Deck 20: Revenue From Contracts With Customers

Question 1

Which of the following is not a form of "income"

A) Economic inflows
B) Enhancements of assets
C) Equity contributions
D) Decreases of liabilities

Answer 1

Equity contributions

Question 2

Cash Cow Entity declares a dividend on Dec. 27, 20X1. ABC Entity pays the dividend on Jan. 3, 20X2. Investor Entity receives a $1,000 dividend payment on Jan. 3. When should Investor Entity recognize the dividend revenue?

A) 20X1
B) 20X2
C) Cash received from dividends is not classified as revenue.

Answer 2

20X1

Question 3

Retail Entity is holding goods on consignment from Wholesale Entity. According to the contractual arrangement, Retail Entity will receive 20% of the value of any goods sold on consignment from Wholesale Entity. For 20X1, Retail Entity sold $150,000 of merchandise (original cost - $80,000) held on consignment for Wholesale. What is the correct way to account for this transaction?

A) $150,000 - sales revenue; $80,000 - COGS
B) $30,000 - sales revenue; $16,000 - COGS
C) $30,000 - commissions revenue
D) $0 - no revenue has been earned

Answer 3

$30,000 - commissions revenue

Question 4

Consulting Entity is leasing office space from High-Rise Entity for $10,000 a month. Consulting Entity signs a new lease on April 1, 20X1, and makes a payment for the first full year (i.e., $120,000). How much revenue can High-Rise Entity recognize in 20X1 related to Consulting Entity's rent payment?

A) $0
B) $80,000
C) $90,000
D) $120,000

Question 5

IFRS 15 requires both qualitative and quantitative information in three broad areas. Which of the following is not one of these areas?

A) Contracts with customers
B) Performance obligations
C) Significant judgments and changes in judgments made when applying guidance in the Standard to contracts with customers
D) All assets recognized from the costs to obtain or fulfill a contract.

Question 6

Legally enforceable contracts can be written, oral, or implied by the entity's customary business practices. Which of the following does a contract need to meet in order to comply with IFRS 15?

A) The contract has commercial substance.
B) The parties have approved the contract and are committed to perform their respective obligations.
C) The entity can identify each party's rights regarding the goods or services to be transferred.
D) The entity can identify the payment terms for the goods or services to be transferred.
E) All of the above.

Question 7

For the purpose of applying IFRS 15, a contract does not exist if:

A) the contract is wholly unperformed.
B) the contract is not written.
C) the terms of an oral contract is not documented.
D) the contract is between related parties.

Question 8

When determining the transaction price, an entity must consider

A) whether the contract terms have been negotiated at arm's-length.
B) both the variable consideration and the time value of money.
C) if the transaction price will be more than the cost of service or good.
D) if the contract contains separate performance obligations.

Question 9

The existence of which of the following would not cause the contract consideration to change?

A) Discounts
B) Refunds
C) Rebates
D) Contingencies
E) Counterparty claims

Question 10

What must be considered when a contract extends more than one year?

A) The transaction price must be adjusted for the time-value of money
B) Whether the contract will be satisfactorily concluded.
C) Whether revenue should be deferred until the contract is completed.
D) If the costs and income are recognized in the same period (matching principle).

Question 11

The primary issue in accounting for revenue is determining when to recognize revenue.

Question 12

Generally, revenue is recognized when it is probable that an entity will receive the economic benefits associated with the revenue and the amount of revenue can be reliably measured.

Question 13

Determining when to recognize revenue is generally straight-forward.

Question 14

Revenue recognition can be a way for entities to manage earnings, primarily recognizing them prematurely.

Question 15

An entity should recognize revenue in contracts with others that reflects the consideration expected to be received from the transfer of goods and services.

Question 16

Revenue is the gross amount of economic benefit flowing to an entity from its ordinary business activities, including increases in equity from operating and financing activities.

Question 17

Revenue may not be recorded unless cash, or the promise of a future payment of cash, is included in the transaction.

Question 18

In a retail merchandise situation, when insignificant risks of ownership are not transferred, an entity may recognize revenue.

Question 19

A contract modification is accounted for as a cumulative catch-up adjustment if the goods or services are not distinct and are part of single performance obligation.

Question 20

A performance obligation is a contractual promise with a customer to deliver a good or perform a service.

Question 21

Define performance obligation.

Question 22

Define transaction price.

Question 23

IFRS 15 specifies a five-step model when determining how and when to recognize revenue. What are the steps in this model?

Question 24

Mill Entity has provided flour to Baker Entity's business regularly for the past seven years without a formal contract. How does IFRS 15 view this situation from a contract point of view?

Question 25

On January 1, 20X7, Carlyle Entity enters into a one-year contract to provide technical support for Daimler Entity for $12,000. Carlyle Entity appropriately recognizes $1,000 revenue each month. On June 30, 20X7, the contract is extended to two-years for a total to $18,000. How will Carlyle Entity account for this contract modification?

Question 26

Flight Entity (FE) licenses flight simulator software to its airline customers. In addition to the software, FE also provides consulting services to customize this software to meet the specific needs of its customers. FE normally receives consulting service fees equal to approximately twice the cost of the software. How does IFRS 15 view this arrangement?

Question 27

Bali Entity (BE), an orchid grower, is located on the island of Bali, Indonesia. On July 10, 20X7, BE entered into a contract with Weddings-For-You (WFY). The contract indicates that for $5,000, BE would supply WFY with 500 rare ghost orchids in three months from the contract date. However, due to a virus infesting orchids, the contract is contingent upon an independent count of ghost orchids in BE's greenhouses. If the number of viable orchids plants falls below 1,000 - a 25 percent chance - the contract price would jump to $7,000 for 500 ghost orchids. If the number of viable orchid plants falls below 800 - a 18 percent chance - the contract price would jump to $10,000. The contract would be called off if the number of viable orchid plants fell below 500 - a 2 percent chance.
a. What is the contract consideration under the expected value method?
b. What is the contract consideration under the most likely value method?

Question 28

On May 1, 20X7, Bridge Builder Entity (BBE) contracted with the Argentinean government for €150 million to build a suspension bridge over the Parana River. BBE's management estimates that it will take 60,000 man-hours to finish the bridge. At December 31, 20X7, BEE has expended 20,000 man-hours toward completion of the bridge. BEE estimates that 3/10ths of the kilometer-long bridge has been completed as of the reporting date. How much revenue should BEE recognize at December 31, 20X7 using the input method? How much using the output method?

Question 29

Tractor Entity sells and delivers a large tractor for $1,000,000 to Agriculture Entity. Agriculture Entity will make $200,000 payments at the end of each year for the next five years to Tractor Entity. The interest rate built into the sale is 12%. What is the total revenue recognized in year 1? What is the interest revenue recognized in year 3?
$$\begin{array} { l r r r r } \text { Year } & \text { Interest Revenue } & \text { Cash received } & \text { Repayment } & \text { Carrying Value } \\\text { Year 1, beginning } & \$ 0 & \$ 0 & \$ 0 & \$ 720,955 \\\text { Year 1 } & \$ 86,515 & \$ 200,000 & \$ 113,485 & \$ 607,470 \\\text { Year 2 } & \$ 72,896 & \$ 200,000 & \$ 127,104 & \$ 480,366 \\\text { Year 3 } & \$ 57,644 & \$ 200,000 & \$ 142,356 & \$ 338,010 \\\text { Year 4 } & \$ 40,561 & \$ 200,000 & \$ 159,439 & \$ 178,571 \\\text { Year 5 } & \$ 21,429 & \$ 200,000 & \$ 178,571 & \$ 0 \\& & & & \\\text { PMT } & \$ 200,000 & & & \\\text { Interest Rate } & \$ 0 & & & \\\text { Years } & \$ 5 & & &\end{array}$$