Summary Business Accounting

Question:

McDonald’s enters into a contract to sell Billy Bear dolls for Toys4U Stores. Based on the contract,

McDonald’s displays the dolls in selected stores. Toys4U is not paid until the dolls have been sold by

McDonald’s, and unsold dolls are returned to Toys4U.

Required:

Determine whether Toys4U has satisfied its performance obligation when it delivers the dolls to

McDonald’s.

Explain your answer.



Answer:



Determining whether Toys4U satisfies the performance obligation requires consideration of indicators

that McDonald’s has obtained control of the dolls. Consider the following indicators:



1. The buyer has an unconditional obligation to pay. A customer is unconditionally obliged to

pay for a good or service typically because the customer has obtained control of the good or

service in exchange and the passage of time does not remove the obligation. In this case,

McDonald’s does not pay Toys4U until the dolls are sold, so McDonald’s is conditionally (not

unconditionally) obliged to pay for the toys.



2. The buyer has the legal title. Legal title often indicates which party has the ability to direct the

use of, and receive the benefit from, a good or service. The facts do not state whether title

transfers.



3. The customer has physical possession and control of goods. In this case, McDonald’s has

possession of the dolls.