Exam 17: Advanced Issues in Revenue Recognition

What are revenues?

Which of the following is an input method for recognizing revenue over time?

Exhibit 17-1 The following information relates to a project of the Cumberland Construction Company: The contract price was $1,200,000. Cumberland uses the cost-to-cost method of revenue recognition. -Refer to Exhibit 17-1. Assume revenue in the amount of $200,000 was recognized in 2016. What amount of revenue would be recognized in 2017?

Provide two examples of variable consideration. What are the two approaches for estimating variable consideration and how does a company determine which approach should be used?

When a contract contains an uncertain, variable amount of consideration, GAAP requires that a company only recognizes total consideration as if the uncertainty does not exist.

A contract adds distinct goods and services and the contract price does not reflect the stand-alone selling price of these goods and services. How is the contract modification accounted for?

One type of revenue is the settlement of a liability that occurs as a result of a company's primary operating activities.

Assuming that the performance obligation is satisfied over time, Construction in Progress represents inventory that is valued at

A contract

A company that is considered to be an agent in a revenue-producing transaction will recognize revenue for the net amount of consideration received from the customer.

Nonrefundable fees from customers are recognized as revenue when received.

On April 15, Topper Company agrees to a contract to sell 9,000 tie-dyed flags for $45,000 to PeaceTime, Inc. On August 1, after 5,000 flags have been delivered, Topper and Peace modify the agreement to sell an additional 6,000 flags for $21,000 which is significantly lower than Topper's stand-alone selling price at that time. During August, Topper delivers 1,000 flags. How much revenue will Topper recognize for the month of August?

Which of these three characteristics I, II, and III) are required in order for a promised good or service to be considered distinct? I. Commercial substance II) Distinct within the context of the contract III) Capable of being distinct

On January 1, SaLow Company enters into a contract to provide custom-made equipment to ByHi Corporation for $100,000. The contract terms allow cancellation without penalty by either party at any time prior to delivery of the goods. The contract specifies a delivery date of March 15 but the equipment was not delivered until April 10. The contract required full payment within 30 days after delivery. When should revenue be recognized for this contract?

Saler Company entered into two contractual agreements with two customers. Customer 1 agreed to buy 5,000 units of Product X11 per month for 24 months at $25 per unit. Customer 2 agreed to purchase advisory services for 12 months at $16,000 per month. Both customers agreed to modify their contracts after 6 months had passed. I. If Customer 1 decides to buy more than 5,000 units in any given month, the price will be $21 for the additional units, which is representative of the stand-alone price for this product in similar situations. II) Customer 2 agrees to extend the period of time for advisory services to 15 months at the same price and to purchase 2,000 units of Product X11 per month for the next nine months at $15 per unit. Which of these contract modifications creates a separate contract?

BoTeck is a full-service technology company. It provides equipment, installation services, and training services. For a recent major group sale, the transaction price had a variable component contingent upon a threshold being reached. Revenue allocated to equipment and installation services was recognized in fiscal year 2015; revenue allocated to training services is being recognized over the next two years through the end of 2017. Now, in February 2016, the contingent outcome previously expected has proven to be false and the transaction price has changed such that additional revenue should be recognized for these performance obligations. What is the proper accounting for this change in transaction price for equipment and installation services?

MeesaCard credit card company offers a loyalty program to its credit card users whereby the credit card company gives the credit card user points for amounts purchased from merchants when using the credit card. These points may be accumulated and redeemed for a number of different goods or services, including cash-back. MeesaCard separately enters into arrangements with merchants under which the credit card company provides the financing for the transaction between the merchant and the credit card user, in return for which the credit card company receives a stated fee from the merchant. When the credit card user uses the credit card to make a purchase from a merchant, MeesaCard honors its agreement with the merchant and advances the merchant the funding for the amount of the transaction after deducting the fee to which the credit card company is entitled. However, as a result of that transaction, MeesaCard now also has an obligation to the credit card user to provide the specified number of points in the loyalty program. Required: a. How many performance obligations are involved in these activities? b. Assuming there are two performance obligations, how would revenue be recognized? c. Assuming there is only one performance obligation, how would revenue be recognized?

Which of the following is not an indicator that a promise is separately identifiable within a contract?

Exhibit 17-2 In 2016, Omega Construction began work on a contract with a price of $850,000 and estimated costs of $595,000. Data for each year of the contract are as follows: -Refer to Exhibit 17-2. Assuming the performance obligation is satisfied over time, what would be the gross profit in 2016?