Exam 4: Revenue Recognition and the Statement of Income

At the time of sale, the selling price does not have to be determined in order for the selling company to quantify the economic benefits of the transactions.

In which of the following businesses would the delivery of the product and the collection of cash occur at the same time?

On September 25, Olive Oil Distributors receives an order from DeNarda Italian Supermarkets for 125 cases of extra virgin olive oil. Olive Oil accepts the order, which needs to be delivered to DeNarda's warehouse and DeNarda agrees to pay within 30 days of the receipt of the product. Each case of extra virgin olive oil contains 12 bottles at a selling price of $7.50 each. Olive Oil's cost is $3 / bottle. The shipment is received at DeNarda's warehouse on Oct 2 and DeNarda mails a cheque to Olive Oil at the end of the agreed upon payment terms. Olive Oil Distributors used a contact based approach to revenue recognition. Instructions a) Determine if there is a contract between Olive Oil Distributors and DeNarda Italian Supermarkets. b) If there is a contract, record Olive Oil's entries related to these transactions.

Oceans Limited sold $1,750,000 worth of goods during the current year. The cost of goods sold is $1,050,000. Credit sales were $1,575,000, of which 40% were still outstanding. How much cash was collected by Oceans Ltd.?

When goods and services are bundled in a sales transaction

Earnings are considered to be of lower quality if

In retail stores, revenue is normally recognized at the time of sale.

For a contract to exist all of the following criteria must be met, except for

How should Magic Mountain account for the corporate tickets not redeemed?

Indicators that control has been transferred to a customer under the contract-based approach include all of the following, except for

Place an X for each criterion that must be met in order to recognize revenue in each category.

Under IFRS the contract-based approach must be used for revenue recognition. Identify and describe the five-step model of revenue recognition that must be used.

With consignment sales, at the time of the sale to a third party:

With consignment arrangements

Performance obligations relate to:

All of the following are examples of service revenues except

Buff it Up, a privately held corporation using ASPE, successfully operates two high-end fitness centres in the same town. Members pay a $150 non-refundable initiation fee, and then a one-year membership for unlimited access to the facilities costs an additional $900. They have 3,200 active members. Memberships are required to be paid in full, in three equal monthly instalments over the first 3 months of a membership year. Partial refunds of the annual fees are only given if a member moves more than 50 kilometres away. In addition to the facilities, there is a juice bar that sells fruit smoothies and healthy snacks. Members can sign for their purchases at the juice bar and then they are billed at the end of the month. Instructions Discuss when all revenues should be recognized at Buff it Up. Support your discussion with reference to the specific revenue recognition criteria.

Which of the following would indicate high quality earnings for a company?

When following ASPE, part of the revenue recognition criteria includes reasonable assurance of collectability of at least some portion of the amount earned.

Private companies must report comprehensive income in their financial statements.