Homework Help

[XtrmWakeborder]

Hey guys i was wondering if you could help me out. I'm correcting my accounting quiz and know the right answer, but have to explain it. What does this phrase mean? "The buyer aquiring the product for resale has economic substance apart from that provided by the seller." It's about improperly recognizing revenue when a wholesale division sells a product to it's website division. Does it mean the sale can't be transacted because it is essentially the same company selling its own product to itself? Thanks guys.
David

[work2play]

If we just give you the answers to your homework you won't learn. Go look it up in your books. Then next time you'll remember.

[SHOTKALLIN]

NO. It means the buyer can resale the item on EBAY and make a profit because the company's prices are below market value. next time pay attention in class. :hammerhea

[Trailer Park Casanova]

During the summer they're boaters, during the winter they're a jury.

[XtrmWakeborder]

I have the book infront of me. It states the concept and not the definition of economic substance. Like i said i know the answer. I want to understand it more. Regarding the ebay why would they make a profit, when they sold it to themselves, already recognized the revenue. Its not about the website division even selling it yet. Any CPAs?

[Nord]

Hey guys i was wondering if you could help me out. I'm correcting my accounting quiz and know the right answer, but have to explain it. What does this phrase mean? "The buyer aquiring the product for resale has economic substance apart from that provided by the seller." It's about improperly recognizing revenue when a wholesale division sells a product to it's website division. Does it mean the sale can't be transacted because it is essentially the same company selling its own product to itself? Thanks guys.
David
I think it means the "buyer" now has the right to use a set or said margin to turn the product for profit.

[bigq]

I think it means I don't want to be a CPA.:) I hated accounting in college. I like to deal with two number 1 and 0.

[XtrmWakeborder]

I think it means I don't want to be a CPA.:) I hated accounting in college. I like to deal with two number 1 and 0.
Haha that was another way to go. The actual accounting is easy. Its the concepts that are hard.

[Troy McClure]

I believe that it means that he has money or credit available to him, other than credit provided by the seller.
Or not :(

[C-2]

Is that a fancy way of saying the compoany will incur two different classes of revenue/tax; one for the intercompany sale, the other for the resale, and they would not be taxed the same?
The intercompany sale is not the same as the anticipated resale, which falls under true economic substance (as opposed to the tax avoidance of wholesale to web division sale)?

[Nord]

Am I right??? I'm pretty sure I am. How do we find such answer??

[XtrmWakeborder]

Am I right??? I'm pretty sure I am. How do we find such answer??
Well i emailed my professor and i should get a reply by tomorrow. I looked online and in the book and it just has the principle not what it means. Hopefully he will enlighten us. :) Any other ideas guys?

[XtrmWakeborder]

Alright guys heres the answer I got from the teacher, just posting it up for you guys in case you were interested....:) In this context, "economic substance apart from" means that two companies really are two seperate companies. If both companies are owned by the same people, or largely owned by the same people, or run by the same people, then they really aren't seperate companies in the relevant sense here. They may be seperate from a legal perspective, but from an accounting perspective they are not. REASON: If company A wanted to inflate its sales, it could "sell" to company B, because B does whatever A wants it to do (since the owners/managers are the same). IF the companies really are seperate, then it is usually safe to assume that they aren't run by fools, so that if A agrees to buy from B, they are doing it for sound business reasons. It is more likely that the price agreed to is objective, since only an idiot would pay more than they need to, if they wish to stay in business. I guess i was kinda close.
Thanks alot guys!
David