Question 1

According to FASB ASC 606,a company must account for a contract modification as a new contract if the

Accepted Answer

According to FASB ASC 606, a company must account for a contract modification as a new contract if the goods or services are distinct and the company has the right to receive the standalone price. This means that if the modification adds new goods or services that are distinct from the original contract and the company has the right to receive payment based on the standalone value of those goods or services, then the modification should be accounted for as a new contract.

Question 2

Under FASB ASC 606,the second step in the revenue recognition process is to

Accepted Answer

The second step in the revenue recognition process under FASB ASC 606 is to identify the separate performance obligations in the contract.

Question 3

Under FASB ASC 606,when multiple performance obligations exist in a contract,they should be accounted for as a single performance obligation when

Accepted Answer

When each service in a contract is interdependent and interrelated, they should be accounted for as a single performance obligation. This is because the services cannot be significantly modified without affecting the other service(s) in the contract.

Question 4

Phoenix Music Company manufactures and sells stereo systems that include an assurance-type warranty for the first 120 days.Phoenix also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty.The total transaction price for the sale of the stereo system and the extended warranty is $2,000.The standalone price of each is $1,600 and $400,respectively.The estimated cost of the assurance-warranty is $200.The amount assigned to the assurance warranty as unearned warranty revenue should be

Accepted Answer

The answer of Phoenix Music Company manufactures and sells stereo...

Question 5

Under FASB ASC 606,the third step in the revenue recognition process is to

Accepted Answer

The third step in the revenue recognition process under FASB ASC 606 is to determine the transaction price.

Question 6

Under the provisions of FASB ASC 606,when a customer purchases a product but is not yet ready for delivery,this is referred to as

Accepted Answer

According to FASB ASC 606, a bill-and-hold arrangement is a situation where a customer purchases a product but is not yet ready for delivery. In this scenario, the seller recognizes revenue at the point in time when the product is ready for delivery, assuming all other requirements of revenue recognition have been met.

Question 7

Consignments are a specialized marketing method whereby the

Accepted Answer

In consignment, the manufacturer or supplier (consignor) retains ownership or title of the merchandise until the consignee (retailer) actually sells the goods to the final customer. Therefore, choice D is the correct option as it states that the consignee takes possession of the merchandise but the title remains with the manufacturer. Choices A, B, and C do not accurately describe the nature of consignment.

Question 8

According to FASB ASC 606,the transaction price

Accepted Answer

According to FASB ASC 606, the transaction price is defined as the amount of consideration a company expects to receive from a customer in exchange for transferring goods or services. This includes variable consideration such as discounts, volume rebates, coupons, and free products or services. Noncash consideration such as donations, gifts, equipment, or labor should be measured at fair value and included in the transaction price if they are directly related to the goods or services being transferred. The time value of money should also be considered if the contract has a significant financing component.

Question 9

Under FASB ASC 606,the last step in the revenue recognition process is to

Accepted Answer

Under ASC 606, revenue is recognized when each performance obligation is satisfied, which is the last step in the revenue recognition process. The previous steps include identifying the contract, determining the transaction price, and allocating the transaction price to separate performance obligations.

Question 10

Under the provisions of FASB ASC 606 A company has satisfied its performance obligation when the

Accepted Answer

Under FASB ASC 606, a performance obligation is satisfied when control of the asset is transferred to the customer, which often occurs when the customer has physical possession of the asset.

Question 11

According to FASB ASC 606,a transaction price for multiple performance obligations should be allocated

Accepted Answer

According to FASB ASC 606, when a contract includes multiple performance obligations, the transaction price should be allocated to each performance obligation based on the selling price of each item on a standalone basis, which is also referred to as the "standalone selling price method." It is not based on competitors' pricing, forecasted costs, or residual value.

Question 12

Under FASB ASC 606,the first step in the revenue recognition process is to

Accepted Answer

According to FASB ASC 606, the first step in the revenue recognition process is to identify the contract with customers. This includes determining whether a contract exists, identifying the parties involved, identifying the rights and obligations of each party, and identifying the payment terms. Only after this has been established can the other steps, such as determining the transaction price and identifying separate performance obligations, be completed.

Question 13

Under FASB ASC 606,when a contract modification does not result in a separate performance obligation,the additional products are priced at the

Accepted Answer

When a contract modification does not result in a separate performance obligation, the accounting for the additional products or services is done by blending the price of the original contract with the price of the modifications. This approach ensures that the revenue recognition reflects the economics of the contract as modified.

Question 14

According to FASB ASC 606,a performance obligation exists when

Accepted Answer

According to FASB ASC 606, a performance obligation exists when a company provides a distinct product or service. This means that the product or service is separately identifiable and can be delivered to the customer independently or as part of a bundle. This is a key concept in revenue recognition, as revenue must be recognized when performance obligations are satisfied, either over time or at a point in time.

Question 15

Under FASB ASC 606,the fourth step in the revenue recognition process is to

Accepted Answer

The fourth step in the revenue recognition process under FASB ASC 606 is to allocate the transaction price to the separate performance obligations in the contract. This step follows identifying the contract with a customer, identifying the performance obligations, and determining the transaction price.

Question 16

Overstating sales returns or warranty costs in good times and using these overstatements in bad times to reduce similar charges,is the definition of which of the following earnings management techniques?

Accepted Answer

This technique involves creating reserves during good times that can be used to smooth earnings during bad times, hence the term "cookie jar" reserves.

Question 17

Deliberately recording errors or ignoring mistakes in the financial statements under the assumption that their impact is not significant,is the definition of which of the following earnings management techniques?

Accepted Answer

Abusing the materiality concept involves deliberately ignoring or recording errors that are deemed insignificant. This can be a form of earnings management as it allows companies to manipulate their financial statements by hiding small discrepancies or errors.

Question 18

The one-time overstatement of restructuring charges to reduce assets,which reduces future expenses,is the definition of which of the following earnings management techniques?

Accepted Answer

Taking a bath is the deliberate overstatement of expenses or understatement of revenues in order to decrease reported earnings, with the intention of improving future financial results. The overstatement of restructuring charges is an example of taking a bath.

Quiz 5: Income Concepts, Revenue Recognition and Matching