ACCT Chapter 6

The stand-alone price of a good or service may be estimated using the adjusted market assessment approach, the expected cost plus margin approach, or the approach. (Enter only one word.)

residual ( it's used when the price is very uncertain)

The formula: total estimated revenue times percentage completed to date less revenue recognized in prior periods is used to measure:

revenue recognized for the current period

The inflow of cash or other assets that a business receives when it provides goods or services to customers is referred to as

revenues

The potential that a good does not satisfy the original performance obligation is addressed through a customer's:

right of return

In a principal-agent relationship, the agent recognizes revenue to the extent of the

sales commission

Sadie performs a service that satisfies just one of the three conditions for considering whether revenue should be recognized over time. Sadie should recognize revenue when service begins. when service ends. over time

over time

As a practical matter, a seller can assume the time value of money is not significant if the period between delivery and payment is less than

one year

Revenue is typically recognized _____ for a license that provides the customer with the right of access to the seller's intellectual property.

over the license period

Revenue related to a company providing cleaning services to a customer for a period of time should be recognized over time. at the point when work begins. once the project is completed.

over time

Xavier Inc. is adding two more floors to Tamara Company's existing office building. Revenue related to this service likely should be recognized

over time

Revenue recognition for services such as lending money and performing financial statement audits is typically

over time.

Revenue recognized each period is determined by multiplying total estimated revenue by

percentage completed to date and subtracting revenue recognized in prior periods

Promises to transfer goods or services to a customer are referred to as obligations. (Enter only one word.)

performance

Revenue is recognized when the ( ? ) obligation is satisfied. (Enter one word.)

performance

When the seller transfers control of goods or services to the customer the related _____ is complete.

performance obligation

Consistent with ASU 2014-09, promises to transfer goods or services to customers are referred to as

performance obligations

An essential characteristic of a contract is that all parties to the contract are committed to

performing their obligations and enforcing their rights

Berta Company owns inventory prior to a customer ordering it from Norman Company. If a customer returns the merchandise, Berta Company owns the returned inventory. Berta Company is a(n)

principle

A seller may recognize variable consideration only if it is _____ that there will not be significant reversals with respect to the amount that will be received in the future.

probable

Variable consideration can only be recognized if it is

probable that the amount will be received in the future.

A(n) _____ warranty represents the cost of satisfying the performance obligation to deliver products of acceptable quality.

quality assurance

Revenue recognition was previously based on the ( ? ) principle, which required that two criteria be satisfied before revenue can be recognized: The earnings process is complete or virtually complete and there is reasonable certainty as to collectibility. (Enter only one word.)

realization

The previous requirement for revenue recognition, which dictated that the earnings process must be virtually complete and the collectiblity of the related assets reasonably assured was referred to as the

realization principle

Meissner sells merchandise for $50,000 on account. The company estimates that customers will return 5% of the merchandise. Meissner should debit sales returns and credit:

refund liability

Which of the following are often provided by the franchisor at start-up of a new franchise? (Select those that apply at start-up) periodic advertising and promotion remodeling of franchisee's facilities training of franchisee's employees hiring of franchisee's employees and management

remodeling of franchisee's facilities training of franchisee's employees periodic advertising and promotion is provided ongoing

The billings on construction account is a contra account to

construction in progress.

When the time value of money is significant, the transaction price is allocated

between the merchandise and the financing component

If Company A physically transfers goods to another company to sell on its behalf, but Company A retains title to the goods, this is referred to as a

consignment

The billings on construction contract account is classified as a(n)

contra asset

From a financial reporting perspective the "sales returns" account is a(n) ( ? ) ( ? ) account

contra revenue

From a financial reporting perspective the "sales returns" account is a:

contra-revenue

Commitment to performing an obligation and enforcing related rights represents a critical aspect of a(n)

contract

At the end of the period, if construction in progress exceeds billings on construction contracts, it is recorded as a(n)

contract asset.

Mueller Company sold merchandise costing $120,000 for $240,000. Mueller estimates that merchandise costing $5,000 will be returned for a refund of $10,000. Mueller should report net sales of:

$230,000 Reason: $240,000 - $10,000

James Corporation is an agent of Alten Corporation. Their agreement specifies that James will receive a commission equal to 15% of the sales price. During May, James sells goods with a sales price of $200,000 for Alten. For the month ended May 31, James Corporation should recognize revenue of:

$30,000 Reason: $200,000 x .15

Guarder Consulting enters into a contract with Smith Co. to restructure some of Smith's processes with a goal of cost savings. The contract states that Guarder will earn a fixed fee of $35,000 and earn an additional $10,000 bonus if Smith achieves $100,000 of cost savings. Guarder estimates a 55% chance that Smith will achieve $100,000 of cost savings. Assuming that Guarder determines the transaction price as the expected value of consideration, what transaction price will Guarder estimate for this contract?

$40,500 Reason: $45,000 x 55% = $24,750 $35,000 x 45% = $15,750

Guarder Consulting enters into a contract with Smith Co. to restructure some of Smith's processes with a goal of cost savings. The contract states that Guarder will earn a fixed fee of $35,000 and earn an additional $10,000 bonus if Smith achieves $100,000 of cost savings. Guarder estimates a 55% chance that Smith will achieve $100,000 of cost savings. Assuming that Guarder determines the transaction price as the most likely amount, what transaction price will Guarder estimate for this contract?

$45,000 Reason: This is the expected value amount. There is a 55% chance that the bonus will be earned so the most likely amount is $35,000 + $10,000.

Robbie Inc. estimated that it will receive $60,000 of consideration for providing services to Stan Company over a 6-month period. Robbie properly accrues $10,000 each month; after two months, Robbie estimates that the total consideration it will receive is only $50,000. For each of the remaining months, Robbie should recognize service revenue of:

$8,333 Reason: $50,000/6 = $8,333 per month

On January 1st, Guarder Consulting enters into a one-year contract with Smith Co. to restructure some of Smith's processes with a goal of cost savings. Smith pays Guarder an up-front fixed fee of $48,000 on January 1st. Guarder will also earn an additional $12,000 bonus if Smith achieves $100,000 of cost savings. Guarder estimates a 70% chance that Smith will achieve $100,000 of cost savings. Assuming that Guarder determines the transaction price as the most likely amount, what amount of revenue will be recorded at the end of the first month?

$5,000 Reason: $4,000 of the up-front fee plus $1,000 of the bonus will be recognized each month

Margery sells 100 TV top boxes to customers for $90 each. Margery estimates that 6% of the units will be returned for a full refund. Margery should debit sales returns for:

$540 Reason: $9,000 x 0.06 = $540

Margery sells 100 TV top boxes to customers for $90 each. Margery estimates that 6% of the units will be returned for a full refund. Margery should report net sales revenue of:

$8,460 Reason: $9,000-(9,000x.06) = 8,460

Consistent with the realization principle, historically, revenue was recognized if two conditions were satisfied. These were: Multiple select question. -the earnings process was virtually complete -collectibility of related assets was reasonably assured -related assets had been collected -the earnings process was 100% complete

-the earnings process was virtually complete -collectibility of related assets was reasonably assured

Place the five steps used to apply the core revenue recognition principle into the correct order.

1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to each performance obligation 4. Recognize revenue when each performance obligation is satisfied

Which of the following situations may make the contract price less apparent? (Select all that apply.) Payment by the seller to the customer Fixed price listed in contract The time value of money Variable consideration provisions Determining whether the seller is acting as principal or agent Sales with right of return

1.Payment by the seller to the customer 2.The time value of money 3.Variable consideration provisions 4.Determining whether the seller is acting as principal or agent Sales with right of return

When should the initial franchise fee be recognized by the franchisor?

After substantial performance of the initial services by the franchisor.

When is gross profit recorded in the construction in progress account for a long-term contract accounted for upon completion?

At the completion of the contract.

In a consignment, who retains the risks and rewards of ownership of the property?

Consignor

When revenue is recognized on long-term construction projects, a journal entry is recorded to recognize revenue and cost of goods sold. The difference between revenue and cost of goods sold (gross profit) is recognized in which account?

Construction in progress

When revenue is recognized upon completion of a long-term contract, gross profit is recognized upon completion in which account?

Construction in progress

When is a loss recognized on a long-term contract?

In the first period in which the loss become evident.

Related to long-term construction contracts, at the end of the period which accounts are netted?

Construction in progress and billings on construction contracts.

Which of the following must a seller recognize as separate line items on the balance sheet? (Select all that apply.) Contract assets Contract liabilities Bad debt expense Accounts receivable

Contract assets Contract liabilities Accounts receivable

The concept or principle that states that companies should recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for goods and services is referred to as the:

Core revenue recognition principle

Which of the following are key indicators that control of goods or services has been transferred to the customer? (Select all that apply.) Customer accepted asset Customer signed a legally binding contract Customer has physical possession of the asset Customer has legal title to the asset

Customer accepted asset Customer has physical possession of the asset Customer has legal title to the asset

Which of the following are key indicators that control of goods or services has been transferred to the customer? (Select all that apply.) Customer accepted the risks and rewards of ownership Customer has legal title to the asset Customer has an obligation to pay Customer signed a legally enforceable con

Customer accepted the risks and rewards of ownership Customer has legal title to the asset Customer has an obligation to pay accepted the asset physical possession of the asset

Which of the following conditions will cause revenue to be recognized over time? (Select all that apply.) -Customer consumes the benefit of the seller's work as it is performed -Seller creates an asset that has no alternative use, and the seller has the right to receive payment for progress to date. -Performance of the service requires more than one week -Customer controls the asset as it is created -Seller requires prepayment of the contract price

Customer consumes the benefit of the seller's work as it is performed Seller creates an asset that has no alternative use, and the seller has the right to receive payment for progress to date. Customer controls the asset as it is created

What journal entry should be made to recognize accounts receivable for long-term construction projects?

Debit Accounts Receivable and Credit Billings on Construction Contract

What is the journal entry to recognize gross profit when revenue is recognized upon completion of a long-term construction project?

Debit Construction in Progress and Debit Cost of Construction; Credit Revenue from Long-Term Contracts

**On January 1st, Guarder Consulting enters into a one-year contract with Smith Co. to restructure some of Smith's processes with a goal of cost savings. Smith pays Guarder an up-front fixed fee of $48,000 on January 1st. Guarder will also earn an additional $12,000 bonus if Smith achieves $100,000 of cost savings. Guarder estimates a 70% chance that Smith will achieve $100,000 of cost savings. What journal entry will Guarder make on January 1st to recognize the up-front cash payment?

Debit cash $48,000, credit deferred revenue $48,000

What is the correct journal entry to recognize profit for a long-term construction project for which revenue is recognized over time?

Debit construction in progress and debit cost of construction; credit revenue from long-term contracts

Which of the following best describe the FASB and the IASB's collaboration on revenue recognition? (Select all that apply.) -FASB and IASB worked together -The new revenue recognition standard is effective immediately -FASB issued an Accounting Standards Update applicable to companies reporting under U.S. GAAP -IASB issued an Accounting Standards Update applicable to companies reporting under IFRS

FASB and IASB worked together FASB issued an Accounting Standards Update applicable to companies reporting under U.S. GAAP

True or false: A right of return represents a performance obligation.

False Reason: Not a separate performance obligation. A right of return is a from of variable, situation involving variable consideration.

True or false: A prepayment from a customer typically creates a performance obligation.

False because they are not a promise to transfer goods or services. Instead, the up-front fee is an advance payment by the customer for future products or services and should be included in the transaction price

Which of the following support(s) the conceptual basis for separating contractual promises into several performance obligations? (Select all that apply.) -Large contracts can be broken into manageable parts -Financial statements better reflect timing of transfer of goods and services -Simplifies revenue recognition -Promises that can be viewed on a stand-alone basis should be separated

Financial statements better reflect timing of transfer of goods and services Promises that can be viewed on a stand-alone basis should be separated

Based on past experience, a seller can usually estimate the returns on a given volume of sales. Once estimated, these returns will ____________. (Select all that apply.) Increase operating expenses Decrease net accounts receivable Increase liabilities Reduce reported revenue

Increase liabilities Reduce reported revenue

Based on past experience, a seller can usually estimate the returns on a given volume of sales. Once estimated, these returns will ____________. (Select all that apply.) Increase operating expenses Increase liabilities Reduce reported revenue Decrease net accounts receivable

Increase liabilities Reduce reported revenue

The construction-in-progress account most closely relates to which type of account? Inventory Sales Accounts Receivable Equipment

Inventory

Which of the following are indicators that a company is a principal? (Select all that apply.) It has primary responsibility for providing the product or service it contracts with the buyer it owns the inventory prior to delivery it sets the sales price

It has primary responsibility for providing the product or service it owns the inventory prior to delivery it sets the sales price

Virginia Corp. recognized deferred revenue for cash received on a multi-year contract that also provides for variable consideration (bonus) if certain targets are met by the end of the contract period. Which of the following statements are true if Virginia Corp revises its estimate of variable consideration in subsequent years?

It must reflect the adjustment in that year's revenue.

Which of the following services are commonly performed over time? (Select all that apply.) Lending of money Financial statement audits Vehicle repair Consulting engagements

Lending of money Financial statement audits Consulting engagements

Which of the following methods are appropriate for estimating variable consideration? (Select all that apply.) Normal selling price of related good Replacement cost of related good Most likely amount that will be received Expected value

Most likely amount that will be received Expected value

When should ongoing franchise fees be recognized by the franchisor?

Over time

Match the term with the correct description. Principal Agent Third party

Principal: Has primary responsibility for delivering goods or services Carries risks and rewards associated with collecting the contract price Agent: Acts as a facilitator for helping seller transact with buyers Earns a commission for helping seller transact with buyer Third party: Is not directly involved in a transaction

Which methods may be used to estimate the stand-alone prices of goods and services? (Select all that apply.) Current replacement cost approach Residual approach Adjusted market assessment approach Expected cost plus margin a

Residual approach Adjusted market assessment approach Expected cost plus margin approach

For many companies, which number is often the largest one reported in the financial statements? Liabilities Shareholders' Equity Net Income Revenues

Revenue

What account tracks the inflow of net assets that occurs when a business provides goods or services to its customers? Revenues Net income Gross profit Gain

Revenue "Revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities from delivering or producing goods rendering services, or other activities that constitute the entity's ongoing major or central operation"

______ accounting standards help ensure that the appropriate amount of revenue appears in each period's income statement.

Revenue recognition

Which method provides a better measure of a company's economic activity each period?

Revenue recognition over time

Revenue recognition previously was based on the "realization principle." What were the two general criteria required by the realization principle that had to be satisfied before a company could record revenue? Multiple select question. -All the activities performed by the company to generate revenue are completed. -The earnings process is complete or virtually complete. -There is reasonable certainty as to collectibility of the asset to be received. -Cash has been collected.

The earnings process is complete or virtually complete. There is reasonable certainty as to collectibility of the asset to be received.

Peter Inc. recognized deferred revenue for variable consideration under a multi-year contract. Which of the following correctly describes the requirement in subsequent years related to the estimated variable consideration?

The estimate must be reassessed each period

What differs between revenue recognized over time and revenue recognized at completion?

The timing of recognition

Which of the following differs between revenue recognized over time and revenue recognized at completion? Total revenue Total profit The timing of recognition Total expense

The timing of recognition

Which of the following will not differ between revenue recognized over time and revenue recognized at completion? (Select all that apply.). The timing of recognition Total revenue Total profit Total expense

Total revenue Total profit Total expense

True or false: An estimated overall loss on a long-term contract is fully recognized in the first period the loss becomes evident, regardless of the revenue recognition method used.

True

Key considerations when applying the five steps to revenue recognition include: (Select all that apply.) -Whether the revenue from the performance obligations are recognized at a point in time or over a period of time -The number of performance obligations -The need for allocating the transaction price -The estimated portion of the contract that will be written off as bad

Whether the revenue from the performance obligations are recognized at a point in time or over a period of time The number of performance obligations The need for allocating the transaction price

When transitioning to ASU No. 2014-09, companies could (Select all that apply.) -apply the ASU to all years following the year of adoption with no retrospective application. -adjust the opening balance of retained earnings in the year the ASU is initially adopted. -restate prior years to appear as if the ASU had been used all along.

adjust the opening balance of retained earnings in the year the ASU is initially adopted. restate prior years to appear as if the ASU had been used all along.

Prepayments for future goods or services should be (Select all that apply.) allocated to the various performance obligations in the contract recognized as a separate performance obligation included in the transaction price

allocated to the various performance obligations in the contract included in the transaction price

Revenue recognition standards help ensure that the appropriate ____ of revenue appears in each ____ financial statement.

amount; period's

With respect to the three criteria used to determine whether revenue on a long-term contract is recognized over time [i.e., (1) customer consumes services while performed, (2) customer controls asset as it is created, and (3) asset has no alternative use], revenue is recognized over time if:

any one of three criteria is satisfied

It has primary responsibility for providing the product or service it owns the inventory prior to delivery it sets the sales priceStar Inc. licenses use of its intellectual property to customers. The benefit the customer receives from the license is not affected by Star's ongoing activity. Star should recognize revenue:

at the beginning of the license period

For licenses of functional intellectual property, revenue is typically recognized

at the start of the license period

A seller recognizes contract liabilities, contract assets, and accounts receivable on separate lines of its

balance sheet

The transaction price is the amount the seller expects to ______ from the customer in exchange for providing goods and services.

be entitled to receive (NO realize: ASC 2014-09 eliminated the realization principle as a criteria No receive in cash by the end of the contract period: While cash is the common mode of payment, the contract price does not necessarily consist of cash payment; contract price may be prepaid or paid later.)

Jonathan is estimating the amount of variable consideration for a specific contract. In deciding which estimation method to use, Jonathan should chose the one that

best predicts the amount he will receive.

On January 5, Merkel Inc. purchases office equipment for its new branch office from Norbert Company. Merkel requests that the equipment be delivered after the renovation of the branch location is completed. This agreement is referred as a:

bill-and-hold arrangement

The amount billed to customers on long-term construction project is recorded in the

billings on construction account.

In a bill-and-hold arrangement, the ____ requests that the ____ ship the products ______.

buyer; seller; at a later date

If delivery and payment related to the sale of goods occur relatively near each other, the time value of money

can be ignored.

Goods or services that are not distinct are ____ and treated as a ____ performance obligation.

combined / single

At the end of the period, if construction in progress is less than billings on construction contracts, it is recorded as a(n)

contract liability.

**When recognizing revenue from a construction type long term contract over time, the balance in the CIP account includes (Select all that apply.) costs of labor amounts billed to customers gross profit and losses materials used

costs of labor gross profit and losses materials used

Long-term contracts require careful consideration in identifying performance obligations because these type of contracts typically include many products and services that

could be viewed as separate performance obligations

Which of the following are included in the journal entry required to record the collection of cash from a customer related to a long-term construction contract? (Select all that apply.) credit billings on construction contract debit cash credit accounts receivable debit construction in progress

debit cash credit accounts receivable

Which of the following are included in the journal entry required to record construction costs for a long-term construction contract? (Select all that apply.) debit construction in progress debit cash credit billings on construction contract credit raw materi

debit construction in progress credit raw materials

Malone Corp. properly recognizes revenue upon completion of a long-term construction project. Malone has the following information for a 3-year contract. Year 1 Year 2 Year 3 Billings on contracts 10,000 10,000 30,000 Construction costs 8,000 8,000 8,000 The journal entry required at the end of the contract to recognize revenue and expenses will include (Select all that apply.) Multiple select question. credit billings on contracts $50,000. debit construction in progress $26,000. debit billings on contracts $26,000. credit revenue from contracts $50,000. debit cost of construction $24,000.

debit construction in progress $26,000. credit revenue from contracts $50,000. debit cost of construction $24,000.

Cash received from the sale of gift cards is recognized as

deferred revenue

On January 1, Roberts Company receives $36,000 in cash for providing internet access to customers for the upcoming year. On January 1, Roberts should debit cash and credit

deferred revenue for $36,000.

A transaction price may be uncertain because the price

depends on the outcome of future events.

Control requires that the customer has ______ with respect to the goods or services and obtains the benefits.

direct influence

Which of the following costs are included in a long-term construction contract? (Select all that apply.) direct labor overhead direct material administrative expense

direct labor overhead direct material

A right of return ____ a separate performance obligation for the seller. creates may create does not create

does not create

Jones Company receives a prepayment from a customer consistent with a promise to deliver 20 new office printers to Smith Inc. The prepayment (Select all that apply.) does not create a separate performance obligation represents a separate performance obligation should be recorded as deferred revenue should be recognized as revenue when received

does not create a separate performance obligation should be recorded as deferred revenue

A license for symbolic intellectual property (Select all that apply.) does have significant standalone functionality provides the customer with the right of use of the intellectual property does not have significant standalone functionality provides the customer with the right of access to the intellectual property

does not have significant standalone functionality provides the customer with the right of access to the intellectual property

At the end of a long-term construction project, the amounts in the construction in progress account will be ______ the billings on construction contract.

equal to

For estimating variable consideration, if there are several possible outcomes, the ______ method will tend to be most appropriate; if there are two possible outcomes, the ______ method will tend to be most appropriate

expected value; most likely amount

The IFRS equivalent to ASU 2014-09 on revenue recognition must be adopted for fiscal periods starting after December 15, 2016. immediately. for fiscal periods beginning January 1, 2018.

for fiscal periods beginning January 1, 2018.

The new revenue recognition standard - ASU 2014-09 - must be adopted by companies using U.S. GAAP

for periods beginning after December 15, 2017. immediately.

Fuller contracted with the owners of "Healthy Bakeries" to open a bakery, sell its signature products and use its name and logo. This agreement refers to a

franchise

In a franchise agreement, the ( ? )pays franchise fees to obtain the right to use a company's name and sell its products.

franchisee

In franchise arrangement, the ( ? ) grants to the ( ? ) to the right to sell products and use its name.

franchisor/ franchisee

A contract is said to have variable consideration if the price depends on the outcome of

future events

The construction in progress account represents the total construction costs (labor, material, overhead) and

gross profit recognized to date.

With respect to goods and services, control has transferred to the customer if the customer: (Select all that apply.) has direct influence over goods or services can obtain the benefits associated with the goods or services has physical custody of the goods or services, but not contro

has direct influence over goods or services can obtain the benefits associated with the goods or services

Select all that apply: The two critical aspects of recognizing revenue are determining: the cash flow associated with it how much revenue to record when to record it how to present it in the financial statem

how much revenue to record when to record it

Prepayments for future goods or services should be (Select all that apply.) recognized as a separate performance obligation included in the transaction price allocated to the various performance obligations in the contract

included in the transaction price allocated to the various performance obligations in the contract

For a particular contract, the timing of revenue recognition is determined

individually for each performance obligation.

Methods that can be used to estimate progress toward completion are referred to as ( ? ) -based and ( ? )-based methods. (Enter one word per blank.)

input/output

Licenses typically allow customers to use the seller's ____ property.

intellectual

If a seller determines that the time value of money is significant, the seller adjusts sales or service revenue and recognizes the financing component as:

interest revenue

The FASB and IASB worked together to develop a new revenue recognition standard. One benefit of this standard for U.S. GAAP is that

it provides a unified approach and replaces specialized guidance that developed over time.

A contract is an agreement that creates ( ? ) enforceable rights and obligations. (Enter only one word.)

legal

Deferred revenue from the sale of gift cards is classified as a(n):

liability

Agreements that allow customers to use the seller's intellectual property are referred to as

licenses

Gerhard Inc. sells airline tickets for New World Global Airlines. Gerhard Inc. receives a 8% commission on the sales price of the tickets. During July, Gerhard Inc. sells $1 million of tickets for New World Global Airlines. Gerhard Inc. should record

sales commission revenue for $80,000 agent

It is important to distinguish between a principal and an agent because the principal recognizes revenue to the extent of the

sales price

Gerhard Inc. sells airline tickets for New World Global Airlines. Gerhard Inc. receives a 8% commission on the sales price of the tickets. During July, Gerhard Inc. sells $1 million of tickets with a cost of $750,000 for New World Global Airlines. New World Global Airlines should record (select all that apply) sales revenue for $1 million sales commission revenue for $80,000 cost of tickets sold for $750,000

sales revenue for $1 million cost of tickets sold for $750,000

On January 1, Roberts Company receives $36,000 in cash for providing internet access to customers for the upcoming year. On January 31, Roberts should credit service revenue for $36,000. service revenue for $3,000. deferred revenue for $3,000. deferred revenue for $33,000.

service revenue for $3,000. $36,000/12 month deferred revenue should be credited for amount earned during January

Robbie Inc. estimated that it will receive $60,000 of consideration for providing services to Stan Company over a 6-month period. Robbie properly accrues $10,000 each month; after three months, Robbie estimates that the total consideration it will receive is only $25,000. When the estimate change is determined, the company should debit ____ and credit ____ for ____.

service revenue; contract receivable; $17,500 Reason: $25,000 × 3/6 = $12,500; $12,500 - ($60,000 × 3/6) = ($17,500)

Jones Company receives a prepayment from a customer consistent with a promise to deliver 20 new office printers to Smith Inc. The prepayment (Select all that apply.) represents a separate performance obligation should be recorded as deferred revenue does not create a separate performance obligation should be recognized as revenue when received

should be recorded as deferred revenue does not create a separate performance obligation

The ( ? )-( ? ) selling price is the amount at which the good or service is sold separately under similar circumstance.

stand-alone

The amount at which a good or service is sold separately under similar circumstances is referred to as the

stand-alone selling price.

The billings on construction account represents

the amount billed to customers to date.

Revenue is recognized upon completion of a long-term contract if:

the contract does not qualify for revenue recognition over time

For a long-term contract, revenue is recognized when the related performance obligation is completely satisfied if

the criteria for recognizing revenue over time is not met.

In step 1 of revenue recognition,

the legal rights of seller and customer are established.

A long-term contract that includes many products and services that are capable of being distinct, may be accounted for as a single performance obligation because

the seller's role is to combine those products and services prior to delivery or completion.

The journal entries used to recognize the costs of long-term construction contracts are identical when revenue is recognized upon completion and when it is recognized over time; however the two methods differ with respect

to the timing of revenue recognition.

The amount the seller expects to be entitled to receive from the customer in exchange for providing goods or services is referred to as the

transaction price.

The core revenue recognition principle stipulates that companies recognize revenue when goods or services are

transferred to customers

Public companies reporting under U.S. GAAP had ( ? ) option(s) for adopting ASU No. 2014-09.

two 1. restate prior years presented in comparative financial statements to appear as if the company had always accounted for revenue under the ASU 2. leave prior year financial statements unchanged and in the beginning of 2018 record the adjustments necessary to convert to the ASU.

If a long-term contract doesn't qualify for revenue recognition over time, revenue is recognized ____.

upon completion

When revenue is recognized upon completion of a long-term contract, CIP is updated to include gross profit

upon completion

A contract is said to have ( ? ) consideration if the price depends on the outcome of future events

variable

A contract is said to have ( ? ) consideration if the price depends on the outcome of future events.

variable

A quality-assurance ( ? ) obligates the seller to make repairs or replace products that later are found to be defective or unsatisfactory.

warranty

The final step used to apply the core revenue recognition principle is to recognize revenue

when (or as) each performance obligation is satisfied.

If none of the criteria are met for revenue recognition over time, revenue will be recognized

when the performance obligation is completely satisfied.

Which of the following agreements may qualify as contracts? (Select all that apply.) voidable agreements written documents implicit agreements oral agreements

written documents implicit agreements oral agreements

Which of the following agreements may qualify as contracts? (Select all that apply.) written documents implicit agreements voidable agreements oral agreements

written documents implicit agreements oral agreements