Question 1

What type of account is Construction in Progress?

Accepted Answer

A)  asset 
B)  contra asset 
C)  expense 
D)  receivable

Question 2

List indicators that a company may be an agent, not a principal, in a revenue transaction and explain the significance of this relationship in revenue recognition.

Accepted Answer

The answer of List indicators that a company may be...

Question 3

A good is considered distinct if it is a separately identifiable good from which a customer is able to receive benefits either separate from or together with other resources.

Accepted Answer

A) True 
 B)False

Question 4

If a contract modification does not create a separate contract, it is accounted for using

Accepted Answer

A)  either a cumulative catch-up adjustment or a retrospective approach. 
B)  either a cumulative catch-up adjustment or a prospective approach. 
C)  either a retrospective approach or a prospective approach. 
D)  either a cumulative catch-up adjustment, a prospective approach, or a retrospective approach.

Question 5

A construction project is expected to take two-and-a-half years to complete. Partial Billings is less than Construction in Progress. The two accounts are reported together on the balance sheet in the

Accepted Answer

A)  current assets section. 
B)  long-term assets section. 
C)  current liabilities section. 
D)  long-term liabilities section.

Question 6

A company should only apply the revenue recognition standard to contracts that meet all of the following criteria except

Accepted Answer

A)  the contract has commercial substance. 
B)  collectability of consideration is probable. 
C)  each party's rights regarding goods and services to be transferred are identified. 
D)  the transaction price is fixed and determinable.

Question 7

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. What amount of revenue would be recognized in 2016?

Accepted Answer

A)  $400,000 
B)  $192,000 
C)  $136,000 
D)  $0

Question 8

A construction project is expected to take two-and-a-half years to complete. Partial Billings exceeds Construction in Progress. The two accounts are reported together on the balance sheet in the

Accepted Answer

A)  current assets section. 
B)  long-term assets section. 
C)  current liabilities section. 
D)  long-term liabilities section.

Question 9

A company must adjust the consideration for the time value of money if the time period between the customer's payment and the company's transfer of goods or services is more than three months.

Accepted Answer

A) True 
 B)False

Question 10

Consider each of the following scenarios for Bunsen Suppliers Company:
a. The common practice of Bunsen Suppliers is to obtain a written sales agreement. When an Anson Store called on the phone with an urgent need, however, Bunsen orally agreed to deliver goods in exchange for
$6,000, then immediately delivered these goods to Anson without a written agreement.
b. Bunsen Suppliers has a written agreement to deliver goods to Comfort Inc. for $110 per unit. The price will drop to $95 per unit for all units if Comfort purchases more than 1,000 units per month.
c. Bunsen Suppliers has a written agreement with Darwin Company to deliver 800 units of product each
Saturday afternoon. Darwin can alter the quantity or cancel a delivery any time before noon Saturday.
Required:
Determine if a contract exists for each of these scenarios and comment on revenue recognition issues.

Accepted Answer

The answer of Consider each of the following scenarios for...

Question 11

The first step of the revenue recognition model is

Accepted Answer

A)  to identify the contract with the customer. 
B)  to identify the performance obligations to the customer. 
C)  to recognize revenue when it is earned. 
D)  to determine the transaction price.

Question 12

IT Services Co. provides online technology support for consumers remotely via the Internet. For a flat fee, it will scan a customer's personal computer PC) for viruses, optimize the PC's performance, and solve any connectivity problems. When a customer calls to obtain the scan services, IT Services Co. describes the services it can provide and states the price for those services. When the customer agrees to the terms stated by the representative, payment is made over the telephone. IT Services Co. then provides the customer the information needed to obtain the scan services
a. List the criteria for determining if there is a contract with a customer and determine if there is a contract in this scenario.
b. If so, when is revenue recognized?
e.g., an access code for the website) and provides the services when the customer connects to the Internet and logs onto IT Services Co.'s website, which may be that day but may also be at a future point in time.
Required:

Accepted Answer

The answer of IT Services Co. provides online technology support...

Question 13

On what basis should the transaction price be allocated to various performance obligations? Identify the approaches for estimating the stand-alone price.

Accepted Answer

The answer of On what basis should the transaction price...

Question 14

A contract modification always results in a new contract if the modification adds distinct goods or services at a price that reflects their stand-alone selling price.

Accepted Answer

A) True 
 B)False

Question 15

Under what conditions does a company recognize revenue over a period of time?

Accepted Answer

The answer of Under what conditions does a company recognize...

Question 16

A company must account for a contract modification as a new contract if

Accepted Answer

A)  the modification adds distinct goods or services at a price that reflects their stand-alone selling price. 
B)  the seller has the right to receive consideration equal to the stand-alone selling price of the promised goods or services. 
C)  the promised goods or services are distinct and separable from other goods or services promised in the original contract. 
D)  the promised goods or services are distinct and the contract has commercial substance.

Question 17

If the customer buys goods and promises consideration in a form of a non-cash asset, the seller values the transaction based on the fair value of the non-cash asset, not on the stand-alone price of the goods sold.

Accepted Answer

A) True 
 B)False

Question 18

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 balance in Construction in Progress at the end of 2017?

Accepted Answer

A)  $557,600 
B)  $659,600 
C)  $680,000 
D)  $782,000

Question 19

A "contract asset" is a receivable that arises from the performance obligation of a contract.

Accepted Answer

A) True 
 B)False

Question 20

On January 1, 2017, Fryer Company enters into a contract to supply 600 pastry frying machines to a regional donut retailer. The machines will be delivered at a rate of 25 machines per month over 2 years at a transaction price of $1,000 per machine. The salesperson received a $36,000 sales commission on the date the contract was signed. The journal entry to record the transaction on January 1 will include a

Accepted Answer

A)  debit Prepaid Sales Commissions for $36,000. 
B)  debit Sales Commission Expense for $36,000. 
C)  credit Sales Revenue $600,000. 
D)  credit Sales Revenue $564,000.

Exam 17: Advanced Issues in Revenue Recognition

What type of account is Construction in Progress?

List indicators that a company may be an agent, not a principal, in a revenue transaction and explain the significance of this relationship in revenue recognition.

A good is considered distinct if it is a separately identifiable good from which a customer is able to receive benefits either separate from or together with other resources.

If a contract modification does not create a separate contract, it is accounted for using

A construction project is expected to take two-and-a-half years to complete. Partial Billings is less than Construction in Progress. The two accounts are reported together on the balance sheet in the

A company should only apply the revenue recognition standard to contracts that meet all of the following criteria except

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. What amount of revenue would be recognized in 2016?

A construction project is expected to take two-and-a-half years to complete. Partial Billings exceeds Construction in Progress. The two accounts are reported together on the balance sheet in the

A company must adjust the consideration for the time value of money if the time period between the customer's payment and the company's transfer of goods or services is more than three months.

The first step of the revenue recognition model is

On what basis should the transaction price be allocated to various performance obligations? Identify the approaches for estimating the stand-alone price.

A contract modification always results in a new contract if the modification adds distinct goods or services at a price that reflects their stand-alone selling price.

Under what conditions does a company recognize revenue over a period of time?

A company must account for a contract modification as a new contract if

If the customer buys goods and promises consideration in a form of a non-cash asset, the seller values the transaction based on the fair value of the non-cash asset, not on the stand-alone price of the goods sold.

A "contract asset" is a receivable that arises from the performance obligation of a contract.