acct 311 ch 18
Sage Technology is a full-service technology company that provides equipment, installation services, and training. Products and services can be purchased separately or as a bundled package. Big Container Corporation purchased the bundled package from Sage for $120,000. Estimated standalone fair values are: computer equipment ($75,000), installation ($50,000), and training ($25,000) on March 15, 2017. The transaction price allocated to equipment, installation, and training is
$60,000, $40,000 and $20,000 respectively.
Great Visions Company entered into a contract with ABC Carpet Company on January 15, 2017. The delivery date of March 1 was specified in the contract, but Great Visions did not deliver until March 31, 2017. According to the contract, a full payment of $75,000 was due 30 days after delivery. When should this contract be recorded?
31-Mar-17
Which of the following sales involves noncash consideration?
A firm receives 10,000 shares of stock as payment for services rendered.
How is the partial satisfaction of a multiple performance obligation reported on the balance sheet?
As a contract asset.
In which of the following scenarios would it be inappropriate for a firm to account for the time value of money when determining the transaction price?
The firm has just sold goods but will not receive payment for those goods until a date 6 months in the future.
Which of the following statements accurately describes a contract's transaction price?
The transaction price is the amount of consideration that a company expects to receive from a customer in exchange for transferring goods and services.
When a company sells a bundle of goods at a discount, the discount should be allocated to the entire bundle rather than the product or products that caused the discount.
FALSE
had well over 100 standards regarding revenue recognition before the Revenue from Contracts with Customers was issued.
GAAP
A company must account for a contract modification as a new contract if
Goods or services are distinct and company has right to receive the standalone price.
On May 4, 2017, Corrigan Pools contracted with a family to install an in-ground pool. The cost of the pool is $260 and sells for $580 including installation. What would the journal entry for this contract be on May 4?
There would be no journal entry on May 4.
I. Revenue from services rendered is recognized when cash is received or when services have been performed.
II, III, and IV.
II. Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers.
II, III, and IV.
III. Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used.
II, III, and IV.
IV. Revenue from disposing of assets other than products is recognized at the date of sale.
II, III, and IV.
i-1Which of the following are accurate representations concerning revenue recognition?
II, III, and IV.
What is the first step in the process for revenue recognition?
Identify the contract with customers.
How should the transaction price for multiple performance obligations be allocated?
It should be allocated based on what the company could sell the goods for on a standalone basis.
Which of the following will result in Jones Company recording a contract asset?
Jones Company has delivered product A to Smith Company but will not receive payment until they also deliver product B.
How should the balances of Progress Billings and Construction in Process be shown at reporting dates prior to the completion of a long-term contract?
Net balance, as a current asset if debit balance, and current liability if credit balance.
To address inconsistencies and weaknesses in revenue recognition, a comprehensive revenue recognition standard was developed entitled the
Revenue from Contracts with Customers.
To address inconsistencies and weaknesses, a comprehensive revenue recognition model was developed entitled the
Revenue from Contracts with Customers.
A company's obligation to transfer goods or services to a customer for which the company has already received financial compensation from the customer is called a contract liability.
TRUE
A consignor should only recognize revenue when it receives cash and notification of the sale from the consignee.
TRUE
At the point of sale, generally meaning delivery, companies commonly recognize revenues from manufacturing and selling activities.
TRUE
Companies may satisfy their performance obligations either at a point in time or over a period of time.
TRUE
Transaction price for multiple performance obligations should be allocated
based on what the company could sell the goods for on a standalone basis.
Cost estimates at the end of the second year indicate that a loss will result on completion of the entire contract. Which of the following statements is correct?
Under the completed-contract method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability.
When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct?
Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior period
A contract liability is a company's obligations to transfer goods or services to a customer for which the company has received consideration from the customer. An example of a contract liability is
Unearned magazine subscription.
Contract liability is a company's obligations to transfer goods or services to a customer for which the company has received consideration from the customer. An example of a contract liability is
Unearned magazine subscription.
When a customer purchases a product but is not yet ready for delivery, this is referred to as
a bill-and-hold arrangement.
Companies can use the expected value to estimate variable consideration when
a company has a large number of contracts with similar characteristics.
Which of the following indicates that a performance obligation exists?
a company provides a distinct product or service
A performance obligation exists when
a company provides a distinct product or service.
leanSoftware Company licensed software to technology firms for five years. The company also provides consulting services and support for their software. The company estimates standalone values for consulting services and support as $125,000 and for software licensing the value is $260,000, making the total transaction price $385,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes
a credit to Sales Revenue for $260,000 and a credit to Unearned Service Revenue of $125,000.
Palmer Music manufactures and sells MP3 players and sound systems that include a 180-day warranty on product defects. The company also sells 2-year extended warranties. On May 10, Palmer sold a sound system for $3,850 and an extended warranty for another $1,200. Which journal entry should be used to record this transaction?
a credit to Unearned Service Revenue of $1,200
The percentage-of-completion method
recognizes revenue and gross profit each period based upon progress.
The fourth step in the process for revenue recognition is to
allocate transaction price to the separate performance obligations.
Which of the following is an inaccurate statement about consignment arrangements?
since the merchandise shipped remains the property of the consignor, the consignee has no legal obligation regarding any damage to the merchandise.
The role of the agent in a Principal-Agent relationship is to
arrange for the principal to provide goods or services to a customer.
When the measure of remaining rights happens to exceed the measure of the remaining performance obligations, the contract will be considered to be a(n)
asset
A transaction price for multiple performance obligations should be allocated
based on what the company could sell the goods for on a standalone basis.
A __________ occurs when a customer purchases a product but it not yet ready for delivery.
bill-and-hold arrangement
The physical location of purchased merchandise immediately after a sale will be with the seller in a
bill-and-hold arrangement.
When a contract modification does not result in a separate performance obligation, the additional products are priced at the
blended price of original contract and contract modification.
Revenue from a contract with a customer
cannot be recognized until a contract exists.
If a company uses the cost recovery method of revenue recognition because the collection of the sales price is not assured, they should only recognize profit when
cash payments by the buyer exceed the seller's cost of the merchandise sold.
A company has satisfied its performance obligation when the
company has transferred physical possession of the asset
Which of the following indicates a company has satisfied its performance obligation?
company has transferred physical possession of the asset.
The cost-to-cost basis measures progress towards completion by
comparing costs incurred to date with total costs to complete the contract.
Consignments are a specialized marketing method whereby the
consignee takes possession of merchandise but title remains with manufacturer.
Consigned goods are recognized as revenues by the
consignor when it receives payment from consignee for goods sold.
The Billings on Construction in Progress account is a(n)
contra-inventory account.
Partial satisfaction of a multiple performance obligation is reported on the balance sheet as
contract asset.
The most popular input measure used to determine the progress toward completion is
cost-to-cost basis.
Sage Technology is a full-service technology company that provides equipment, installation services, and training. Products and services can be purchased separately or as a bundled package. Big Container Corporation purchased the bundled package from Sage for $120,000. Estimated standalone fair values are: computer equipment ($75,000), installation ($50,000), and training ($25,000) on March 15, 2017. The journal entry to record the transaction on March 15, 2017 will include a
credit to Unearned Service Revenue of $20,000.
The third step in the process for revenue recognition is to
determine the transaction price.
When multiple performance obligations exists in a contract, they should be accounted for as a single performance obligation when
each service is interdependent and interrelated.
A transaction should be treated as a(n) ________ when a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price.
financing transaction
When a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price, the transaction should be treated as a
financing transaction.
The first step in the process for revenue recognition is to
identify the contract with customers.
The second step in the process for revenue recognition is to
identify the separate performance obligations in the contract.
Under what circumstances must a company account for a contract modification as a new contract?
if goods or services are distinct and the company has the right to receive the standalone price
When determining progress toward completion of a When determining progress toward completion of a performance obligation, a firm decides one of the factors it needs to track is labor hours worked. This factor would be considered an ________________ measure
input
When consigned goods are transferred from the consignor to the consignee, freight costs should be considered
inventoriable by the consignor.
A contract between Boeing and Delta in which Boeing supplies planes to Delta
is an agreement that creates enforceable rights and obligations for both parties.
A contract
is an agreement that creates enforceable rights and obligations.
readily available resources, the good or service
is distinct.
The transaction price
is the amount of consideration that a company expects to receive from a customer.
The use of the net method of recognizing revenue by an agent
is the correct method in a principal-agent relationship.
On January 15, 2014, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. This contract should be
recorded on March 31, 2014
Signing of the contract by the two parties is
not recorded until one or both parties perform under the contract.
If the bundle price is less than the sum of the standalone prices, then the discount should be allocated to the
product (or products) causing the discount.
Which of the following represents the last step in the process for revenue recognition?
recognize revenue when each performance obligation is satisfied
The last step in the process for revenue recognition is to
recognize revenue when each performance obligation is satisfied.
Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be
recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed.
Noncash consideration should be
recognized on the basis of fair value of what is received.
The converged standard on revenue recognition
recognizes and measures revenue based on changes in assets and liabilities.
On January 15, 2018, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. The revenue for this contract should be
recorded on March 31, 2018.
When sales are made with a right of return, the company
records the returned asset in a separate inventory account.
Consideration paid or payable to customers
reduces the consideration received and the revenue to be recognized.
Unconditional rights to receive consideration because a performance obligation has been satisfied are
reported as a receivable on the balance sheet.
The principal advantage of the completed-contract method is that
reported revenue is based on final results rather than estimates of unperformed work.
Disclosure related to revenue
requires disclosure of remaining performance obligations.
Recognizing revenue from a contract with a customer
revenue from services rendered is recognized when cash is received or when services have been performed.
An option to purchase a warranty is recorded as
revenue in the period that the service-type warranty is in effect.
Under the completed-contract method
revenue, cost, and gross profit are recognized at the time the contract is completed.
Nonrefundable upfront fees
should not be recorded as revenue if they are for future delivery of products and services.
In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be
the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable.
If a contract involves a significant financing component,
the time value of money is used to determine the fair value of the transaction.
In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the
total estimated cost.
Under which of the following conditions can companies use the expected value to estimate variable consideration?
when a company has a large number of contracts with similar characteristics
Under which of the following conditions does a performance obligation exist?
when a company provides a distinct product or service
When should multiple performance obligations that exist in a contract be accounted for as a single performance obligation?
when each service is interdependent and interrelated