Acc chap 18

Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2018. Estimated standalone fair values of the equipment, installation, and training are $90,000, $60,000, and $30,000 respectively. The transaction price allocated to equipment, installation and training is

$72,000, $48,000 and $24,000 respectively.

Roche Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug under development. Roche will receive $8,100,000 if the new drug receives FDA approval. Based on prior approval, Roche determines that it is 85% likely that the drug will gain approval. Management has concluded that the most likely outcome method is the most predictive approach. The transaction price of this arrangement should be

$8,100,000.

Marle Construction enters into a contract with a customer to build a warehouse for $950,000 on March 30, 2018 with a performance bonus of $50,000 if the building is completed by July 31, 2018. The bonus is reduced by $10,000 each week that completion is delayed. Marle commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability July 31, 2018 65% August 7, 2018 25% August 14, 2018 5% August 21, 2018 5%

$995,000

A company can only satisfy its performance obligations at a point in time.

False

Companies rarely have to allocate the transaction price to more than one performance obligation in a contract.

False

The first step in the revenue recognition process is to identify the separate performance obligations in the contract.

False

A company recognizes revenue from a performance obligation over time by measuring the progress toward completion.

True

If the performance obligation is not highly dependent on, or interrelated with, other promises in the contract, then each performance obligation should be accounted for separately.

True

Revenue is recognized in the accounting period when the performance obligation is satisfied.

True

Companies can use the expected value to estimate variable consideration when

a company has a large number of contracts with similar characteristics.

A performance obligation exists when

a company provides a distinct product or service.

A transaction price for multiple performance obligations should be allocated

based on what the company could sell the goods for on a standalone basis.

Revenue from a contract with a customer

cannot be recognized until a contract exists.

A company has satisfied its performance obligation when the

company has transferred physical possession of the asset.

The most popular input measure used to determine the progress toward completion is

cost-to-cost basis.

P & G Auto Parts sells parts to AAA Car Repair during 2018. P&G offers rebates of 2% on purchases up to $60,000 and 3% on purchases above $60,000 if the customer's purchases for the year exceed $200,000. In the past, AAA normally purchases $300,000 in parts during a calendar year. On March 25, 2018, AAA Car Repair purchased $74,000 of parts. The journal entry to record the purchase includes a

credit to Sales Revenue for $72,380.

Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2018. Estimated standalone fair values of the equipment, installation and training are $90,000, $60,000 and $30,000 respectively. The journal entry to record the transaction on March 15, 2018 will include a

credit to Unearned Service Revenue of $24,000.

When multiple performance obligations exist in a contract, they should be accounted for as a single performance obligation when

each service is interdependent and interrelated.

The first step in the process for revenue recognition is to

identify the contract with customers.

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.

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.