Exam 5: Income Concepts, Revenue Recognition, and Other Methods of Reporting

Which of the following is not an approach to determining current value?

The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as

FASB ASC 606 discusses the concept of transaction price. a. What is the transaction price according to FASB ASC 606? b. What are some additional factors related to the transaction price that must be considered in determining the transaction price?

Service warranties. Warranties that provide an additional service beyond the assurance-type warranty. This warranty is not included in the sale price of the product and is referred to as a service-type warranty. a. Companies do not record a separate performance obligation for assurance-type warranties. These types of warranties are nothing more than a quality guarantee that the good or service is free from defects at the point of sale. These types of obligations should be expensed in the period the goods are provided or services performed. In addition, the company should record a warranty liability. The estimated amount of the liability includes all the costs that the company will incur after sale and that are incident to the correction of defects or deficiencies required under the warranty provisions. Warranties that provide the customer a service beyond fixing defects that existed at the time of sale represent a separate service and are an additional performance obligation. As a result, companies should allocate a portion of the transaction price to this performance obligation. The company recognizes revenue in the period that the service type warranty is in effect.

According to the provisions of FASB ASC 606 How do companies recognize revenue from a performance obligation over time?

Define the following terms: a. Holding gains b. Materiality

Discuss the three basic concepts of income as defined by Bedford.

According to FASB ASC 606, a performance obligation exists when

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

Felix Corp. is evaluating a contract to determine proper revenue recognition. The contract is for construction of 10 yachts for a total price of $10,000,000. The customer needs the boats in its showrooms by March 1, 2018, for the yacht purchase season; the customer will provide a bonus payment of $100,000 if all yachts are delivered by the March 1 deadline. The bonus is reduced by $25,000 each week that the boats are delivered after the deadline until no bonus is paid if the boats are delivered after March 22, 2018. Felix frequently includes such bonus terms in it contracts and thus has good historical data for estimating the probabilities of completion at different dates. It estimates an equal probability (25%) for each full delivery outcome. Assume that Felix has limited experience with a construction project on the same scale as the 10 yachts. How should Felix determine the transaction price for this contract?

Each asset-inventory, plant, equipment, and so on-would be valued based on the selling price that would be realized if the firm chose to dispose of it is the definition of which of the following current value concepts?

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

Norford Truck Company sells tractors to area farmers. The price of each tractor includes GPS service for 12 months The GPS service is regularly sold on a standalone basis by Norford for a monthly fee. After the 12-month period, the consumer can renew the service on a fee basis. How many performance obligations does Norford have?

Consignments are a specialized marketing method whereby the

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

Under the provisions of FASB ASC 606, companies satisfy performance obligations either at a point in time or over a period of time. Under what conditions does a company recognize revenue over a period of time?

Income is equal to the difference between the present value of the net assets at the end of the period and their present value at the beginning of the period, excluding the effects of investments by owners and distributions to owners is the definition of which of the following current value concepts?

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?

The cost to replace assets with similar assets in a similar condition is the definition of which of the following current value concepts?

Uncertainty and risks inherent in business situations should be adequately considered in financial reporting. This statement is an example of the concept of