Intermediate Accounting 6-3
If the stand-alone price of a good or service is very uncertain, the _____ approach may be used. A) adjusted market assessment B) residual C) expected cost plus margin
B) residual
Deferred revenue from the sale of gift cards is classified as a(n): A) revenue B) expense C) liability D) asset
C) liability
True or false: An extended warranty provides protection beyond the manufacturer's quality-assurance warranty.
True
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) _____________. (Enter only one word.)
principal
A contract is said to have ____________ consideration if the price depends on the outcome of future events. (Enter only one word.)
variable
The seller's belief that it is probable that it will collect substantially all of the amount it is entitled to receive under the contract is referred to as the: A) guaranteed collection. B) collectibility threshold. C) contract amount. D) revenue amount.
B) collectibility threshold.
Which of the following may provide evidence of possible reversals in the amount of the variable consideration that will be received? (Select all that apply.) A) changes to customer's low level employees B) estimates were based on factors beyond the seller's control C) poor evidence on which estimates were based D) long delay until uncertainty is resolved
B) estimates were based on factors beyond the seller's control AND C) poor evidence on which estimates were based AND D) long delay until uncertainty is resolved
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 A) most likely amount; expected value B) expected value; most likely amount C) most likely amount; most likely amount D) expected value; expected value
B) expected value; most likely amount
Good Buy Electronics Inc. encourages its customers to purchase a separate warranty that protects products for up to five years. This warranty represents a(n) A) quality-assurance warranty B) extended warranty C) product warranty
B) extended warranty
Emil Company evaluates gift cards that it sold two years ago. Based on past experience, it is highly unlikely that gift cards outstanding for two years or longer will be redeemed. Related to these gift cards, Emil should A) recognize an extraordinary gain. B) recognize revenue. C) recognize a deferred liability. D) recognize revenue and an equal amount of expense
B) recognize revenue.
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: A) allowance for doubtful accounts B) refund liability C) sales revenue D) unearned revenue
B) refund liability
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 ____. A) deferred revenue; contract receivable; $10,000 B) service revenue; contract receivable; $17,500 C) contract receivable; service revenue; $5,000 D) contract receivable; deferred revenue; $10,000
B) service revenue; contract receivable; $17,500
Soul Spa offers a menu of spa treatments to its customers. Its most popular service is its hot stone massage, which it offers for $240. In November, it performs a hot stone massage for one of its clients and, for the first time, provided its new after-massage skin purification treatment for which it has not determined a stand-alone price. Soul Spa charged the client $300 for the services provided. What amount should Soul Spa allocate to the skin purification treatment? A) $30 B) $150 C) $0 D) $60
D) $60
Principal Agent Third Party A) Earns a commission for helping seller transact with buyer B) Carries risks and rewards associated with collecting the contract price C) Is not directly involved with the transaction
Principal- B) Carries risks and rewards associated with collecting the contract price Agent- A) Earns a commission for helping seller transact with buyer Third Party- C) Is not directly involved with the transaction
Right-of-use Right-of-access A) recognize revenue over time B) recognize revenue at a point in time
Right-of-use: B) recognize revenue at a point in time Right-of-access: A) recognize revenue over time
A contract liability is a term that refers to a ____________ revenue account. (Enter only one word.)
deferred
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
Ebay, Inc. and Amazon act as ____________ for a variety of sellers.
agents
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 ________________. (Enter only one word.)
consignment
From a financial reporting perspective the "sales returns" account is a(n) _________-_________ account. (Enter one word per blank.)
contra-revenue
Cash received from the sale of gift cards is recognized as _________ revenue.
deferred
A seller is required to include in its income statement or disclosure notes any interest revenue or interest expense as they represent significant _____________ components related to long-term contracts.
financing
In a franchise agreement, the ______________ pays franchise fees to obtain the right to use a company's name and sell its products.
franchisee
In a franchise arrangement, the _________ grants to the _________ the right to sell products and use its name.
franchisor/franchisee
Agreements that allow customers to use the seller's intellectual property are referred to as _____________.
licenses
If a contract specifies prepayment before delivery, the customer is essentially making a __________ to the seller and, therefore, is getting compensation for the time value of money.
loan
Superb Vision sells 100 pairs of eyeglasses for $400 each. Superb Vision delivers each pair of glasses with a coupon that entitles the customer to purchase an additional pair of glasses of the same type at a 50% discount. Based on past experience, Superb Vision estimates that 20% of the coupons will be redeemed by customers. Upon delivery of the 100 eyeglasses, Superb should recognize deferred revenue of (round to whole dollars) A) $3,636 B) $4,000 C) $12,500 D) $0
A) $3,636
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? A) $5,000 B) $4,000 C) $1,000 D) $4,700
A) $5,000
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: A) $8,333 B) $12,500 C) $10,000
A) $8,333
Which methods may be used to estimate the stand-alone prices of goods and services? (Select all that apply.) A) Adjusted market assessment approach B) Residual approach C) Current replacement cost approach D) Expected cost plus margin approach
A) Adjusted market assessment approach AND B) Residual approach AND D) Expected cost plus margin approach
Which of the following are typically agents? (Select all that apply.) A) Auction houses B) Realtors C) Automobile manufacturers D) Travel facilitators E) Airlines
A) Auction houses AND B) Realtors AND D) Travel facilitators
Which of the following must a seller recognize as separate line items on the balance sheet? (Select all that apply.) A) Contract liabilities B) Contract assets C) Accounts receivable D) Bad debt expense
A) Contract liabilities AND B) Contract assets AND C) Accounts receivable
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? A) Debit cash $48,000, credit deferred revenue $48,000 B) Debit revenue $60,000, credit deferred revenue $60,000 C) Debit cash $60,000, credit deferred revenue $60,000 D) Debit revenue $48,000, credit deferred revenue $48,000 E) Debit cash $48,000, debit bonus receivable $12,000, credit deferred revenue $60,000
A) Debit cash $48,000, credit deferred revenue $48,000
Margery sells 100 TV top boxes to customers for $90 each and credited sales revenue for $9,000. Margery estimates that six of the units will be returned for a full refund of $540. What additional journal entry should Margery make? A) Debit sales returns and credit refund liability B) No additional entry is necessary C) Debit refund liability and credit sales returns D) Debit sales returns and credit sales revenue
A) Debit sales returns and credit refund liability
Orwell Inc. entered into a 6 month contract with a customer to provide consulting services that requires the customer to pay an upfront fixed fee of $15,000, plus the opportunity for Orwell to earn a bonus of $1,200 for achieving certain performance targets by the end of the 6 month period. Initially, Orwell estimated that it was probable that the bonus would be achieved and recorded a receivable. After one month, they determined they could no longer conclude that it is probable a significant reversal of revenue would not occur in the future related to the variable consideration. What should Orwell do? (Select all that apply.) A) For the remainder of the contract, only recognize revenue related to the fixed fee. B) Record a valuation allowance against the bonus receivable. C) Reverse the bonus receivable D) Adjust revenue for the previously recognized bonus
A) For the remainder of the contract, only recognize revenue related to the fixed fee. AND C) Reverse the bonus receivable AND D) Adjust revenue for the previously recognized bonus
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? A) It must reflect the adjustment in that year's revenue. B) It must revise and restate its original estimate of the transaction price. C) It adjusts the deferred revenue and receivable accounts, with no current effect on income.
A) It must reflect the adjustment in that year's revenue.
According to the IASB, when is the seller required to recognize revenue over time on intellectual property? A) Only if the seller's ongoing activities affect the benefits the customer receives. B) When the license transfers a right of use to the intellectual property. C) If the intellectual property has significant standalone functionality.
A) Only if the seller's ongoing activities affect the benefits the customer receives.
Koster Inc. recognized $10,000 of service revenue, which represents one-half of the estimated bonus it expects to receive at the end of the year. On October 1, Koster re-assesses the situation and is unable to conclude that it is probable it will meet the conditions for receiving the bonus. What should Koster do? A) Reverse the already recognized revenue on October 1 B) Wait until the end of the year when the uncertainty is resolved C) Reverse half of the already recognized revenue on October 1
A) Reverse the already recognized revenue on October 1
Which of the following situations may make the contract price less apparent? (Select all that apply.) A) Sales with right of return B) Variable consideration provisions C) Determining whether the seller is acting as principal or agent D) Fixed price listed in contract
A) Sales with right of return AND B) Variable consideration provisions AND C) Determining whether the seller is acting as principal or agent
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? A) The estimate must be reassessed each period B) It is only necessary to reassess the estimate if the company is losing money on the contract C) The deferred amount remains unchanged until recognized as revenue
A) The estimate must be reassessed each period
When consigned goods are sold, the consignee remits what amount to the consignor? A) The selling price less commissions and expenses B) The selling price less cost of goods sold C) The cash amount paid by the buyer D) The selling price
A) The selling price less commissions and expenses
Which of the following situations may make the contract price less apparent? (Select all that apply.) A) The time value of money B) Fixed price listed in contract C) Payment by the seller to the customer D) Variable consideration provisions
A) The time value of money AND C) Payment by the seller to the customer AND D) Variable consideration provisions
Which of the following may provide evidence of possible reversals in the amount of variable consideration that will be received? (select all that apply) A) a long delay before uncertainty resolves B) a large number of possible outcomes that could occur C) a history of changing payment terms on similar contracts D) a short period of time before uncertainty resolves
A) a long delay before uncertainty resolves AND B) a large number of possible outcomes that could occur AND C) a history of changing payment terms on similar contracts
Star 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: A) at the beginning of the license period B) at the end of the license period C) over the entire license period
A) at the beginning of the license period
Holly Inc. sells multi-function office equipment with an extended warranty, which is included in the $10,000 contract price. Holly should recognize the extended warranty (Select all that apply.) A) by allocating part of the transaction price to the extended warranty B) as a separate performance obligation C) as part of the product, not as a separate performance obligation
A) by allocating part of the transaction price to the extended warranty AND B) as a separate performance obligation
If delivery and payment related to the sale of goods occur relatively near each other, the time value of money A) can be ignored B) will delay revenue recognition. C) must be estimated and accrued.
A) can be ignored
For performance obligations performed over time, assessment of progress toward completion that results in an adjustment to the related revenue is treated as a: A) change in estimate B) new contract C) retrospective adjustment
A) change in estimate
A seller may need to disclose which of the following long-term contract-related information in its financial statement notes? (Select all that apply.) A) contract related interest revenue or expense B) bad debt expense C) promotional expense
A) contract related interest revenue or expense AND B) bad debt expense
The IASB's licensing guidance ______ U.S. GAAP and ________ on the functional/symbolic classifications to guide the timing of revenue recognition for symbolic intellectual property. A) differs from / does not rely B) differs from / relies C) is the same as / does not rely D) is the same as / relies
A) differs from / does not rely
A license for symbolic intellectual property (Select all that apply.) A) does not have significant standalone functionality B) provides the customer with the right of use of the intellectual property C) does have significant standalone functionality D) provides the customer with the right of access to the intellectual property
A) does not have significant standalone functionality AND D) provides the customer with the right of access to the intellectual property
The cost of a quality-assurance warranty is recognized A) during the period of sale. B) over the warranty period. C) when customers return the product for repair or replacement
A) during the period of sale.
A contract is said to have variable consideration if the price depends on the outcome of A) future events B) past events C) the stock market D) annual earnings
A) future events
A seller estimates the stand-alone selling price of goods and services using the adjusted market assessment approach. Using this method, the seller will consider what it could sell the goods or services for in the market A) in which it normally conducts business B) that reflects the most conservative selling price. C) that would yield the highest selling price
A) in which it normally conducts business
Prepayments for future goods or services should be (Select all that apply.): A) included in the transaction price B) allocated to the various performance obligations in the contract C) recognized as a separate performance obligation
A) included in the transactions price AND B) allocated to the various performance obligations in the contract
If a contract that has variable consideration includes multiple performance obligations, the seller ______ the variable consideration for the purpose of allocating the transaction price to the various performance obligations. A) includes B) ignores C) excludes
A) includes
Licenses typically allow customers to use the seller's ____ property. A) intellectual B) real C) personal
A) intellectual
The definition of probable under the IFRS is ______ the definition in the U.S. GAPP. A) lower than B) equal to C) higher than
A) lower than
Adding another performance obligation to an existing contract that requires that the customer pay an additional price equal to the added good or service's stand-alone price results in a contact modification that is treated as a(n): A) new separate contract B) void contract C) existing contract update
A) new separate contract
Revenue is typically recognized _____ for a license that provides the customer with the right of access to the seller's intellectual property. A) over the license period B) at the start of the license period C) at the end of the license period
A) over the license period
The contract price received for an extended warranty is recognized as revenue A) over the warranty period. B) when cash is received. C) at the end of the warranty period.
A) over the warranty period.
An essential characteristic of a contract is that all parties to the contract are committed to: A) performing their obligations and enforcing their rights B) modifying the contract when and if necessary C) signing a written contract
A) performing their obligations and enforcing their rights
For sales involving a right of return, the amount related to expected returns (Select all that apply.) A) reduces the amount of revenue recognized on sales. B) must be recognized as an expense during the year of sale C) must be estimated and accrued
A) reduces the amount of revenue recognized on sales. AND C) must be estimated and accrued
Which of the following are often provided by the franchisor at start-up of a new franchise? (Select those that apply at start-up) A) remodeling of franchisee's facilities B) hiring of franchisee's employees and management C) training of franchisee's employees D) periodic advertising and promotion
A) remodeling of franchisee's facilities AND C) training of franchisee's employees
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 A) sales commission revenue for $80,000 B) sales revenue for $1 million C) sales commission expense for $80,000
A) sales commission revenue for $80,000
It is important to distinguish between a principal and an agent because the principal recognizes revenue to the extent of the A) sales price B) gross profit C) sales commission
A) sales price
If a seller purchases distinct goods or services from a customer at the fair value of the goods or services, the purchase is treated as a A) separate transaction. B) partial performance of a larger contract. C) an inseparable part of the related transaction.
A) separate transaction
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.) A) should be recorded as deferred revenue B) represents a separate performance obligation C) does not create a separate performance obligation D) should be recognized as revenue when received
A) should be recorded as deferred revenue AND C) does not create a separate performance obligation
Options for additional goods or services that are treated as separate performance obligations require allocation of the contract price based on their estimated A) stand-alone price B) residual cost C) cost to fulfull
A) stand-alone price
If a sellers pays more for distinct goods or services purchased from its customer than the fair value of those goods or services, the excess payment is: A) subtracted from the amount the seller is entitled to receive and viewed as a refund B) added to the cost of the related product or service C) viewed as a separate transaction
A) subtracted from the amount the seller is entitled to receive and viewed as a refund
A seller properly recognizes an accounts receivable related to a contract if the seller: (Select all that apply.) A) the only remaining requirement is the passage of time. B) has promised to deliver the related goods or perform the related services by a certain date C) is certain that the contract price is realizable D) has the unconditional right to receive payment
A) the only remaining requirement is the passage of time. AND D) has the unconditional right to receive payment
Gerhard Inc. sells merchandise to a customer with a long payment period. Gerhard determines that the time value of money related to this transaction is significant. Gerhard should allocate the A) transaction price between the merchandise cash price and the financing component. B) transaction price between the sales price and cost of goods sold C) entire transaction price to cost of goods sold D) entire transaction price to the merchandise sales.
A) transaction price between the merchandise cash price and the financing component.
The cost of a quality-assurance warranty is recognized during the year of sale and debited to ____ and credited to ______. A) warranty expense; contingent warranty liability B) prepaid warranty; deferred revenue C) prepaid warranty; contingent warranty liability D) warranty expense; deferred revenue
A) warranty expense; contingent warranty liability
Options for additional goods or services are considered performance obligations if they provide a material right to the customer that the customer A) would not receive otherwise. B) did not expect when entering into the contract. C) expected when entering into the contract. D) would receive otherwise.
A) would not receive otherwise.
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, Alten Corporation should recognize revenue of: A) $230,000 B) $200,000 C) $30,000 D) $170,000
B) $200,000
Superb Vision sells 100 pairs of eyeglasses for $400 each. Superb Vision delivers each pair of glasses with a coupon that entitles the customer to purchase an additional pair of glasses of the same type at a 50% discount. Based on past experience, Superb Vision estimates that 20% of the coupons will be redeemed by customers. Upon delivery of the 100 eyeglasses, Superb should recognize revenue equal to: (round to whole dollars) A) $36,000 B) $36,364 C) $27,500 D) $40,000
B) $36,364
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? A) $35,000 B) $40,500 C) $45,000 D) $24,750
B) $40,500
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? A) $24,750 B) $45,000 C) $35,000 D) $40,500
B) $45,000
Zahn, DDS, provides various dental services to its patients. In January, Zahn performs a tooth restoration service for a patient and also for the first time performs a new tooth enhancement service, for which is has not yet determined a stand-alone price. Zahn charges $890 for the services; the normal stand-alone price of the tooth restoration is $800. What amount should Zahn allocate to the new tooth enhancement service? A) $0 B) 90 C) $445
B) 90
A seller estimates the stand-alone selling price of a good using the adjusted market assessment approach. Using this method, the seller may refer to which of the following? A) An auction price B) A competitor's selling price C) The close-out price
B) A competitor's selling price
Which of the following likely would be treated as a separate performance obligation related to the purchase of a pair of prescription eye glasses? A) A eye glass case needed to protect the lenses B) An unlimited time coupon for 50% off an additional pair of eye glasses C) A micro-fiber cleaning cloth that is included with the glasses.
B) An unlimited time coupon for 50% off an additional pair of eye glasses
Which of the following are in essence financing (loan) arrangements? (Select all that apply.) A) Customer pays purchase price on delivery B) Customer pays prior to delivery of goods C) Customer may pay within 60 days of delivery
B) Customer pays prior to delivery of goods AND C) Customer may pay within 60 days of delivery
Thomson Tractor Supply sells farm equipment and offers its customers the option to purchase an extended warranty that covers the product for three years beyond the standard one-year manufacturer's warranty. In January 2021, Thomson records cash sales for three tractors for $75,000 each, and seven more tractors with extended warranties for $77,000 each. Which of the following statements are true? (Select all that apply.) A) Thomson Tractor should record revenue of $764,000 at the time of the cash sales in January. B) Deferred revenue should be recorded for the price of the extended warranties. C) The revenue for the extended warranties should be recorded over the three year period covered by the extended warranty. D) The extended warranty should be treated as a separate performance obligation.
B) Deferred revenue should be recorded for the price of the extended warranties. AND C) The revenue for the extended warranties should be recorded over the three year period covered by the extended warranty. AND D) The extended warranty should be treated as a separate performance obligation.
Software vendors typically bundle their products for a lump-sum contract price. What is the critical accounting issue regarding software vendors? A) Amount of revenue recognition B) Timing of revenue recognition C) Rights to revenue recognition
B) Timing of revenue recognition
For a contract with multiple performance obligations, a change in estimate related to variable consideration is A) is allocated to the performance obligation with the highest degree of uncertainty. B) allocated to the various performance obligations based on their relative stand-alone price. C) ignored and deferred until the uncertainty is completely resolved.
B) allocated to the various performance obligations based on their relative stand-alone price.
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 A) results in the recognition of the lowest amount of revenue. B) best predicts the amount he will receive. C) is easier to apply. D) results in the recognition of the highest amount of revenue.
B) best predicts the amount he will receive.
When the time value of money is significant, the transaction price is allocated A) between the sales price and cost of goods sold B) between the merchandise and the financing component C) without considering the time value of money
B) between the merchandise and the financing component
A right of return ____ a separate performance obligation for the seller. A) creates B) does not create C) may create
B) does not create
When one party to an agreement grants the right to sell its products and use its name to another party, we refer to the arrangement as a: A) consignment B) franchise C) copyright D) trademark
B) franchise
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: A) deferred revenue B) interest revenue C) sales revenue
B) interest revenue
For sales involving a right of return, the amount related to expected returns (Select all that apply.) A) must be recognized as an expense during the year of sale B) is recognized as a liability C) must be estimated
B) is recognized as a liability AND C) must be estimated
The stand-alone selling price of a good or service may be highly uncertain because the seller (Select all that apply.) A) sells the product or service in various combinations with other goods or services. B) provides the same good or service to different customers at substantially different prices. C) has not previously sold the good or service.
B) provides the same good or service to different customers at substantially different prices. AND C) has not previously sold the good or service.
A(n) _____ warranty represents the cost of satisfying the performance obligation to deliver products of acceptable quality. A) extended B) quality assurance C) life-time
B) quality assurance
The potential that a good does not satisfy the original performance obligation is addressed through a customer's: A) obligation to pay the contract price B) right of return C) right to pay on account
B) right of return
In a principal-agent relationship, the agent recognizes revenue to the extent of the A) sales price B) sales commission C) gross profit
B) sales commission
A seller estimates the stand-alone selling price of goods using the expected cost plus margin approach. Using this method, the seller will estimate the cost of ______ and add an appropriate profit margin. A) selling the related goods B) satisfying the performance obligation C) replacing the related goods
B) satisfying the performance obligation
Revenue related to royalties based on sales or usage of a license are recognized when A) the customer pays the seller for the related usage. B) the sales or usage has actually occurred. C) the license period expired.
B) the sales or usage has actually occurred.
Knights Inc. is selling a new product and is unable to estimate reliably the amount of future returns. Knights Inc. may want to postpone revenue recognition until A) the related sales price has been collected. B) the uncertainty about returns is resolved. C) the entire cost of the merchandise has been recovered.
B) the uncertainty about returns is resolved.
If variable consideration is based on sales or usage of a license ("royalties"), it is included in the transaction price A) when the royalties are received in cash. B) when the sales or usage has occurred and royalties are known. C) when the royalty amounts can be reasonably estimated.
B) when the sales or usage has occurred and royalties are known.
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: A) $0 B) $9,000 C) $540
C) $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: A) $0 B) $9,000 C) $8,460 D) $9,540
C) $8,460
When should the initial franchise fee be recognized by the franchisor? A) In the period the contract is signed. B) At the end of the franchise contract when all terms are completed. C) After substantial performance of the initial services by the franchisor.
C) After substantial performance of the initial services by the franchisor.
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.) A) Decrease net accounts receivable B) Increase operating expenses C) Increase liabilities D) Reduce reported revenue
C) Increase liabilities AND D) Reduce reported revenue
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. On May 1, Merkel informs Norbert that it wishes delivery as soon as possible. The equipment is delivered on May 4. On what date should Norbert recognize the related revenue? A) May 1 B) January 2 C) May 4 D) Evenly over the contract period
C) May 4
When should ongoing franchise fees be recognized by the franchisor? A) In the period the contract is signed. B) At the end of the franchise contract when all terms are completed. C) Over time in the periods the services are performed by the franchisor.
C) Over time in the periods the services are performed by the franchisor.
A seller estimates the stand-alone selling price of goods using the expected cost plus margin approach. Using this method, the seller combines which two components? A) the cost or replacing the related goods B) the average industry profit margin C) an appropriate profit margin D) the cost of satisfying the performance obligation D) the selling cost
C) an appropriate profit margin AND D) the cost of satisfying the performance obligation
In a bill-and-hold arrangement, the ____ requests that the ____ ship the products ______. A) seller; buyer; immediately B) buyer; seller; immediately C) buyer; seller; at a later date D) seller; buyer; at a later date
C) buyer; seller; at a later date
In a consignment, the entity who owns the goods, referred to as the ______, physically transfers the goods to another company, called the ______, who will attempt to sell the goods. A) owner; purchaser B) purchaser; owner C) consignor; consignee D) consignee; consignor
C) consignor; consignee
A transaction price may be uncertain because the price A) has not been agreed upon when the related contract was signed. B) was disputed by one of the parties to the contract. C) depends on the outcome of future events.
C) depends on the outcome of future events.
Because the exact cost of a quality-assurance warranty is unknown when the related product is sold, the cost is: A) allocated over the warranty period and periodically reevaluated B) deferred until more information becomes available C) estimated and accrued during the year of sale
C) estimated and accrued during the year of sale
Adding another performance obligation to an existing contract that is not priced based on the additional good or service's stand-alone price results in a contact modification that is treated as a(n) A) void contract B) new separate contract C) existing contract update
C) existing contract update
If a seller lacks sufficient information to be able to accurately estimate returns, the seller should recognize revenue only to the extent that A) revenue equals the cost of the merchandise sold. B) cash is collected related to the sales. C) it is probable that significant future reversals in revenue will not occur.
C) it is probable that significant future reversals in revenue will not occur.
A seller estimates the stand-alone selling price of goods and services using the residual approach. Using this method, the seller will estimate the stand-alone price by subtracting from the total contract price the: A) competitors' stand-alone prices the the same type of product B) cost of satisfying the other performance obligations C) known stand-alone prices of the other products or services
C) known stand-alone prices of the other products or services
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 A) two years. B) one months. C) one year. D) three months.
C) one year.
The amount received for an extended warranty is initially: A) combined with the contract price for the related product. B) ignored. C) recognized as a deferred revenue liability.
C) recognized as a deferred revenue liability.
Options for additional goods or services that are treated as separate performance obligations A) do not require allocation of the contract price B) are combined with the original contract C) require allocation of the contract price
C) require allocation of the contract price
For licenses of functional intellectual property, revenue is typically recognized A) at the end of the license period. B) over the license period. C) at the start of the license period.
C)at the start of the license period.
For a consignment sale, when is inventory reduced for the cost of the item by the consignor? A) When the consignment agreement is signed. B) When received by the consignee. C) When shipped to the consignee. D) When sold by the consignee.
D) When sold by the consignee.
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: A) long-term purchase contract B) consignment contract C) franchise agreement D) bill-and-hold arrangement
D) bill-and-hold arrangement
If based on past experience only a remote likelihood exists that a previously sold gift card will still be redeemed, the seller should recognize A) expense. B) deferred revenue. C) a future liability. D) revenue.
D) revenue.
IFRS U.S. GAAP SFAC A) a likelihood that is greater than 50% B) reasonably expected to occur C) likely to occur
IFRS- A) a likelihood that is greater than 50% U.S. GAAP- C) likely to occur SFAC- B) reasonably expected to occur
