ACCT 3021 Chapter 18

The new standard, Revenue from Contracts with Customers, -adopts criteria that de-emphasize the importance of contracts with customers. -adopts "earned and realized" criteria. -adopts an asset-liability approach for revenue recognition. -adopts a revenue-gain approach for revenue recognition.

adopts an asset-liability approach for revenue recognition

Under the completed contract method, the Construction in Process account balance will consist of: -construction costs and gross profit. -gross profit only. -construction costs and billings. -construction costs only.

construction costs only

One criteria that indicates that a company should disregard revenue guidance for contracts is when -each party can unilaterally terminate the contract without compensation. -the payment terms for the goods and services to be transferred can be identified. -each party's rights regarding the goods or services to be transferred can be identified. -the contract has commercial substance.

each party can unilaterally terminate the contract without compensation

The seller of a good or service should recognize revenue when -each performance obligation is satisfied. -they determine the transaction price. -they identify the contract with customers. -they identify the separate performance obligations in the contract.

each performance obligation is satisfied

T/F Companies expense incremental costs if these costs are incurred to obtain a contract with a customer.

false

T/F Conditional rights should be reported separately on the balance sheet as contract liabilities.

false

T/F Franchise companies derive their revenue primarily from the sale of initial franchises.

false

T/F In a principal-agent relationship, the agent should use the gross method to recognize revenue.

false

T/F The principal advantage of the completed-contract method is that reported revenue reflects estimates rather than waiting for final results.

false

The Billings on Construction in Process account is reported: -in the current liability section only. -in the current asset section only. -as a revenue on the income statement. -in either the current asset or current liability section.

in either the current asset or current liability section

Which type of revenue or gain is generally recognized with the passage of time? -Revenue from sales. -Long-term construction contracts. -Gain or loss from disposition. -Revenue from fees or services.

long term construction contracts

A loss in the current period on a contract expected to be profitable upon completion in a later year is: -recognized only under the percentage-of-completion method. -recognized under both the completed-contract method and the percentage-of-completion method. -recognized only under the completed-contract method. -not recognized under either the completed-contract method or the percentage-of-completion method.

recognized only under the percentage-of-completion method

When using the percentage of completion method, the company -accumulates construction costs only in an inventory account (Construction in Process). -accumulates progress billings in an inventory account (Construction in Process). -recognizes revenues and gross profit only when the contract is completed. -recognizes revenues and gross profit each period during the contract.

recognizes revenues and gross profit each period during the contract

In a consignment sale, the consignee -records a payable when consigned merchandise is sold. -recognizes both commission revenue and sales revenue. -makes a journal entry when the consigned merchandise is received. -records advertising paid for the consignment as an expense.

records a payable when consigned merchandise is sold

Which method of measuring the fair value of a performance obligation is dependent on the standalone selling prices of other goods or services promised in the contract? -residual value. -expected cost plus a margin. -standalone selling price. -adjusted market assessment.

residual value

An indication that the customer has not taken control of the good or service is -the customer has no significant risks or rewards of ownership. -the selling company has right to payment for the good or service. -the customer has physical possession of the asset. -the selling company has transferred legal title to the asset.

the customer has no significant risks or rewards of ownership

In a bill-and-hold arrangement, which of the following is not one of the criteria which must be met for the customer to have obtained control of the product? -The reason for the bill-and-hold arrangement must be substantive. -The product must be physically located in the seller's warehouse. -The seller cannot have the ability to use the product or to direct it to another customer. -The product currently must be ready for physical transfer to the customer.

the product must be physically located in the seller's warehouse

T/F A contract is an agreement between two parties that creates enforceable rights or obligations.

true

T/F A performance obligation may be based on customary business practice.

true

T/F Companies recognize revenue over a period of time if (1) the customer controls the asset as it is created or (2) the company does not have an alternative use for the asset, with the following conditions: (a) the customer receives benefits as the company performs, and (b) the company has a right to payment.

true

T/F In situations where the franchisor provides access to the rights rather than transferring control of the franchise rights, the franchise rights' revenue is recognized over a period of time rather than at a point in time.

true

T/F Most revenue transactions pose few problems for revenue recognition because often the transaction is initiated and completed at the same time.

true

Companies should use the percentage-of completion method to account for long-term construction contracts: -unless required to use the completed-contract method. -when the company has primarily short-term contracts. -when estimates of progress towards satisfaction of the performance obligation (completion) are not dependable. -when there are inherent hazards in the contract beyond the normal, recurring business risks.

unless required to use the completed-contract method