Question

EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, and forwarding of submissions by companies and others who are required by law to file forms with the U.S. Securities and Exchange Commission (SEC). All publicly traded domestic companies use EDGAR to make the majority of their filings. (Some foreign companies file voluntarily.) Form 10-K, which includes the annual report, is required to be filed on EDGAR. The SEC makes this information available on the Internet.

Required:
1. Access EDGAR on the Internet. The web address is www.sec.gov. Search for the most recent 10-K’s of Expedia, Inc., and Booking Holdings Inc. (which includes Priceline). Search or scroll to find the revenue recognition note in the financial statements.

2. For each of the following types of revenue, indicate whether the amount shown in the income statement is “net” or “gross” (the terms used with respect to revenue recognition in the chapter), and briefly explain your answer.

1. Expedia’s “merchant hotel model” revenues

2. Priceline’s “‘Name Your Own Price’ services”

3. Priceline’s “Merchant Retail Services”

3. Consider your responses to 3a through 3c. Does it look like there is the potential for noncomparability when readers consider Expedia and Priceline? Indicate “yes” or “no,” and briefly explain your answer.

Answer 1

1. Expedia, Inc.: Latest 10-K available is of the year ending December 31, 2002
   Source: https://www.sec.gov/Archives/edgar/data/1095357/000103221003000508/d10k.htm
   
   Booking Holdings Inc.: Latest 10-K available is of the year ending December 31, 2019
   Source: https://www.sec.gov/ix?doc=/Archives/edgar/data/1075531/000107553120000011/bkng1231201910k.htm
   
2. 
   a. Expedia’s “merchant hotel model” revenues are recorded at the net amount, this is in accordance with the various indicators identified in EITF No. 99-19, the Company’s suppliers take up a majority of the business risks including providing the service and the risk of unsold inventory. Therefore, the net amount is the amount charged to the customer less the amount to be paid to the supplier and recognition of merchant revenue occurs on the date of the traveller’s usage.
   
   b. Priceline’s “‘Name Your Own Price’ services” are recorded at a net basis with the amount remitted to the travel service providers recorded as an offset in merchant revenues
   
   c. Priceline’s “Merchant Retail Services” are derived from transactions where travelers book accommodation reservations or rental car reservations, it includes travel reservation commissions and transaction net revenues. Therefore, it is safe to assume that the final figure is recorded on a net basis.