Exam 17: Advanced Issues in Revenue Recognition

Describe the conditions when contract assets and contract liabilities are recognized and presented in financial statements.

Noyes Construction Corporation contracted to construct a building for $4,500,000. Construction began in 2016 and was completed in 2017. Data relating to the contract are summarized below: Noyes assumes the performance obligation is satisfied over time. What amount of gross profit should Hayes report for 2016?

Freesure Company manufactures and sells commercial refrigerators. It is currently running a promotion in which it pays a $500 rebate to any customer that purchases a refrigeration unit from one of its participating dealers. The rebate must be returned within 90 days of purchase. Given its historical experience and the ease of obtaining a rebate, Freesure expects all qualifying customers to receive the rebate. Required: Prepare the journal entry to record the sale of a refrigerator to a participating dealer for $6,000.

Able Bakers sells cooking supplies and training services. Under a contract with Putnam Restaurants, Able will provide $60,000 of supplies and three months of training for $2,000 per month. Able's right to receive consideration for cooking supplies is conditional upon providing one month of training services before they can bill the customer for the supplies. When Able delivers the supplies on the first day of training services, Able will recognize

Revenues are recognized when

The FASB and the IASB jointly issued a comprehensive principles-based revenue recognition Model entitled

If a contract contains only one performance obligation, no allocation of the transaction price is ever needed to recognize revenue.

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 $30,000. If Oldham entered into a separate financing transaction with Windall, an appropriate interest rate would be 10%; therefore, the transaction price would be $22,540. 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?

Revenue from a contract with a customer

What type of account is Partial Billings?

What is the proper accounting for volume discounts on sales of products when there is uncertainty about whether the discounted volume level will be attained?

The FASB provides a 4-step model for evaluating when a company should recognize revenue.

The first step of the revenue recognition model is to identify the contract with the customer.

Noncash consideration should be recognized by the seller on the basis of

Pizza-Iz-Us charges an initial fee of $1,800,000 for a licensing contract, with $360,000 paid when the agreement is signed and the balance in four annual payments. The present value of the annual payments, discounted at 9%, is $1,166,000. Included in the initial fee is a $50,000 allowance for promotional services to be provided by Pizza-Iz-Us during the next five years. The value of the advertising is $1,000 a month. Collectibility of the payments is reasonably assured and Pizza-Iz-Us has performed all the initial services required by the licensing contract. Required: Prepare the journal entry to record the initial licensing agreement including the initial cash receipt.

The transaction price for multiple performance obligations should be allocated based on

In January, Cigaro Corp. agrees to a contract to sell 14,000 sports caps for $140,000 to Dilly, Inc. In March, after 5,000 caps have been delivered, Cigaro and Dilly modify the agreement to sell an additional 6,000 caps for $33,000 which is significantly lower than Cigaro's stand-alone selling price at that time. During April, Cigaro delivers 2,000 caps. How much revenue will Cigaro recognize for the month of April?

A customer agrees to pay a seller over time with a promissory note. Which of the following statements related to this situation is false?

In 2017, Dygress Construction Co. began work on a contract for $16,500,000; it was completed in 2018. The following cost data pertain to this contract: Assuming the performance obligation is satisfied over time, what is the amount of gross profit to be recognized on the income statement for the year ended December 31, 2018?

What is the appropriate revenue recognition procedure for upfront payments received in a contract with a customer?