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100
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.
What is TRUE?
100
"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.
What is FALSE?
100
A transfer of goods or services is complete when the customer has control over the goods or services.
What is TRUE?
100
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.
What is FALSE?
100
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.
What is TRUE?
200
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.
What is FALSE?
200
No allocation of contract price is required if the transaction involves multiple performance obligations that are satisfied at different points in time.
What is FALSE?
200
Goods and services are distinct if they are either capable of being distinct or are separately identifiable.
What is FALSE?
200
An option for a customer to purchase additional goods at a discount from list price is always a performance obligation, because it confers a material right.
What is FALSE?
200
Accounting for quality-assurance warranties includes a credit to warranty expense and a debit to contingent liability.
What is FALSE?
300
If the seller is a principal, the seller has primary responsibility for delivering a product or service.
What is TRUE?
300
The residual approach to estimate stand-alone selling prices is often used for goods or services that are sold separately and that have stable prices.
What is FALSE?
300
If a licensee benefits from the seller's activity over the license period with respect to the licensed intellectual property, revenue should be recognized over time.
What is TRUE?
300
A decrease in the receivables turnover ratio indicates a decrease in the time between credit sales and cash collection.
What is FALSE?
300
A company could improve its return on assets by increasing its income or by increasing its total assets.
What is FALSE?
400
Recognition of franchise fee revenue is dependent on judgments of both substantial performance and expected collection of fees.
What is TRUE?
400
Companies recognize revenue only when A. A contract is reasonably likely to exist B. A performance obligation is designated in a written contract C. A written contract is in place and payment is variable D. Control over goods or services has been transferred from the seller to the customer
What is D? The key to revenue recognition is transfer of control of goods or services from the seller to the customer.
400
Which of the following is not one of the five steps for recognizing revenue? A. Identify the contract with a customer B. Recognize revenue when all the performance obligations have been satisfied C. Identify the separate performance obligation(s) in the contract D. Allocate the transaction price to the separate performance obligations
What is B? The fifth step is to recognize revenue when (or as) each performance obligation is satisfied, not to wait until all have been satisfied.
400
Consider the following three scenarios: I. ABC Lawncare performed lawn maintenance services for Drake Inc. on June 1st, and received payment of $500 for those services. II. On June 1st, Melly Corp. received payment for 100 pounds of raw material to be delivered to Drake Inc. in 6 months III. Lodo, LLC collected cash on June 1st for services rendered on May 1st. Given these scenarios, revenue can not be recognized on June 1st for A. I, II B. I only C. II, III only D. III only
What is C? Revenue can be recognized for scenario I because the seller has satisfied a performance obligation. For scenario II, the seller must wait until raw material has been delivered. For scenario III, the seller should have recognized revenue on May 1st when the performance obligation was satisfied by rendering services.
400
Mary signed up and paid $1200 for a 6 month ceramics course on June 1st with Choplet Ceramics. As of August 1st, Choplet's accounting records would indicate: A. $400 of revenue, $800 of accounts receivable B. $400 of revenue, $800 of deferred revenue C. $1,200 of revenue, $1,200 of cash D. $800 of revenue, $400 of accounts receivable
What is B? This arrangement qualifies for revenue recognition over time because the customer consumes the benefit of the seller's service as the seller provides it. Therefore, Choplet would recognize revenue of $400 ($1,200 × 2/6 of the contract duration) and deferred revenue of $800 ($1,200 contract price paid in advance - $400 revenue recognized to date).
500
On February 1st, H&B Bank originated a loan for $50,000 at an interest rate of 7.2%. On March 15th, an interest payment of $300 was received. Which of the following best describes when interest revenue should be recognized? A. At a point in time (February 1st) B. At a point in time (March 15th) C. At a point in time (March 31st) D. Over time
What is D? This arrangement qualifies for revenue recognition over time because the customer consumes the benefit of the seller's service as the seller provides it.
500
Goods and services are capable of being distinct if: A. The seller regularly sells the good or service separately. B. A buyer could use the good or service on its own. C. A buyer could use the good or service in combination with goods or services the buyer could obtain elsewhere. D. The seller regularly sells the good or service separately, or the buyer could use the good or service on its own, or the buyer could use the good or service in combination with goods or services the buyer could obtain elsewhere.
What is D? A good or service is capable of being distinct if the seller regularly sells the good or service separately, or the customer could use the good or service on its own or in combination with other goods and services it could obtain elsewhere.
500
On July 15, 2016, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $90,000. The system included finely tuned scales that fit into EverFresh's automated assembly line, Ortiz's proprietary software modified to allow the weighing system to function in EverFresh's automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. (Ortiz competes with other vendors who offer ongoing calibration contracts for Ortiz's systems.) If Ortiz was to provide these goods and services separately, it would charge $60,000 for the scales, $10,000 for the software, and $30,000 for the calibration contract. Ortiz delivered and installed the equipment and software on August 1, 2016, and the calibration service commenced on that date. How many performance obligations exist in this contract? A. 0 B. 1 C. 2 D. 3
What is C? Goods and services must be distinct to qualify as performance obligations. To be distinct, goods and services must be both capable of being distinct and separately identifiable. The scales and software appear capable of being distinct, as they could be sold separately, but they are not separately identifiable, as they are integrated with each other and not useable without each other. The one-year calibration contract is capable of being distinct and separately identifiable, as other vendors could provide similar services. Therefore, the contract has two performance obligations: the combination of the scales and software, and the calibration contract.
500
Waldman Associates received a written, approved contract to deliver economic consulting services, with service and payment commencing in one month. The contract specifies the services that Waldman is to perform, and the payment terms. Waldman and the customer both can cancel the contract without penalty prior to commencing service. Does Waldman have a contract for purposes of revenue recognition on the day the contract is received? A. Yes, because Waldman has a written approved contract. B. No, because Waldman and the customer can cancel without penalty, and neither has performed an obligation under the contract. C. Maybe, depending on whether Waldman can estimate collectability of the receivable. D. There is insufficient data on which to base an answer.
What is B? If both parties can cancel without penalty and the contract is wholly unperformed, no contract exists for purposes of revenue recognition.
500
In which of the following is the option described not a performance obligation? A. Customers accumulate points for every dollar spent at Madeline's Book Store. The points can be redeemed for books once certain levels are met. B. Customers can get 5% cash back for every $100 spent on eco-friendly products. C. Customers can "buy two, get one free" at a menswear store. D. Upon purchase of any name-brand TV, customers can purchase a 5-year extended warranty at a 25% discount.
What is B? 5% cash back is an adjustment of list price, and therefore must be considered when calculating the transaction price. It is not a performance obligation.
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