Chapter 18 Quiz

Which type of revenue or gain is generally recognized with the passage of time?

Long-term construction contracts.

A nonrefundable upfront fee is generally recorded as revenue when received.

False

When a customer purchases a product but is not yet ready for delivery, this is referred to as

A bill-and-hold arrangement

Companies must recognize the entire expected loss on an unprofitable contract in the current period under the percentage-of-completion method but not the completed-contract method.

False

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

False

How is the transaction price allocated among multiple performance obligations?

Based on their relative fair values

Under the completed contract method, the Construction in Process account balance will consist of

Construction costs only.

Companies only capitalize costs that are

Direct, incremental, and recoverable.

One criteria that indicates that a company should disregard revenue guidance for contracts is when

Each party can unilaterally terminate the contract without compensation.

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 Billings on Construction in Process account is reported:

In either the current asset or current liability section.

The percentage-of-completion method

Recognizes revenue and gross profit each period based upon progress.

When using the percentage of completion method, the company

Recognizes revenues and gross profit each period during the contract.

You record a service-type warranty by

Recognizing revenue in the period the service-type warranty is in effect.

A service-type warranty is

Recorded as a separate performance obligation

On January 15th, 2018, Bella Vista company enters into a contract to build custom equipment for ABC Company. The contract specified a delivery date of March 1st. The equipment was not delivered until March 31st. The contract required full payment of $75,000 30 days after delivery. This contract should be

Recorded on March 31st, 2018.

You record an assurance-type warranty by

Recording it as an expense in the period the goods are provided or services are performed.

In a consignment sale, the consignee

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

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.

In the case of non-cash consideration, companies recognize revenue on the basis of

The fair value of what is received.

The correct method for accounting for a Principal-Agent relationship is

The net method

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

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

True

An option to purchase a warranty is recorded as revenue in the period that the service-type warranty is in effect.

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

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

True

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

True

The most popular input measure used to determine the progress toward completion in long-term contracts is the cost-to-cost basis.

True

In determining the transaction price, the company must consider:

Variable consideration, non-cash consideration, time value of money, and consideration payable.

Franchise fees should be recognized

When performance obligations are satisfied