Question 1

Revenue always is recognized once the buyer has physical possession of goods.

Accepted Answer

Revenue is recognized when the seller has completed its obligations under the contract, which may include delivery of goods, transfer of ownership or completion of services. Physical possession of goods by the buyer may be a part of the process, but it alone does not determine revenue recognition.

Question 2

Staff Accounting Bulletin No.101 was issued by the FASB to clarify its guidelines on revenue recognition.

Accepted Answer

Staff Accounting Bulletin No. 101 was issued by the Securities and Exchange Commission (SEC), not the Financial Accounting Standards Board (FASB), to clarify guidelines on revenue recognition.

Question 3

If the contract contains multiple performance obligations,revenue must be recognized in an amount equal to the fair value of each of the separate performance obligations.

Accepted Answer

False

Question 4

The transaction price is only allocated to goods and services that are both capable of being distinct and that are separately identifiable.

Accepted Answer

According to the accounting standard ASC 606, the transaction price is allocated only to goods or services that meet the criteria of being distinct and separately identifiable. Therefore, the statement is true.

Question 5

No allocation of contract price is required if the transaction involves multiple performance obligations that are satisfied at different points in time.

Accepted Answer

The allocation of contract price is required for transactions involving multiple performance obligations that are satisfied at different points in time under the new revenue recognition standards, ASC 606. The contract price must be allocated to each performance obligation based on its standalone selling price.

Question 6

A transfer of goods or services is complete when the customer has control over the goods or services.

Accepted Answer

According to the revenue recognition principle, a transfer of goods or services is considered complete when the customer has control over them, which means they can use, sell, or dispose of them as they wish. This is in line with generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS).

Question 7

The probability that the customer will pay the seller does not affect whether a contract exists for purposes of revenue recognition.

Accepted Answer

For revenue recognition, the probability that the customer will pay the seller is a crucial factor. According to revenue recognition principles, for revenue to be recognized, it must be probable that the economic benefits associated with the transaction will flow to the seller, which includes the customer's ability and intention to pay.

Question 8

A contract exists for purposes of revenue recognition if either the seller or customer has performed an obligation specified by the contract.

Accepted Answer

This statement is true. A contract exists for purposes of revenue recognition if either the seller or customer has performed an obligation specified by the contract. This is one of the criteria outlined in the revenue recognition standard IFRS 15 and ASC 606.

Question 9

Revenue should be recognized over time for the construction of an annex to a building that the customer owns,even if the seller will not receive payment until the annex is completed.

Accepted Answer

According to accounting standards, revenue for long-term construction projects should be recognized over time using a percentage of completion method, rather than waiting until the project is fully completed. This means that revenue can be recognized even if the seller has not yet received payment.

Question 10

A contract between a seller and a buyer need not be in writing to be enforceable.

Accepted Answer

A contract can be oral or implied and still be legally binding. However, having a written contract can provide stronger evidence in case of a dispute.

Question 11

Sellers should recognize revenue over time for a long term contract in which the seller is receiving periodic payments for progress to date but may need to refund those payments in the event the contract is cancelled.

Accepted Answer

The answer of Sellers should recognize revenue over time for...

Question 12

Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services.

Accepted Answer

This is the basic principle of revenue recognition according to generally accepted accounting principles (GAAP).

Question 13

A common output method used to measure progress towards completion is to compare cost incurred to date to total costs estimated to complete the job.

Accepted Answer

The answer of A common output method used to measure...

Question 14

The transaction price should be allocated to the contract's performance obligations in proportion to the stand-alone selling prices of the performance obligations.

Accepted Answer

This is in accordance with the principle of the allocation of transaction price under ASC 606.

Question 15

No allocation of contract price is required if the transaction involves a performance obligation to be satisfied over time.

Accepted Answer

Allocation of the contract price is still required in transactions involving performance obligations to be satisfied over time, as the transaction price must be allocated to each distinct performance obligation in the contract, regardless of the timing of satisfaction.

Question 16

Companies always recognize revenue when goods or services are transferred to customers for the amount the company expects to receive in exchange for those goods or services.

Accepted Answer

Companies recognize revenue when goods or services are transferred to customers if certain criteria are met, which include the transfer of control to the customer and the ability to reliably measure the revenue. The timing and amount can vary based on the delivery terms, payment conditions, and the nature of the transaction.

Question 17

A common output method used to measure progress towards completion is to determine the proportion of promised goods and services that have been transferred to date.

Accepted Answer

The answer of A common output method used to measure...

Question 18

Goods and services are distinct if they are either capable of being distinct or are separately identifiable.

Accepted Answer

The answer of Goods and services are distinct if they...

Question 19

"Determine whether it is probable the seller will collect the consideration it is entitled to receive" is one of the five steps to applying the core revenue recognition principle.

Accepted Answer

The answer of "Determine whether it is probable the seller...

Question 20

If the contract is not in writing,revenue cannot be recognized,even though goods have been transferred and payment is expected to be received in exchange.

Accepted Answer

Revenue recognition is not solely dependent on whether a contract is in writing. According to accounting principles, revenue can be recognized when the performance obligations under the contract are satisfied, which typically occurs when goods or services have been transferred to the customer and it is probable that the company will collect the payment.

Quiz 5: Income Measurement

Revenue always is recognized once the buyer has physical possession of goods.

Staff Accounting Bulletin No.101 was issued by the FASB to clarify its guidelines on revenue recognition.

If the contract contains multiple performance obligations,revenue must be recognized in an amount equal to the fair value of each of the separate performance obligations.

The transaction price is only allocated to goods and services that are both capable of being distinct and that are separately identifiable.

No allocation of contract price is required if the transaction involves multiple performance obligations that are satisfied at different points in time.

A transfer of goods or services is complete when the customer has control over the goods or services.

The probability that the customer will pay the seller does not affect whether a contract exists for purposes of revenue recognition.

A contract exists for purposes of revenue recognition if either the seller or customer has performed an obligation specified by the contract.

Revenue should be recognized over time for the construction of an annex to a building that the customer owns,even if the seller will not receive payment until the annex is completed.

A contract between a seller and a buyer need not be in writing to be enforceable.

Sellers should recognize revenue over time for a long term contract in which the seller is receiving periodic payments for progress to date but may need to refund those payments in the event the contract is cancelled.

Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services.

A common output method used to measure progress towards completion is to compare cost incurred to date to total costs estimated to complete the job.

The transaction price should be allocated to the contract's performance obligations in proportion to the stand-alone selling prices of the performance obligations.

No allocation of contract price is required if the transaction involves a performance obligation to be satisfied over time.

Companies always recognize revenue when goods or services are transferred to customers for the amount the company expects to receive in exchange for those goods or services.

A common output method used to measure progress towards completion is to determine the proportion of promised goods and services that have been transferred to date.

Goods and services are distinct if they are either capable of being distinct or are separately identifiable.

"Determine whether it is probable the seller will collect the consideration it is entitled to receive" is one of the five steps to applying the core revenue recognition principle.

If the contract is not in writing,revenue cannot be recognized,even though goods have been transferred and payment is expected to be received in exchange.