Deck 8: Revenue Recognition

Question 1

The first step in the revenue recognition process is to determine the transaction price.

Answer 1

False

Question 2

What are the five principal steps in the revenue recognition process?

Answer 2

The five principal steps in the revenue recognition process are:1.Identify the contracts with the customer.
2.Identify the performance obligations in the contract.
3.Determine the transaction price.
4.Allocate the transaction price to the performance obligations.
5.Recognize revenue when,or as,it satisfies each performance obligation.

Question 3

If multiple contracts are negotiated as a package and have a single commercial objective,the contracts should be combined and accounted for as ________.

A)multiple contracts
B)a single contract
C)assets
D)liabilities

Answer 3

B

Question 4

Revenue recognition deals with the issues of timing and measurement.

Question 5

Judgment may be involved in the determination of whether the promise to deliver the good or services or service is separate from other promises.

Question 6

The final step in the revenue recognition process is the allocation of the transaction price to the performance obligation.

Question 7

A performance obligation is a promise to transfer a good or service that is distinct.

Question 8

Approval of a contract by the parties must be in writing.

Question 9

U.S.GAAP sets a higher threshold for the assessment of collectibility.

Question 10

If a seller receives cash before the appropriate time to recognize revenue,it should treat the consideration as a liability.

Question 11

The timing of revenue recognition is dependent upon the control of the good being in the hands of the ________.

A)buyer
B)seller
C)management
D)any third party

Question 12

The local Mini Mart makes sales of $2,000 on April 5,2016.The journal entry to record the transaction would be to ________.

A)
B)
C)
D)

Question 13

Recognition of revenue as each performance obligation is satisfied is which step in the recognition process?

A)1st
B)3rd
C)5th
D)4th

Question 14

When a contract fails to meet the collectibility criteria the seller should record any advance payment as a/an ________.

A)asset
B)revenue
C)liability
D)expense

Question 15

Able sells a piece of equipment to Smythe for $1,800 on August 1.The equipment cost $1,000.The equipment is picked up by Smythe on August 10.How is this transaction accounted for under a periodic system of inventory?

A)
B)
C)
D)

Question 16

A contract with the customer may be written,oral,or implied by ________.

A)one party
B)two or more parties
C)an attorney
D)law

Question 17

Define the term "commercial substance."

Question 18

A good or service must be explicitly identified in a contract.

Question 19

What are the five criteria that must be met for a contract with a customer to exist?

Question 20

When a contract is expected to affect the risk,timing,or amount of the entity's future cash flows,the contract is said to have ________.

A)non-commercial substance
B)no substance
C)commercial substance
D)no profit

Question 21

In determining whether the promise to deliver goods and services is separate from other promises the accountant must often rely on ________.

A)professional skepticism
B)professional judgment
C)professional standards
D)standards of conduct

Question 22

An automotive magazine charges an annual subscription fee of $300,with customers prepaying the fee.Subscribers receive 50 issues for the annual fee.The publisher provides the new subscribers with a discount coupon good for a 30 percent discount on a race car ride at a major track.The list price of the ride along experience is $200.The company estimates that 35% of the coupons will be utilized.What is the number of performance obligations?

A)1
B)2
C)3
D)4

Question 23

ABC provides a product and installation to be used in conjunction with the buyer's production system.The buyer's system is unusable without ABC's product.The product and the installation are an example of ________.

A)three performance obligations
B)no performance obligations
C)a single performance obligation
D)two performance obligations

Question 24

Able sells a piece of equipment to Smythe for $1,800 on August 1.The equipment cost $1000.The equipment is picked up by Smythe on August 10.How many performance obligations are included in this transaction?

A)1
B)2
C)3
D)4

Question 25

Able sells a piece of equipment to Smythe for $1,800 on August 1.The equipment cost $1,000.The equipment is picked up by Smythe on August 10.The contract also includes a 12 month service plan.How many performance obligations are included in this transaction?

A)1
B)2
C)3
D)4

Question 26

Gray Uniforms is a wholesaler who sells school uniforms to retailers.On August 1,Gray contracts with Excel School Uniforms to sell 3,000 uniforms o Excel to be delivered September 1.The contract price is set at $200 each,The contract provides for a 10% volume discount if sales exceed 2,000 uniforms.The probability of sales of 2,000 uniforms is expected to be 60%.Using the most-likely-amount approach,the consideration is estimated to be ________.

A)$250,000
B)$360,000
C)$400,000
D)$500,000

Question 27

The amount of consideration that an entity expects to be entitled to as a result of providing goods or services to a customer is the ________.

A)performance obligation
B)expected value
C)transaction price
D)variable consideration

Question 28

Walker Consulting helped McCall Roofers put various cost saving techniques into place.The contract specifies that Walker will receive a flat fee of $60,000 and an additional $15,000 if McCall attains a target amount of cost savings.Walker estimates a 20% chance that McCall will reach the target for cost savings.Assuming that Walker uses the expected-value approach,what is the transaction price for this product?

A)$15,000
B)$60,000
C)$63,000
D)$75,000

Question 29

What are the requirements for a performance obligation to be distinct?

Question 30

Able Company enters into a contract with a customer to provide them with an accounts receivable program.Able will also provide installation services as part of the contract.The customer is free to enlist the services of another entity to install the software.What is the number of performance obligations for this contract?

A)0
B)1
C)2
D)3

Question 31

ABC Company enters into a contract with Edmond Library to help them streamline their purchasing process.The contract specifies that Edmond Library will pay ABC $50,000 in the form of a fixed fee plus an additional $20,000 if the library achieves $200,000 in cost savings.ABC estimates a 55% chance that the library will achieve a $200,000 savings.Assuming ABC estimates that the transaction price is the expected value transaction price.The transaction price is recorded as ________.

A)$50,000
B)$61,000
C)$70,000
D)$75,000

Question 32

A yacht dealer sells high performance yachts to affluent customers.The sale also includes a 90 day warranty against any defects in workmanship.The number of performance obligations for each yacht is ________.

A)1
B)2
C)3
D)4

Question 33

A financing component exists in a sales contract if delivery occurs in advance of payment or payment occurs in advance of delivery by more than ________.

A)six months
B)one year
C)two years
D)three years

Question 34

White Labs is a wholesaler who sells microscopes for use in high schools to retailers.On August 1 White contracts with the XYZ to sell 1,000 microscopes to XYZ to be delivered September 1.The contract price is set at $300 each,with a 10% volume discount if sales exceed 2,500 microscopes within the year.The probability of sales of 2,500 microscopes is expected to be 55%.Using the most-likely-amount approach the consideration to be recognized is estimated to be ________.

A)$270,000
B)$300,000
C)$165,000
D)$100,000

Question 35

The transaction price is always the price stated in the contract.

Question 36

If noncash consideration such as stock of a publicly-traded company is given in a revenue contract,then the value to be used for the transaction price should be ________.

A)fair market value
B)book value
C)historical cost
D)net present value

Question 37

The transaction price is the amount of consideration the entity expects to be entitled to as a result of providing goods or services to the customer.

Question 38

Able Company enters into a contract with a customer to provide them with an accounts receivable program.Able will also provide installation services as part of the contract.Able will make sure that this program will be installed so that it will be customized and be able to integrate with the company's other program modules.What is the number of performance obligations for this contract?

A)1
B)2
C)3
D)4

Question 39

A performance obligation is a promise to transfer a good or service that is ________.

A)indistinguishable
B)distinct
C)available
D)non-descript

Question 40

The expected-value approach for revenue recognition is appropriate when variable consideration is included in the contract.

Question 41

Refer to Greenwell Farms.How much sales revenue will Greenwell report on January 1,2016?

A)$50,000
B)$42,867
C)$58,320
D)$92,867

Question 42

Refer to Agee Corporation.Using the expected-value approach the transaction price would be

Question 43

Refer to Jones Corporation.Using the expected-value approach the transaction price would be ________.

A)$200,000
B)$250,000
C)$310,000
D)$350,000

Question 44

An exception to the general rule is that the transaction price should be allocated based on the relative standalone selling prices occurs when the contract includes variable consideration.

Question 45

Refer to Jones Corporation.Using the most-likely-amount approach,the transaction price would be ________.

A)$200,000
B)$250,000
C)$310,000
D)$350,000

Question 46

The residual approach of determining a standalone price focuses on internal factors by forecasting costs and adding an appropriate profit margin.

Question 47

Refer to Agee Corporation.Using the most-likely-amount approach,record the receipt of the upfront fee and the first month's revenue.

Question 48

Refer to Jones Corporation.Upon collection of the upfront fee,Jones would recognize a/an ________.

A)unearned revenue of $250,000
B)unearned revenue of $350,000
C)prepaid revenue of $250,000
D)prepaid revenue of $350,000

Question 49

What are the issues to consider when determining the transaction price?

Question 50

Refer to Agee Corporation.Using the most-likely-amount approach,the transaction price would be

Question 51

Refer to Aztec Company.Assuming Aztec estimates that the transaction price is the probability weighted amount of expected consideration.The transaction price is ________.

A)$890,000
B)$900,000
C)$950,000
D)$975,000

Question 52

Refer to Greenwell Farms.How much interest revenue will Greenwell report over the life of this contract?

A)$7,133
B)$10,000
C)$42,867
D)$8,320

Question 53

Refer to Shady Equipment.How much sales revenue will Shady report on January 1,2016?

A)$0.00
B)$100,000
C)$66,640
D)$50,000

Question 54

Hill and Dale Enterprises offers an promotion that provides a customer signing up for a membership the opportunity to enroll in educational courses.A customer signing up the first time is entitled to a 25% discount off a full year 's worth of courses.A new membership costs $1,600 annually and a year's worth of courses another $1,200.Hill and Dale estimate that approximately 40% of the customers will take advantage of the discount.The company is offering a 10% discount on all courses at this time.
Required:
a.Identify the separate performance obligations in the new customer deal.
b.Allocate the price to the separate performance obligations.
c.Record the journal entry to record revenue for the sale of a new

Question 55

If a contract includes non cash consideration,how should the transaction be measured?

Question 56

In determining the transaction price,when does a significant financing component exist?

Question 57

Refer to Shady Equipment.How much interest expense will Shady report over the term of the contract?

A)$16,640
B)$66,640
C)$50,000
D)$36,640

Question 58

Refer to Aztec Company.Assuming Aztec estimates that the transaction price is the most likely value.The transaction price is ________.

A)$800,000
B)$900,000
C)$950,000
D)$975,000

Question 59

If the standalone price of each performance obligation is known,then the estimate of the selling price should maximize the use of observable inputs.

Question 60

Refer to Greenwell Farms.How much interest revenue will Greenwell report on January 1,2016?

A)$42,867
B)$4,286
C)$0.00
D)$4,000

Question 61

Hepner Products enters into a contract with Tullis to s ell three different products.The total price is $350,000.Each of the products is a separate performance obligation.Based on the information presented in the table,what is the allocated transaction price of product Z using the expected-cost-plus-a-profit margin approach?

A)$99,167
B)$164,700
C)$75,000
D)$140,300

Question 62

A good or service transferred at a point in time would include a ________.

A)suit
B)magazine subscription
C)gym membership
D)Sam's Club membership

Question 63

Hepner Products enters into a contract with Tullis to sell three different products.The total price is $350,000.Each of the products is a separate performance obligation.Based on the information presented in the table,what is the allocated transaction price of product Z using the adjusted market assessment approach?

A)$95,890
B)$99,974
C)$75,000
D)$100,000

Question 64

Goods and services are transferred over time if the customer controls the asset as the seller creates it or enhances it over time.

Question 65

Goods and services may be transferred to a customer over time or at a point in time.

Question 66

Which one of the following is not an indicator of the transfer of control to the buyer?

A)Seller has present right to payment for the asset.
B)Seller has legal title to the asset.
C)Seller has transferred physical possession of property.
D)Customer has accepted the asset.

Question 67

Refer to Kramer Iron Works.Allocate the transaction price using the adjusted market assessment approach.

Question 68

Refer to Kramer Iron Works.Allocate the transaction price using expected-cost-plus-a-margin approach.

Question 69

An example of a good transferred over time is a ________.

A)refrigerator
B)soft drink
C)magazine subscription
D)suit

Question 70

If the sum of standalone selling prices is greater than the transaction price,then any discount to the separate performance obligations should be allocated based on relative ________.

A)market values
B)standalone prices
C)book values
D)net present values

Question 71

Refer to Costanza Auto Shop.Allocate the transaction price using the residual approach.

Question 72

Hepner Products enters into a contract with Tullis to sell three different products.The total price is $365,000.Each of the products is a separate performance obligation.Based on the information presented in the table,what is the standalone price of product Z using the residual approach?

A)$100,000
B)$95,000
C)$90,000
D)$85,000

Question 73

Refer to Pemco Enterprises.How much revenue should Pemco recognize on January 1?

A)$0
B)$480,000
C)$240,000
D)$40,000

Question 74

If a seller does not sell the same goods or services separately,the selling prices should be estimated using prices that maximize observable inputs.What are the three suggested approaches to accomplish this?

Question 75

The general rule is that the transaction price should be allocated on the relative standalone selling prices prices unless a discount is ________.

A)not related to all of the contracts performance obligations
B)related to all of the contracts performance obligations
C)part of the variable consideration
D)not part of the variable consideration

Question 76

If the seller does not meet the three criteria for revenue recognition,then it assumes that goods or services are transferred over time.

Question 77

Refer to Kramer Iron Works.Allocate the transaction price using the standalone approach.

Question 78

Refer to Costanza Auto Shop.Allocate the transaction price using the adjusted market assessment approach.

Question 79

Refer to Costanza Auto Shop.Allocate the transaction price using expected-cost-plus-a-margin approach.

Question 80

Which one of the following approaches is not a method for allocating a transaction price to multiple performance obligations?

A)adjusted market assessment
B)expected-cost-plus-a-margin
C)residual
D)present cost basis