Exam 17: Advanced Issues in Revenue Recognition

Construction in Progress is an inventory account typically valued at on the balance sheet at net realizable value.

On July 15, Zink Jewels agrees to a contract to sell 4,000 promise rings for $100,000 to Costless Stores, Inc. On October 1, after 2,000 rings pair of have been delivered, Zink and Costless modify the agreement to reduce the price of the remaining 1,000 rings to $12 each. During October, Zink Jewels delivers 600 rings. How much revenue will Zink recognize for the month of October?

When multiple service-related performance obligations exist within a contract, they should be accounted for as a single performance obligation when

Thompson Construction began a construction project in 2016. The contract price was $1,250,000, and the estimated costs were $1,000,000. Data for each year of the contract are as follows: Required: Assuming Thompson satisfies its performance obligation over time, determine: 1) The balance of Construction in Progress at the end of 2016. 2) How the net amount for construction in progress inventory should be reported on the 2017 balance sheet. 3) The gross profit for 2018.

GAAP requires that incremental costs of obtaining a contract must be capitalized and amortized over the time of the contract.

A contract asset

Mary Streen is getting up to speed on the new guidance on revenue recognition. She is trying to understand the revenue recognition principle as it relates to the five-step revenue recognition process.

The core principle of revenue recognition is that a company should recognize revenue when it has been earned.

The role of the agent in a principal-agent relationship is to

If a contract involves a significant financing component

If a contract modification is determined not to result in a separate contract, how are the subsequent transactions accounted for?

On January 1, 2017, BT&T Company enters into a 2-year contract with a customer for an unlimited talk and 10 GB data wireless plan for $70 per month. The contract includes a smartphone for which the customer pays $200. BT&T also sells the smartphone and monthly service plan separately, charging $700 for the smartphone and $65 for the monthly service for the unlimited talk and 10 GB data wireless plan. Required: a. Determine the transaction price for each performance obligation, assuming that BT&T Company allocates the transaction price based on stand-alone prices. b. Record the initial journal entry for BT&T Company's sale of a 2-year contract on January 1, 2017, and the monthly journal entry. c. On January 1, 2018, the customer realizes that she needs less data in her wireless plan and downgrades to the unlimited talk and 2 GB data plan for the remaining term of the contract 12 months). The unlimited talk and 2 GB data plan is priced at $50 per month, which is the BT&T current stand-alone price for this plan that is available to all customers. Provide BT&T's new monthly revenue recognition journal entry.

What is a performance obligation and under what circumstances does one or more performance obligations exist?

BoTeck is a full-service technology company. It provides equipment, installation services, and training services. Customers can purchase any product or service separately or as a bundled package. On May 3, Box-Rite Corporation purchased computer equipment, installation, and training for a total cost of $120,000. Estimated stand- alone fair values of the equipment, installation, and training are $75,000, $50,000, and $25,000 respectively. The journal entry to record the sale and installation on May 3 will include

The transaction price

A constructive obligation is a promise in a contract with a customer to transfer goods or services.

FreeStuff, Inc. operates a website which markets products from various manufacturers. FreeStuff accepts customer orders, forwards those orders and 80% of the customer payment to the appropriate manufacturer who then ships product directly to the customer. Required: Prepare the journal entry by FreeStuff when payment is received from a customer for $500 for merchandise to be provided by Handy Manufacturing.

Donner Construction enters into a contract with a customer to build a warehouse for $600,000 on March 30, 2017 with a performance bonus of $30,000 if the building is completed by August 31, 2017. The bonus is reduced by $10,000 each week that completion is delayed. Donner commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability August 31, 2017 60% September 7, 2017 30% September 14, 2017 10% What is the transaction price for this transaction?

Bodine Corp. has a contract to deliver cleaning products to the community center. The contract with the aquatic center states that the first 500 gallons of cleaner will cost $16 per gallon. However, the cost will drop to $12 per gallon for all purchases over 500 gallons. Based on its experience, Bodine Corp. estimates that the center will use 800 gallons of chemicals. What transaction price per gallon should Chlorine use for this contract?

On January 1, 2017, Oldham Company sold goods to Windall Company in exchange for a 3-year, non-interest- bearing note with a face value of $10,000. If Oldham entered into a separate financing transaction with Windall, an appropriate interest rate would be 8%. Which of the following statements is true about the journal entry that records the transaction when Oldham delivers the goods to Windall on January 1, 2017?