Question 1

GAAP and IFRS both allow a company to report service revenue using the percentage of completion method.

Accepted Answer

False

Question 2

A consignment sale is an example of a principal-agent arrangement.

Accepted Answer

A consignment sale involves the consignor (principal) entrusting their goods to the consignee (agent) to sell on their behalf. The consignee receives a percentage of the sale price as commission, making it a principal-agent arrangement.

Question 3

List the four criteria specified by the Securities and Exchange Commission for determining whether revenue should be reported on the income statement.

Accepted Answer

1.There is persuasive evidence that an arrangement exists.
 2.Delivery has occurred or services have been rendered.
 3.The seller's price to the buyer is fixed or determinable.
 4.Collectability is reasonably assured.

Question 4

Revenue received in advance is recorded as an asset on the provider's balance sheet.

Accepted Answer

The answer of Revenue received in advance is recorded as...

Question 5

IFRS does not require persuasive evidence of an arrangement in order for revenue to be recognized.

Accepted Answer

The answer of IFRS does not require persuasive evidence of...

Question 6

Which of the following is not a major condition for revenue recognition under IFRS?
A)Persuasive evidence of an arrangement.
B)Risks and rewards have transferred to the buyer.
C)Revenues and costs can be reliably measured.
D)Probable that economic benefits will flow to the seller.

Accepted Answer

The answer of Which of the following is not a...

Question 7

Transactions where a buyer accepts title and billings but delays receipt of the goods is a bill-and-hold arrangement.

Accepted Answer

A bill-and-hold arrangement involves a buyer accepting title and billings for goods, but delaying physical receipt of the goods until a later, agreed-upon time. This can be a legitimate business practice, but it requires certain conditions to be met to avoid concerns about revenue recognition and inventory management.

Question 8

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 perpetual system of inventory?
A) 
B) 
C)

D)

Accepted Answer

Under a perpetual system of inventory, each transaction related to inventory is recorded as soon as it occurs. Hence, the sale of equipment to Smythe would be recorded on August 1 as a debit to Cash or Account Receivable (depending on the payment terms), and a credit to Sales Revenue. Additionally, inventory (equipment) costing $1,000 would be removed from the inventory account through a debit made to Cost of Goods Sold and a credit to Inventory account. When Smythe picks up the equipment on August 10, there would be no further accounting impact on this transaction. Option B reflects this treatment accurately.

Question 9

What is a major difference between GAAP and IFRS with regard to recognition of revenue?
A)Under IFRS,the seller does not have to transfer risks and rewards of ownership to the buyer.
B)IFRS does not require delivery of goods for revenue to be recognized.
C)Under IFRS,the price of the goods does not have to be fixed or determinable.
D)Under IFRS,the seller may retain managerial involvement over the goods after sale.

Accepted Answer

The major difference between GAAP and IFRS with regard to recognition of revenue is that IFRS does not require delivery of goods for revenue to be recognized. This means that revenue can be recognized even if the goods have not been delivered, as long as the seller has transferred the risks and rewards of ownership to the buyer, and there is evidence that the transaction will be completed. GAAP, on the other hand, generally requires delivery of goods for revenue to be recognized.

Question 10

List the five conditions specified by IFRS for revenue recognition from the sale of goods.

Accepted Answer

The answer of List the five conditions specified by IFRS...

Question 11

A seller recognizes the right to return sales as a/an ________.
A)liability
B)asset
C)revenue
D)expense

Accepted Answer

The right of return sales represents a liability for the seller, as it means that they may have to return goods (or provide refunds) to customers, which would result in a loss for the seller. It is therefore recorded as a liability in the seller's financial statements.

Question 12

Charleston Yacht Club sells annual passes to its facilities.An annual pass costs $12,000 and is good for year-round use.On January 1,the company sells 10 passes and collects the cash.The entry on March 31 to record revenue is ________.
A) 
B) 
C) 
D)

Accepted Answer

The answer of Charleston Yacht Club sells annual passes to...

Question 13

Revenue recognition deals with the issues of timing and measurement.

Accepted Answer

Revenue recognition determines the appropriate timing and measurement of revenue.

Question 14

According to the FASB,revenue is recognized when it is realized or realizable and has been earned.

Accepted Answer

This is in accordance with ASC 606, the revenue recognition standard issued by the FASB. Revenue is recognized when it is earned and the customer has obtained control of the goods or services, and the amount can be reliably measured. Realization occurs when the goods or services have been exchanged and payment is reasonably assured, while realizable refers to the ability to convert assets into cash or claims to cash.

Question 15

Which one of the following is not an indicator of a consignment arrangement?
A)Consignor controls product until a specific event occurs.
B)Consignor can require the goods be returned.
C)Consignee does not have an unconditional obligation to pay.
D)Consignor cannot require goods to be returned.

Accepted Answer

The ability for the consignor to require goods to be returned is a key indicator of a consignment arrangement. In a consignment arrangement, the consignor retains ownership of the goods until they are sold and may require them to be returned if they are not sold within a certain period of time. Therefore, choice D, which states that the consignor cannot require goods to be returned, is not an indicator of a consignment arrangement.

Question 16

According to the FASB,when a seller has collected cash,the earnings process is virtually complete.

Accepted Answer

The answer of According to the FASB,when a seller has...

Question 17

When a firm delivers merchandise to a buyer,it has met both criteria for revenue recognition.

Accepted Answer

Revenue recognition criteria are met when a company delivers goods or services to a customer, and the company expects to receive payment for those goods or services. Therefore, when a firm delivers merchandise to a buyer, it has met both criteria for revenue recognition.

Question 18

According to the FASB,when a seller has collected cash,the earnings process is complete.

Accepted Answer

The answer of According to the FASB,when a seller has...

Question 19

The right of return represents a separate performance obligation.

Accepted Answer

The answer of The right of return represents a separate...

Question 20

According to the FASB,revenue is defined as inflows that result from delivering or producing goods or providing services connected to a company's major business operations.

Accepted Answer

This is the definition of revenue as stated by the Financial Accounting Standards Board (FASB).

Quiz 9: OL: Revenue Recognition