Chapter 6

Put the five steps of the revenue process in order: Allocate the transaction price to the performance obligations in the contract. Recognize revenue when (or as) the entity satisfies a performance obligation. Identify the performance obligations in the contract. Determine the transaction price. Identify the contract with a customer

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 the performance obligations in the contract 5. Recognize revenue when (or as) the entity satisfies a performance obligation

Identify the topic that most likely applies to each of the following investments. ASC 321 - Investments—Equity Securities ASC 323 - Investments—Equity Method and Joint Ventures ASC 810 - Consolidation

ABC Corp purchases a 5% stake in a small private company. (Assume ABC Corp does not have significant influence.) ASC 321 - Investments—Equity Securities ABC Corp purchases a 30% stake in a small private company. ASC 323 - Investments—Equity Method and Joint Ventures ABC Corp purchases a 10% stake in a public company. (Assume ABC Corp does not have significant influence.) ASC 321 - Investments—Equity Securities ABC Corp purchases a 55% stake in a public company. ASC 810 - Consolidation ABC Corp forms a joint venture and lends it $2 million. ASC 810 - Consolidation

Choose the correct statement regarding the effective date of revised revenue guidance. ASC 606 (Revenue from Contracts with Customers) supersedes ASC 605 (Revenue Recognition) and became effective in periods beginning after 12/15/17 ASC 605 (Revenue Recognition) supersedes ASC 606 (Revenue from Contracts with Customers) and became effective in periods beginning after 12/15/17.

ASC 606 (Revenue from Contracts with Customers) supersedes ASC 605 (Revenue Recognition) and became effective in periods beginning after 12/15/17

In some cases, when evaluating the scope of a certain topic, a researcher may also have to refer to which of the following? Glossary terms Implementation guidance Nonauthoritative sources All of the answers are correct

All of the answers are correct

Recognition guidance is typically addressed in Section 25 of each Codification topic. In addition, what other section(s) within a topic may address recognition-related issues? SEC guidance (Section S-25 or S-99) Implementation guidance (Section 55) Other Presentation Matters (Section 45), which often describes how to record items All of the answers are correct

All of the answers are correct

Determining whether a transaction is within the scope of ASC 845 (Nonmonetary Transactions) is often a two-step process. For example, to evaluate whether an exchange involving monetary consideration is within the scope of ASC 845, an entity must do which of the following? Evaluate both (1) "general" Topic 845 scope guidance, and (2) subsection scope guidance. (1) Evaluate the list of scope exclusions and (2) perform a detailed scope test. Evaluate (1) the authoritative guidance and (2) applicable nonauthoritative guidance. All of the answers are correct

Evaluate both (1) "general" Topic 845 scope guidance, and (2) subsection scope guidance.

Which of the following statements, contrasting how guidance is organized within the revised versus superseded revenue models, is true? The revised and superseded models are organized in a similar fashion. In the superseded revenue model, researchers often had to navigate through several subtopics to find all applicable revenue recognition guidance. In the revised model, the guidance is organized into a single subtopic. In the superseded revenue model, guidance is organized into a single subtopic. In the revised model, researchers have to navigate through several subtopics to find all applicable revenue recognition guidance. Both models require researchers to navigate across several subtopics to find all potentially applicable guidance within the revenue topic.

In the superseded revenue model, researchers often had to navigate through several subtopics to find all applicable revenue recognition guidance. In the revised model, the guidance is organized into a single subtopic.

A gross-receipts tax _____ within the scope of ASC 740 (Income Taxes), because it _____

Is not Is not a tax based on income

Buyer and Office Supply Co. enter into a contract on 1/1/X1. Office Supply Co. promises to sell 100 hole punchers to Buyer on 1/1/X2, at a price of $4 per hole puncher. Is this contract a derivative? Why or why not? No; there is no underlying. No; there is no notional amount. No; there is an initial net investment. No; the contract cannot be net settled. Yes; this contract meets the definition of a derivative instrument.

No; the contract cannot be net settled.

In the Cuppa Joe example, why must Cuppa Joe allocate the transaction price among multiple performance obligations? Providing a cup of coffee to its customer is a distinct performance obligation from providing a material right to a future benefit. The points (punch card benefit) do not provide a material right to customers. Entities are not required to allocate revenue to multiple performance obligations; this is an election.

Providing a cup of coffee to its customer is a distinct performance obligation from providing a material right to a future benefit.

A(n) _____ subsequent event provides additional evidence about conditions existing at the balance sheet date.

Recognized

The sale of bonds in January by a calendar year-end company is a(n) recognized or unrecognized subsequent event; the financial statements should or should not be adjusted to reflect this event.

Unrecognized AND Should not

Recognition guidance within a topic tells you: Whether the guidance in this topic applies to a transaction How much (at what value) an item should be recorded How a transaction should be presented in the financial statements What, when and how to record an item

What, when and how to record an item

Guidance within the scope section may list the transactions or entities that are, or are not, within scope. contain tests to determine which transactions are within the scope of the topic. be presented in either of the above manners.

be presented in either of the above manners.

To recognize a loss contingency, the loss must be both probable and reasonably estimable. both likely and measurable. both more likely than not and expected to be resolved in the near term. remote, and disclosure is not possible. considered possible, and the amount is certain.

both probable and reasonably estimable.

Superseded Codification guidance (in ASC 605-10) sets forth the broad principle that revenue should be recognized f it arises due to increases in assets or settlements of liabilities. if it is both realized/realizable and earned. when contingencies are resolved. when control of the related asset transfers.

if it is both realized/realizable and earned.

"Uncertain taxes may only be recorded if they are more likely than not." This statement is an example of a recognition threshold. scope determination. measurement decision. contingency determination.

recognition threshold.