Question

Analyzing Unearned Revenue Changes

Take-Two Interactive Software, Inc. (TTWO) is a developer, marketer, publisher, and distributor of video game software and content to be played on a variety of platforms. There is an increasing demand for the ability to play these games in an online environment, and TTWO has developed this capability in many of its products. In addition, TTWO maintains servers (or arranges for servers) for the online activities of its customers.

TTWO considers that its products have multiple performance obligations. The first performance obligation is to provide software to the customer that enables the customer to play the game offline or online. That performance obligation is fulfilled at the point at which the software is provided to the customer. In addition, TTWO’s customers benefit from “online functionality that is dependent on our online support services and/or additional free content updates.” This second performance obligation is fulfilled over time, and the estimated time period for which an average user plays the software product is judged to be a faithful depiction of the fulfillment of this performance obligation.

At the beginning of the first quarter of fiscal year 2018, TTWO had a deferred net revenue liability of $566,141 thousand. When that quarter ended on June 30, 2018, the deferred net revenue liability was $466,429 thousand. Revenue for the quarter was $387,982 thousand.

a. What would cause the deferred net revenue liability to go down over the quarter?

TTWO must have recognized less in revenue than it sold during the quarter.

TTWO must have recognized the same amount in revenue as it sold during the quarter.

TTWO must have recognized more in revenue than it sold during the quarter.

None of these are correct.

b. What was the amount of online-enabled games purchased by TTWO’s customers in the first quarter ended June 30, 2018?

Answer (in thousands)


Were the purchases greater or less than the revenue recognized in the income statement?

Purchases were less than the revenue recognized in the income statement.

Purchases were greater than the revenue recognized in the income statement.

Purchases were equal to the revenue recognized in the income statement.

Not enough infomation is provided to answer the question.

Answer 1

Requirement (a):

(c) TTWO must have recognized more in revenue than its sold during the quarter.

Explanation:

A decrease in deferred net revenue indicates that some part of the deferred net revenue has been recognized as revenue in the current period. This indicates that the total revenue recognized in the quarter is change in deferrred net revenue in addition to sales. Therefore, TTWO must have recognized more revenue than its sales during the quarter

Requirement (b):

Deferred net revenue liability at the beginning of quarter	$ 556,141
Add: Revenue during the current period	$ 387,982
Deferred net revenue liability during the quarter	$ 944,123
Less: Deferred net revenue liability at the end of quarter	$ 446,429
Total revenue recognized during the quarter	$ 477,694

Requirement (c):

(d) Not enough information is provided to answer the question.

Explanation:

There is nothing mentioned about the purchases by TTWO in the question. Therefore, it is not possible to comment on the comparison of purchases and revenue recognized in the income statement