealized gain in income. Before this rule took effect, such gains could be held in other comprehensive income, which let companies choose when to show them in earnings by choosing when to sell.
A 30% Stake in a Distributor
Two years ago, the company bought 30% of a distributor that sells its equipment in Canada, for $3.6 million, and holds one of five board seats. That influence calls for the equity method. The distributor earned $2.0 million this year and paid $500,000 in dividends. The company records its 30% share of income, $600,000, as an increase in the investment and as income from investees. Its share of dividends, $150,000, is recorded as cash received and a reduction of the investment, not as income, because the income was already recognized. The investment rises to $4.05 million, plus any earlier years' adjustments.
Barth (1994) found that fair values of investment securities explained bank share prices better than historical costs, evidence behind the move toward fair value for securities held for return. The equity method instead reflects the investor's share of the investee's operating results.
The Hotel Contract: Steps One and Two
A hotel chain signed a contract to buy 60 treadmills for its properties, to have the company install them and to receive three years of preventive maintenance, all for $540,000. The contract is approved, has commercial terms and payment is probable, so step one is met.
Step two identifies performance obligations. The treadmills are distinct because the hotel could use them with installation by another firm. Installation is distinct because other firms offer it and it does not modify the treadmills. Maintenance is distinct and is provided over time. There are three performance obligations.
Steps Three and Four
The transaction price is $540,000, with no variable consideration. The company sells each element separately at standalone prices of $480,000 for 60 treadmills, $30,000 for installation and $90,000 for three years of maintenance, $600,000 in total. The bundle's $60,000 discount is spread across all three in proportion, a ratio of 0.9. The treadmills are allocated $432,000, installation $27,000 and maintenance $81,000 (Financial Accounting Standards Board, 2014).
Step Five
Revenue is recognized when control transfers. The treadmills are delivered in March, when the hotel takes title and physical possession, so $432,000 is recognized then. Installation is completed in April, recognizing $27,000. Maintenance is provided evenly over 36 months beginning May 1, so $2,250 is recognized each month, $18,000 in the first year. The hotel paid the full $540,000 on delivery, so at year end the $63,000 of maintenance not yet performed is a contract liability, a promise the company has been paid to keep.
Judgment in the Allocation
The allocation depends on standalone selling prices, and those are not always observable. Treadmills and maintenance plans are sold separately every week, so their prices come from actual sales. Installation is rarely sold alone; the company estimated its price at cost plus a normal margin, about $500 a machine. If installation had instead been priced at $1,000 a machine, more of the discount would have shifted and more revenue would have been recognized in April rather than over three years. The company documents its method and applies it consistently, because auditors and readers need to know that allocation was not used to pull revenue into an earlier period. The same judgment arises when a contract includes a discount for a large order: the default is to spread it across all obligations unless evidence shows it relates to only one.
Disclosure
The company discloses its investment classifications, fair value levels and unrealized amounts, and for revenue it discloses the remaining performance obligations, here $63,000 of maintenance still to be performed at year end, when it will be recognized and its judgments about standalone prices. Weygandt et al. (2021) note that such disclosures let readers see how much of future revenue is already under contract.
Conclusion
The company's investments were measured four ways because its intentions and influence differed: amortized cost for a bond it will hold, fair value through other comprehensive income for a bond it might sell, fair value through net income for shares held for return and the equity method for a distributor it helps steer. Its hotel contract was split into three promises, priced by standalone values and recognized as each was delivered.
References
Barth, M. E. (1994). Fair value accounting: Evidence from investment securities and the market valuation of banks. The Accounting Review, 69(1), 1-25.
Financial Accounting Standards Board. (2014). Revenue from contracts with customers (Topic 606) (Accounting Standards Update No. 2014-09).
Financial Accounting Standards Board. (2016). Financial instruments, overall (Subtopic 825-10): Recognition and measurement of financial assets and financial liabilities (Accounting Standards Update No. 2016-01).
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2021). Accounting principles (14th ed.). Wiley.
What the ACC 423 Week 2 instructions ask
The ACC 423 Week 2 assignment generally asks students to account for investments and apply revenue recognition principles. The investments portion usually covers classifying debt securities as held-to-maturity, available-for-sale or trading, measuring each, accounting for equity securities at fair value through net income and applying the equity method when the investor has significant influence. The revenue portion usually asks for the five steps: identify the contract, identify performance obligations, determine the transaction price, allocate it and recognize revenue when or as each obligation is satisfied. Some prompts add variable consideration, principal versus agent questions or the costs of obtaining a contract. Calculations, entries and reasoning should be shown and supported with APA citations.
How this ACC 423 Week 2 example is built
A fitness equipment maker gives the paper both halves of the week in one company: a treasury department that invests spare cash in several ways and a sales team that signs contracts combining equipment, installation and service. Each investment is introduced with the reason the company holds it, since intent and influence drive the classification. The fair value changes are then routed to the correct place, net income or other comprehensive income. The equity method section records the investee's income and dividends. The revenue section walks through the five steps for one contract, allocating the price by standalone selling prices and showing when each part becomes revenue, and it ends with what readers learn from the disclosures.
ACC 423 Week 2 grading rubric: where the points go
Instructors look first at whether each security lands in the right category, then at measurement and finally at whether all five revenue steps are applied in order. Debt securities must be carried at amortized cost or fair value according to their classification, with rate-driven swings on bonds held as a sale-ready reserve kept in other comprehensive income. Equity securities without significant influence must go through net income. Under the equity method, the investor's share of income increases the investment and dividends reduce it. For revenue, performance obligations must be distinct, the price must be allocated by relative standalone selling prices and timing must follow satisfaction. Clear entries, reconciled figures and cited standards secure the remaining credit.
ACC 423 Week 2 help: mistakes to avoid
One frequent ACC 423 Week 2 problem is placing unrealized gains on equity securities in other comprehensive income, a treatment removed for most equity investments. Route them to net income. Another is recording dividends from an equity-method investee as income, which double counts; they reduce the investment. In revenue problems, students often allocate the discount to one item or recognize the whole contract at delivery. Identify each distinct promise, find its standalone price and allocate proportionally. Service promised over time is recognized over time. Keep held-to-maturity bonds at amortized cost even if their fair value falls, unless there is a credit loss. Finally, explain why intent and influence decide the accounting.
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ACC 423 Week 2 questions, answered
What does ACC/423 Week 2 usually cover?
It usually covers accounting for investments in debt and equity securities, including the equity method, and revenue recognition under the five-step model.
Where can I find a free ACC 423 Week 2 sample paper?
A fitness equipment maker example covering four investment treatments and a bundled hotel contract is on this page with margin notes. Share the facts of your assignment and a first custom paper comes at no charge.
How are available-for-sale debt securities measured?
At fair value, with unrealized gains and losses reported in other comprehensive income until the securities are sold, while credit losses go through net income.
When is the equity method used?
When an investor has significant influence over an investee, usually presumed at 20% to 50% ownership; the investor records its share of the investee's income and reduces the investment for dividends.
What are the five steps of revenue recognition?
Identify the contract, identify the performance obligations, determine the transaction price, allocate the price to the obligations and recognize revenue when or as each is satisfied.
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