private company accounting...

PRIVATE COMPANY ACCOUNTING UPDATE

SMITH LEONARD PLLCNovember 8, 2019

John Nicolson, Assurance PartnerScotti Teschke, Assurance Director

FINAL COUNTDOWN

REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)WHO MUST ADOPT?

Entities that enter into contracts with customers to transfer

• Goods or services or• Nonfinancial assets

Unless within scope of other standards or scoped out

• Leases• Insurance contracts• Financial instruments• Guarantees• Nonmonetary exchanges between entities in same line of business (example – oil

companies agree to exchange product to fulfill customers’ needs in separate locations)

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REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)5 STEP PROCESS

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1 • Step 1: Identify the contract(s) with a customer

2• Step 2: Identify the separate performance obligations

3• Step 3: Determine the transaction price

4• Step 4: Allocate the transaction price to performance obligations

5• Step 5: Recognize revenue as the entity satisfies performance obligations

REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)IMPLEMENTATION ISSUES & LESSONS LEARNED

• Realize that properly crafted disclosures will be extensive• See Appendix I to these slides (extracts La-Z-Boy 10-Ks) Plan to gather data well ahead of year-end Language should not be boiler plate

• Plan for any identified changes in accounting • See example from ASC 606 Implementation Guidance and Illustrations - Appendix II• Concepts of contract assets and liabilities may be new to preparers

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REVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)AREAS WHERE WE’VE SEEN/ANTICIPATE THE MOST ISSUES

• Poor documentation Sales and shipping terms Analysis related to adopting standard

• When is change in control?• Multiple contracts entered into simultaneously• Modifications to long-term supply agreements• Rebates, incentives and other variable consideration• Identifying performance obligations (“POs”) in complex arrangements And then allocating price to those POs

• Contract costs• Accounting for right of return• Warranties

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• Make certain you have a timetable to complete your analysis and set meeting date with your accountants

• Separately document significant and different revenue types• Understand and document your elections• Select implementation method Full retrospective Modified retrospective

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Permitted accounting policy elections

• Exclude amounts collected from customers for sales (and other similar) taxes from transaction price

• If customer takes control of goods before shipment –make an accounting policy election to treat shipping and handling activities as either a fulfillment cost or as a separate promised service (i.e., separate performance obligation)

• May elect not to adjust sales for effects of financing components if contract less than a year

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LEASES (TOPIC 842) - ASU 2016-02THE HEADLINES

• Recently delayed until calendar 2021 for non-public companies• Requires recognition of almost every lease on the balance sheet• Retains concept of operating leases versus finance (capital) leases for income

statement and cash flow statement purposes• Identifiable assets in scope• Transition method• Practical expedients and other elections

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LEASES (TOPIC 842) - ASU 2016-02WHAT IS A LEASE?

A contract is (or contains) a lease when two criteria are met:1. The contract explicitly or implicitly specifies the use of an identifiable asset2. The customer controls the use of the asset

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“A contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time

in exchange for consideration.”

LEASES (TOPIC 842) - ASU 2016-02BUZZ WORDS

• Control• Economic benefit• Directing the use• Substantive substitution right• Protective right

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LEASES (TOPIC 842) - ASU 2016-02IS THIS A LEASE?

• Printers• Solar farm• Rail car

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LEASES (TOPIC 842)ASU 2016-02

LEASE CLASSIFICATION• A lease that meets any of these criteria is a finance lease:

• A lease that meets none of these criteria is an operating lease

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• Ownership transfers to lessee by end of lease• Lessee is reasonably certain to exercise option to purchase the asset • Lease term is for major part of asset’s remaining economic life• PV (lease payments + residual value guaranteed by lessee) > substantially all of the FV of asset• Asset will have no alternative use to lessor at end of lease

LEASES (TOPIC 842)ASU 2016-02

LESSEE PRESENTATION

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• Finance lease right-of-use assets• Operating lease right-of-use assets• Finance lease liabilities• Operating lease liabilities

BALANCE SHEET

• Finance lease• Interest expense (typically below the line)• Amortization expense (typically above the line)

• Operating lease• Single operating lease expense

INCOME STATEMENT

Always noncurrent

Classified as current or noncurrent

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LEASES (TOPIC 842) - ASU 2016-02CONSIDERATIONS

• Analyze existing contracts• Classify as finance or operating• Evaluate impact on bank loan covenants• Potential impairment• Software considerations

(www.leasecrunch.com)

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LEASES (TOPIC 842) - ASU 2016-02QUANTITATIVE DISCLOSURES

• Lease expense Finance – Amortization and Interest Operating – Straight-line lease expense Short-term leases Variable lease expenses (unknown at lease inception) Sublease income

• Maturity analysis Undiscounted cash flows (same as before) Present value discount – allows schedule to match balance sheet

• Other information Sale-leaseback, cash flows, new ROU assets Weighted average remaining lease term and discount rate

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LEASES (TOPIC 842) - ASU 2016-02QUALITATIVE DISCLOSURES

• Existing leases• Future leases• Judgments

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NOT-FOR-PROFIT ENTITIES (TOPIC 958)PRESENTATION OF FINANCIAL STATEMENTS OF NOT-FOR-PROFIT ENTITIES

(ASU 2016-14) • Simpler rules for net asset classification Only two classes – unrestricted and donor restricted

• Underwater endowments deficit in donor restricted Previously a reduction of unrestricted

• Donation for property – restriction released when placed in service• New detailed liquidity disclosures• Functional expense disclosures required• Simplified cash flow when direct method used

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NOT-FOR-PROFIT ENTITIES (TOPIC 958)

PRESENTATION OF FINANCIAL STATEMENTS OF NOT-FOR-PROFIT ENTITIES (ASU 2016-14)

• Increased disclosures, including: Governing board designations, appropriations Composition of net assets with donor restrictions How liquid resources are managed Availability of financial assets for cash needs Methods used to allocate costs among program and support functions Underwater endowment funds

• Applied retrospectively• Effective calendar year 2018

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NOT-FOR-PROFIT ENTITIES (TOPIC 958)CLARIFYING THE SCOPE AND THE ACCOUNTING GUIDANCE FOR CONTRIBUTIONS

RECEIVED AND CONTRIBUTIONS MADE (ASU 2018-08)

• Guidance as to whether amounts received are contributions or exchange transactions Provides criteria whether resource provider receiving value in return

• More robust framework for determining whether contribution is conditional or unconditional and for distinguishing a donor-imposed condition from a donor-imposed restriction

• Effective date for conduit bond obligors – periods beginning after December 15, 2018• Other nonprofits – effective calendar year 2020• Early adoption permitted

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NOT-FOR-PROFIT ENTITIES (TOPIC 958)UPDATING THE DEFINITION OF COLLECTIONS (ASU 2019-03)

• ASC and Code of Ethics for Museums had different definitions of a collection• Aligns ASC with code• Some expanded disclosures primarily for museums Mainly use of proceeds on disposed of collection items

• Effective calendar year 2020• Early adoption permitted

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NOT-FOR-PROFIT ENTITIES (TOPIC 958)EXTENDING THE PRIVATE COMPANY ACCOUNTING ALTERNATIVES ON GOODWILL AND CERTAIN IDENTIFIABLE INTANGIBLE ASSETS TO NOT-FOR-PROFIT ENTITIES

(ASU 2019-06)• Simplified private company accounting for goodwill and intangibles extended to not-

for-profits Amortize goodwill over maximum of 10 years One-step impairment test only where impairment indicators (election needs to be made) Option to test at the entity level Once elected, apply to all existing and future goodwill Recognize fewer intangibles in an acquisition (May exclude most customer intangibles and all

non-competes)• Amendments effective immediately• Open-ended effective date and unconditional one-time election

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FINANCIAL INSTRUMENTS—OVERALL (SUBTOPIC 825-10) RECOGNITION AND MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL

LIABILITIES (ASU 2016-01)• No change in treatment for debt securities Trading at FV – changes through earnings Available for sale (AFS) – unrealized gains and losses through OCI Held to maturity – at amortized cost

• Equity investments now measured at FV – changes through income No longer OCI treatment for any equity securities

• Excludes consolidated or equity method investees

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FINANCIAL INSTRUMENTS—OVERALL (SUBTOPIC 825-10) RECOGNITION AND MEASUREMENT OF FINANCIAL ASSETS AND FINANCIAL

LIABILITIES (ASU 2016-01)• No readily determinable FV – measure at cost less impairment Excludes investments that qualify for NAV practical expedient Qualitative impairment assessment required each reporting period

• Adjust for observable price changes• If measure financial liability at FV – change related to instrument specific credit risk –

through OCI (new OCI item)• Enhanced disclosures• Nonpublic entities – effective calendar year 2019

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LIABILITIES—EXTINGUISHMENTS OF LIABILITIES (SUBTOPIC 405-20)RECOGNITION OF BREAKAGE FOR CERTAIN PREPAID STORE-VALUE PRODUCTS

(ASU 2016-04)• ASU applies to prepaid stored value products Example – prepaid gift cards

• Generally waited until legally released before remove liability• “Breakage” accounted for consistent with guidance in topic 606• Remove liability proportionate to amounts not expected to be redeemed

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LIABILITIES—EXTINGUISHMENTS OF LIABILITIES (SUBTOPIC 405-20)RECOGNITION OF BREAKAGE FOR CERTAIN PREPAID STORE-VALUE PRODUCTS

(ASU 2016-04)• Not applicable if liability subject to unclaimed property taxes Example – consumer debit cards

• Applied using either: Modified retrospective transition method – cumulative-effect adjustment to retained earnings Retrospectively to each period presented

• Nonpublic entities – effective calendar year 2019

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FINANCIAL INSTRUMENTS—CREDIT LOSSES (TOPIC 326)MEASUREMENT OF CREDIT LOSSES ON FINANCIAL INSTRUMENTS (ASU 2016-13)

• Generally requires financial assets measured at amortized cost be presented at net amount expected to be collected

• Previous criterion probable – now use reasonable and supportable forecasts Losses recognized earlier

• Financial instruments include: Loans Debt securities Trade receivables Investment in leases

• Nonpublic entities – deferred to calendar year 2021 • Early adoption permitted beginning calendar year 2019

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FINANCIAL INSTRUMENTS—CREDIT LOSSES (TOPIC 326) TARGETED TRANSITION RELIEF (ASU 2019-05)

• Provides transition relief to entities adopting ASU 2016-13• Allows entities to elect the fair value option on financial instruments measured at

amortized cost upon adoption of credit loss standard• Otherwise, effective date will be the same as the effective date in ASU 2016-13

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STATEMENT OF CASH FLOWS (TOPIC 230)CLASSIFICATION OF CERTAIN CASH RECEIPTS AND CASH PAYMENTS (ASU 2016-15)

• Statement addresses diversity in practice• Should be applied retrospectively to each period presented• Specific cash flow issues addressed: Debt prepayment or debt extinguishment costs Settlement of zero or insignificant rate coupon debt Contingent consideration payments made after a business combination Proceeds from insurance claims Proceeds from corporate-owned life insurance policies Distributions from equity method investees Beneficial interests in securitization transactions Separately identifiable cash flows and application of the predominance principle


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STATEMENT OF CASH FLOWS (TOPIC 230)RESTRICTED CASH (ASU 2016-18)

• Eliminates diversity in practice• Restricted cash to be included with other cash in statement of cash flows• Illustration in ASU shows prescribed presentation• Applied retrospectively to each period presented• Disclose nature of restrictions• If restricted cash in more that one caption on balance sheet – disclose in which

caption• Nonpublic entities – effective calendar year 2019

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INCOME TAXES (TOPIC 740)INTRA-ENTITY TRANSFERS OF ASSETS OTHER THAN INVENTORY (ASU 2016-16)

• Current GAAP: intra entity transfers – may not recognize tax impact for intra-entity transfers until sold to outside party

• Update requires that entities recognize tax consequences when transfer occurs (except for inventory transfers)

• Applied on modified prospective basis through a cumulative effect adjustment directly to beginning retained earnings in period of adoption


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BUSINESS COMBINATIONS (TOPIC 805)CLARIFYING THE DEFINITION OF A BUSINESS (ASU 2017-01)

• Clarifies definition of a business• Evaluation required because of different accounting for purchase of a business vs. a

group of assets• Substantially all FV assets acquired a single or group of similar assets – not a business If condition not met must have input and substantive process before considered a business

• Applied prospectively• Nonpublic entities – effective calendar year 2019

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INTANGIBLES—GOODWILL AND OTHER (TOPIC 350)SIMPLIFYING THE TEST FOR GOODWILL IMPAIRMENT (ASU 2017-04)

• Applies to entities that have not applied the private company alternative for goodwill• Option to first perform qualitative assessment to determine if qualitative test is

necessary• Eliminates step 2 from the goodwill impairment test to reduce cost and complexity of

evaluation• Applied prospectively• Nonpublic entities – effective calendar year 2022 • Early adoption permitted

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CONSOLIDATION (TOPIC 810)TARGETED IMPROVEMENTS TO RELATED PARTY GUIDANCE FOR VARIABLE

INTEREST ENTITIES (ASU 2018-17)• Private company under common control may elect not to apply VIE guidance• Includes common control leasing arrangements• Parent Co and entity being evaluated cannot be public entities• Policy election applies to all existing and future common control arrangements• Detailed disclosures regarding exposure still required• Expanded guidance on whether fees payable to decision makers and service

providers are variable interests• Nonpublic entities – effective calendar year 2021• Early adoption permitted

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COMPENSATION - RETIREMENT BENEFITS (TOPIC 715)IMPROVING THE PRESENTATION OF NET PERIODIC PENSION COST AND NET

PERIODIC POSTRETIREMENT BENEFIT COST (ASU 2017-07)• Currently components of pension cost not split on income statement• Update requires that service cost component in same line item as other

compensation• Other components of net benefit cost are required to be presented separately but not

included in operating income If separate line in income statement not used – disclose caption in footnotes


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RECEIVABLES—NONREFUNDABLE FEES AND OTHER COSTS (SUBTOPIC 310-20)PREMIUM AMORTIZATION ON PURCHASED CALLABLE DEBT SECURITIES

(ASU 2017-08)• When security held at a premium is called – unamortized premium recorded as a loss• Amortization period of premium on debt securities shortened to earliest call date• No change securities held a discount – continue to amortize through maturity• Applied on modified prospective basis through a cumulative-effect adjustment

directly to beginning retained earnings in period of adoption• Nonpublic entities – effective calendar year 2020 • Early adoption permitted

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SERVICE CONCESSION ARRANGEMENTS (TOPIC 853)DETERMINING THE CUSTOMER OF THE OPERATION SERVICES (ASU 2017-10)

• Eliminates diversity in practice• Service concession – agreement between grantor and operating entity• Operating entity operates grantor infrastructure (i.e., Road)• Clarifies that the grantor in a service concession arrangement is the customer in all

cases• Nonpublic entities – first effective calendar year 2019 (same as ASC 606)• Early adoption permitted

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DERIVATIVES AND HEDGING (TOPIC 815)TARGETED IMPROVEMENTS TO ACCOUNTING FOR HEDGING ACTIVITIES

(ASU 2017-12)• Simplifies hedge accounting guidance• More closely aligns management activities and financial reporting• Creates more transparency around how economic results are presented in the

financials and footnotes (interest rate and commodity risks)• For FV hedge of interest rate risk, adds SIFMA municipal swap rate as an eligible

benchmark interest rate Stay tuned on interest rate hedges and benchmarks as LIBOR is phased out in 2021

• Administrative burden of hedge documentation eased• Nonpublic entities – deferred to calendar year 2021 • Early adoption permitted

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INTANGIBLES—GOODWILL AND OTHER— INTERNAL-USE SOFTWARE (SUBTOPIC 350-40)

CUSTOMER’S ACCOUNTING FOR IMPLEMENTATION COSTS INCURRED IN A CLOUD COMPUTING ARRANGEMENT THAT IS A SERVICE CONTRACT (ASU 2018-15)

• Clarifies requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract

• If cloud computing arrangement includes license for internal-use software – intangible asset for license Also recognize liability for future payments

• Costs incurred in a hosting arrangement – use same model as implementation costs to develop or obtain internal use software

• If does not include a license, service contract, expense as incurred• Nonpublic entities – effective calendar year 2021• Early adoption permitted

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DEFERRALS• Credit Losses (ASU 2016-13)• Derivatives and Hedging (ASU 2017-12)• Leases (ASU 2016-02)• Insurance (ASU 2018-12)

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QUESTIONS?

THANK YOU!

JOHN NICOLSON, CPAAssurance Partner

[email protected](336) 821-1321

SCOTTI TESCHKE, CPAAssurance Director

[email protected](336) 821-1403

APPENDIX IREVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)

EXTRACTS FROM LA-Z-BOY INCORPORATED – 10-K FILINGS

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Pre ASC 606 – 52 weeks ended 4/28/18

Revenue Recognition and Related Allowances for Credit Losses

Substantially all of our shipping agreements with third-party carriers transfer the risk of loss to our customers upon shipment. Accordingly, our shipments using third-party carriers aregenerally recognized as revenue when product is shipped. In all cases, for product shipped on our company-owned trucks, we recognize revenue when the product is delivered. Thisrevenue includes amounts we billed to customers for shipping. At the time we recognize revenue, we make provisions for estimated product returns and warranties, as well as otherincentives that we may offer to customers. We also recognize revenue for amounts we receive from our customers in connection with our shared advertising cost arrangement. We importcertain products from foreign ports, some of which are shipped directly to our domestic customers. In this case, revenue is not recognized until title is assumed by our customer, which isnormally after the goods pass through U.S. Customs.

Incentives offered to customers include cash discounts and other sales incentive programs. Estimated cash discounts and other sales incentives are recorded as a reduction of revenueswhen the revenue is recognized.

Trade accounts receivable arise from the sale of products on trade credit terms. On a quarterly basis, our management team reviews all significant accounts as to their past due balances,as well as collectability of the outstanding trade accounts receivable for possible write off. It is our policy to write off the accounts receivable against the allowance account when we deemthe receivable to be uncollectible. Additionally, we review orders from dealers that are significantly past due, and we ship product only when our ability to collect payment for the newsales is reasonably assured.

Our allowances for credit losses reflect our best estimate of probable losses inherent in the trade accounts receivable balance. We determine the allowance based on known troubledaccounts, historic experience, and other currently available evidence. We had no gross notes receivable amounts outstanding and no corresponding allowance for credit losses on notesreceivable at April 28, 2018, or at April 29, 2017.

APPENDIX I

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Post ASC 606 – 52 weeks ended 4/27/2019

Revenue Recognition and Related AllowancesRevenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receivein exchange for those goods or services. We generate revenues primarily by manufacturing/importing and delivering upholstery and casegoods (wood) furniture products toindependent furniture retailers, independently-owned La-Z-Boy Furniture Galleries® stores or the end consumer. Each unit of furniture is a separate performance obligation, and wesatisfy our performance obligation when control of our product is passed to our customer, which is the point in time that our customers are able to direct the use of and obtainsubstantially all of the remaining economic benefit of the goods or services.

The majority of our wholesale shipping agreements are freight-on-board shipping point and risk of loss transfers to our customer once the product is out of our control. Accordingly,revenue is recognized for product shipments on third-party carriers at the point in time that our product is loaded onto the third-party container or truck and that container or truckleaves our facility. For our imported products, we recognize revenue at the point in time that legal ownership is transferred, which may not occur until after the goods have passedthrough U.S. Customs. In all cases, this revenue includes amounts we bill to customers for freight charges, because we have elected to treat shipping activities that occur after thecustomer has obtained control of our product as a fulfillment cost rather than an additional promised service. Because of this election, we recognize revenue for shipping when controlof our product passes to our customer, and the shipping costs are accrued when the freight revenue is recognized. Revenue for product shipments on company-owned trucks isrecognized for the product and freight at the point in time that our product is delivered to our customer's location.

We recognize revenue for retail sales and online sales to the end consumer through our company-owned retail stores, www.la-z-boy.com or www.joybird.com once the end consumerhas taken control of the furniture, at which point legal title has passed to them. This takes place when the product is delivered to the end consumer's home. Home delivery is not apromised service to our customer, and is not a separate performance obligation, because home delivery is a fulfillment activity as the costs are incurred as part of transferring ourproduct to the end consumer. At the time the end consumer places an order through our company-owned retail stores or www.la-z-boy.com, we collect a deposit on a portion of thetotal merchandise price. We record this as a customer deposit, which is included in our accrued expenses and other current liabilities on our consolidated balance sheet. The balance ofthe order is paid in full prior to delivery of the product. Once the order is taken through our company-owned retail stores or www.la-z-boy.com we recognize a contract asset for the fullorder amount and a corresponding deferred revenue liability for the difference between the total order and the deposit collected. The contract asset is included in our other currentassets on our consolidated balance sheet and the deferred revenue is included in our accrued expenses and other current liabilities on our consolidated balance sheet. At the time theend consumer places an order through www.joybird.com, we collect the entire amount owed and record this as a customer deposit. Because the entire amount owed is collected at thetime of the order, there is no contract asset recorded for Joybird sales.

APPENDIX I

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Post ASC 606 – 52 weeks ended 4/27/2019

Revenue Recognition and Related Allowances (Concluded)At the time we recognize revenue, we make provisions for estimated refunds, product returns, and warranties, as well as other incentives that we may offer to customers. When estimating ourincentives we utilize either the expected value method or the most likely amount to determine the amount of variable consideration. We use either method depending on which method willprovide the best estimate of the variable consideration, and we only include variable consideration when it is probable that there will not be a significant reversal in the amount of cumulativerevenue recognized when the uncertainty associated with the variable consideration is subsequently resolved. Incentives offered to customers include cash discounts, rebates, advertisingagreements and other sales incentive programs. Our sales incentives, including cash discounts and rebates, are recorded as a reduction to revenues. Service allowances are for a distinct goodor service received from our customer and are recorded as a component of selling, general and administrative expense in our consolidated statement of income, and are not recorded as areduction of revenue and are not considered variable consideration. We use substantial judgment based on the type of variable consideration or service allowance, historical experience andexpected sales volume when estimating these provisions. The expected costs associated with our warranties and service allowances are recognized as expense when our products are sold. Forsales tax, we elected to exclude from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the entityfrom a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes). This allows us to present revenue net of these certain types of taxes.

All orders are fulfilled within one year of order date, therefore we do not have any unfulfilled performance obligations. Additionally, we elected the practical expedient to not adjust thepromised amount of consideration for the effects of a significant financing component because at contract inception we expect the period between when we transfer our product to ourcustomer and when the customer pays for the product to be one year or less.

Trade accounts receivable arise from the sale of products on trade credit terms. On a quarterly basis, we review all significant accounts as to their past due balances, as well as collectability ofthe outstanding trade accounts receivable for possible write off. It is our policy to write off the accounts receivable against the allowance account when we deem the receivable to beuncollectible. Additionally, we review orders from dealers that are significantly past due, and we ship product only when our ability to collect payment from our customer for the new order isprobable.

Our allowances for credit losses reflect our best estimate of probable losses inherent in the trade accounts receivable balance. We determine the allowance based on known troubled accounts,historic experience, and other currently available evidence.

APPENDIX I

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Note 16: Revenue Recognition

The following table disaggregates our revenue by product category by segment for the fiscal year ended April 27, 2019:

(Amounts in thousands) Upholstery Casegoods RetailCorporateand Other Total

Motion Upholstery Furniture $ 804,691 $ — $ 350,520 $ — $ 1,155,211

Stationary Upholstery Furniture 367,386 16,631 108,590 77,749 570,356

Bedroom Furniture — 31,465 5,327 5,324 42,116

Dining Room Furniture — 23,073 9,918 1,961 34,952

Occasional Furniture 1,616 49,173 20,354 1,132 72,275

Other(1) 94,549 (5,869) 75,492 (12,154) 152,018

Total $ 1,268,242 $ 114,473 $ 570,201 $ 74,012 2,026,928

Eliminations (281,527)

Consolidated Net Sales $ 1,745,401

(1) Primarily includes revenue for delivery, advertising, royalties, parts, accessories, after-treatment products, tariff surcharges, discounts & allowances, rebates and other sales incentives

Motion Upholstery Furniture—Includes gross revenue for upholstered furniture, such as recliners, sofas, loveseats, chairs, sectionals and modulars that have a mechanism that allows theback of the product to recline or the product's footrest to extend. This gross revenue includes sales to La-Z-Boy Furniture Galleries® stores (including company-owned stores), operators ofLa-Z-Boy Comfort Studio® locations, England Custom Comfort Center locations, other major dealers, independent retailers, and the end consumer.

Stationary Upholstery Furniture—Includes gross revenue for upholstered furniture, such as sofas, loveseats, chairs, sectionals, modulars, and ottomans that do not have a mechanism.This gross revenue includes sales to La-Z-Boy Furniture Galleries® stores (including company-owned stores), operators of La-Z-Boy Comfort Studio® locations, England Custom ComfortCenter locations, other major dealers, independent retailers, and the end consumer.

APPENDIX I

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Note 16: Revenue Recognition (Continued)

Bedroom Furniture—Includes gross revenue for casegoods furniture typically found in a bedroom, such as beds, chests, dressers, nightstands and benches. This gross revenue includes salesto La-Z-Boy Furniture Galleries® stores (including company-owned stores), independent retailers, and the end consumer.

Dining Room Furniture—Includes gross revenue for casegoods furniture typically found in a dining room, such as dining tables, dining chairs, storage units and stools. This gross revenueincludes sales to La-Z-Boy Furniture Galleries® stores (including company-owned stores), independent retailers, and the end consumer.

Occasional Furniture—Includes gross revenue for casegoods furniture found throughout the home, such as cocktail tables, chairsides, sofa tables, end tables, and entertainment centers.This gross revenue includes sales to La-Z-Boy Furniture Galleries® stores (including company-owned stores), independent retailers, and the end consumer.

Our consolidated balance sheet includes current assets of $17.0 million that we reported as other receivables. These other receivables represent the remaining consideration to which we areentitled prior to fulfilling our performance obligation. At the beginning of fiscal 2019, we had $12.1 million of other receivables.

We receive deposits from end consumers before we recognize revenue, resulting in customer deposits, and in some cases we have the unconditional right to collect the remaining portion ofthe order price before we fulfill our performance obligation, resulting in deferred revenue (collectively, the "contract liabilities"). At the beginning of fiscal 2019, we had $31.3 million ofcustomer deposits and $12.1 million of deferred revenues. At April 27, 2019, we included $42.8 million of customer deposits and $17.0 million of deferred revenues in accrued expenses andother current liabilities on our consolidated balance sheet. During the fiscal year ended April 27, 2019, we recognized $41.5 million of revenue that was recorded as a contract liability at thebeginning of fiscal 2019.

We have elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to recognize the promised amount of consideration without adjusting for the effects of asignificant financing component if the contract has a duration of one year or less. As our contracts typically are less than one year in length and do not have significant financing components,we have not adjusted consideration.

APPENDIX IIREVENUE FROM CONTRACTS WITH CUSTOMERS (TOPIC 606)

606-10-55-202 IMPLEMENTATION GUIDANCE AND ILLUSTRATIONS –GENERAL EXAMPLE 22 (ADAPTED)

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An entity enters into 100 contracts with customers. Each contract includes the sale of 1 product for $100 (100 total products× $100 = $10,000 total consideration). Cash is received when control ofa product transfers. The entity’s customary business practice is to allow a customer to return any unused product within 30 days and receive a full refund. The entity’s cost of each product is $60.

The entity also considers the guidance in paragraphs 606-10-32-11 through 32-13 : on constraining estimates of variable consideration to determine whether the estimated amount of variableconsideration of $9,700 ($100× 97 products not expected to be returned) can be included in the transaction price. The entity considers the factors in paragraph 606-10-32-12 : and determines thatalthough the returns are outside the entity’s influence, it has significant experience in estimating returns for this product and customer class. In addition, the uncertainty will be resolved within ashort time frame (that is, the 30-day return period). Thus, the entity concludes that it is probable that a significant reversal in the cumulative amount of revenue recognized (that is, $9,700) willnot occur as the uncertainty is resolved (that is, over the return period).

The entity estimates that the costs of recovering the products will be immaterial and expects that the returned products can be resold at a profit.

Upon transfer of control of the 100 products, the entity does not recognize revenue for the 3 products that it expects to be returned. Consequently, in accordance with paragraphs 606-10-32-10: and 606-10-55-23 : , the entity recognizes the following:

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