Deck 8: Revenue Recognition

Question 1

The timing of revenue recognition is dependent upon the control of the good being in the hands of ________.

A) the buyer
B) the seller
C) the management
D) any third party

Answer 1

A

Question 2

When a contract is expected to affect the risk, timing, or amount of the entity's future cash flows, the contract is said to have ________.

A) non-commercial substance
B) no substance
C) commercial substance
D) no profit

Answer 2

C

Question 3

What are the five criteria that must be met for a contract with a customer to exist?

Answer 3

1. All parties agree to the contract and commit to performing under the contract.
2. Each party's rights are identifiable.
3. The payment terms are identifiable.
4. The contract has commercial substance.
5. It is probable that the seller will collect the consideration to which it is entitled.

Question 4

If multiple contracts are negotiated as a package and have a single commercial objective, the contracts should be combined and accounted for as ________.

A) multiple contracts
B) a single contract
C) assets
D) liabilities

Question 5

The final step in the revenue recognition process is the allocation of the transaction price to the performance obligation.

Question 6

U.S. GAAP sets a higher threshold for the assessment of collectibility of consideration from a contract than IFRS.

Question 7

Able sells and delivers a piece of equipment to Smythe for $2,000 on August 1 and the equipment cost $1,300. The sale is a credit sale. How is this transaction accounted for under a periodic system of inventory?

A) $$\begin{array} { | c | r | r | } \hline \text { Sales Revenue } & 1,300 & \\\hline \text { Accounts Receivable } & & 1,300 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Accounts Receivable } & 2,000 & \\\hline \text { Sales Revenue } & & 2,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Sales Revenue } & 2,000 & \\\hline \text { Accounts Receivable } & & 2,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Accounts Receivable } & 1,300 & \\\hline \text { Sales Revenue } & & 1,300 \\\hline\end{array}$$

Question 8

IFRS defines the probable collection from a credit sale as ________.

A) likely to be collected
B) more likely than not to be collected
C) at least a 50% probability of being collected
D) at least a 45% probability of being collected

Question 9

Recognition of revenue as each performance obligation is satisfied is which step in the recognition process?

A) 1st
B) 3rd
C) 5th
D) 4th

Question 10

Revenue recognition deals with the issues of timing and measurement of revenue.

Question 11

The local Mini Mart makes cash sales of $8,000 on April 5, 2019. The journal entry to record the transaction would be to ________. The firm uses the periodic inventory system.

A) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 8,000 & \\\hline \text { Sales Revenue } & & 8,000 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | l | } \hline \text { Sales Revenue } & 8,000 & \\\hline \text { Cash } & & 8,000 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | l | } \hline \text { Accounts Receivable } & 8,000 & \\\hline \text { Sales Revenue } & & 8,000 \\\hline\end{array}$$
D) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 8,000 & \\\hline \text { Accounts Receivable } & & 8,000 \\\hline\end{array}$$

Question 12

What are the five principal steps in the revenue recognition process?

Question 13

The first step in the revenue recognition process is to determine the transaction price.

Question 14

Able sells and delivers a piece of equipment to Smythe for $1,800 on August 1 and the equipment cost $1,200. The sale is a credit sale. How is this transaction accounted for under a perpetual system of inventory?

A) $$\begin{array} { | c | c | c | } \hline \text { Sales Revenue } & 1,200 & \\\hline \text { Accounts Receivable } & & 1,200 \\\hline\end{array}$$
B) $$\begin{array} { | c | c | c | } \hline \text { Accounts Receivable } & 1,800 & \\\hline \text { Sales Revenue } & & 1,800 \\\hline \text { Cost of Goods Sold } & \$ 1,200 & \\\hline \text { Inventory } & & \$ 1,200 \\\hline\end{array}$$
C) $$\begin{array} { | c | c | c | } \hline \text { Sales Revenue } & 1,800 & \\\hline \text { Accounts Receivable } & & 1,800 \\\hline\end{array}$$
D) $$\begin{array} { | c | c | c | } \hline \text { Accounts Receivable } & 1,200 & \\\hline \text { Sales Revenue } & & 1,200 \\\hline\end{array}$$

Question 15

A good or service must be explicitly identified in a contract in order to identify a performance obligation.

Question 16

Define the term "commercial substance."

Question 17

Approval of a contract by the parties must be in writing.

Question 18

Under U.S. GAAP, when a contract meets the collectibility criterion, this means ________.

A) the seller believes it is 50% likely to collect the consideration in the contract
B) the seller believes it is more likely than not to collect the consideration in the contract
C) the seller believes it is likely to collect the consideration in the contract
D) the seller believes it is unlikely to collect the consideration in the contract

Question 19

A performance obligation is a promise to transfer a good or service that is distinct.

Question 20

If a seller receives cash before the appropriate time to recognize revenue, the seller should treat the consideration as a liability.

Question 21

Able sells a piece of equipment to Smythe for $1,800 on August 1. The equipment cost $1000. The equipment is picked up by Smythe on August 10. How many performance obligations are included in this transaction?

A) 1
B) 2
C) 3
D) 4

Question 22

A financing component is accounted for separately in a sales contract if delivery occurs in advance of payment or payment occurs in advance of delivery by more than ________.

A) six months
B) one year
C) two years
D) three years

Question 23

Judgment may be involved in the determination of whether the promise to deliver the good or service is separate from other promises.

Question 24

Able Company enters into a contract with a customer to provide them with an accounts receivable program. Able will also provide installation services as part of the contract. Able will make sure that this program will be installed so that it will be customized and be able to integrate with the company's other program modules. What is the number of performance obligations for this contract?

A) 1
B) 2
C) 3
D) 4

Question 25

ABC provides a product and installation to be used in conjunction with the buyer's production system. The buyer's system is unusable without ABC's product. The product and the installation are an example of ________.

A) three performance obligations
B) no performance obligations
C) a single performance obligation
D) two performance obligations

Question 26

An automotive magazine charges an annual subscription fee of $300, with customers prepaying the fee. Subscribers receive 50 issues for the annual fee. The publisher provides the new subscribers with a discount coupon good for a 30 percent discount on a race car ride at a major track. The list price of the ride along experience is $200. The company estimates that 35% of the coupons will be utilized. What is the number of performance obligations?

A) 1
B) 2
C) 3
D) 4

Question 27

ABC Company enters into a contract with Edmond Library to help them streamline their purchasing process. The contract specifies that Edmond Library will pay ABC $90,000 in the form of a fixed fee plus an additional $10,000 if the library achieves $200,000 in cost savings. ABC estimates a 55% chance that the library will achieve a $200,000 savings. Assume ABC estimates that the transaction price is the expected-value transaction price. The transaction price is recorded as ________. Ignore any constraints on variable consideration.

A) $90,000
B) $95,500
C) $100,000
D) $84,500

Question 28

The expected-value approach for revenue recognition is appropriate when variable consideration is included in the contract.

Question 29

A performance obligation is a promise to transfer a good or service that is ________.

A) indistinguishable
B) distinct
C) available
D) nondescript

Question 30

Able Company enters into a contract with a customer to provide them with an accounts receivable program. Able will also provide installation services as part of the contract. The customer is free to enlist the services of another entity to install the software. What is the number of performance obligations for this contract?

A) 0
B) 1
C) 2
D) 3

Question 31

A yacht dealer sells high performance yachts to affluent customers. The sale also includes a 90-day warranty against any defects in workmanship. The number of performance obligations for each yacht is ________.

A) 1
B) 2
C) 3
D) 4

Question 32

The transaction price is the amount of consideration the entity expects to be entitled to as a result of providing goods or services to the customer.

Question 33

An automotive manufacturer, A-2 Auto, provides maintenance services to Mako. In exchange, A-2 Auto received 600 shares of Mako's no-par common stock. Mako's common stock is currently trading on the open market for $29 per share. The standalone value of the maintenance provided was $20,200. What is the transaction price of this contract?

A) $17,400
B) $20,200
C) $19,200
D) Cannot be determined from the information given.

Question 34

Walker Consulting helped McCall Roofers put various cost saving techniques into place. The contract specifies that Walker will receive a flat fee of $70,000 and an additional $17,000 if McCall attains a target amount of cost savings. Walker estimates a 20% chance that McCall will reach the target for cost savings. Assuming that Walker uses the expected-value approach, what is the transaction price for this product?

A) $17,000
B) $70,000
C) $73,400
D) $87,000

Question 35

Able sells a piece of equipment to Smythe for $1,800 on August 1. The equipment cost $1,000. The equipment is picked up by Smythe on August 10. The contract also includes a 12 month service plan. How many performance obligations are included in this transaction?

A) 1
B) 2
C) 3
D) 4

Question 36

The amount of consideration that an entity expects to be entitled to as a result of providing goods or services to a customer is the ________.

A) performance obligation
B) expected value
C) transaction price
D) variable consideration

Question 37

The transaction price is always the price stated in the contract.

Question 38

In determining whether the promise to deliver goods and services is separate from other promises the accountant must often rely on ________.

A) professional skepticism
B) professional judgment
C) professional standards
D) standards of conduct

Question 39

What are the requirements for a good or service to be distinct?

Question 40

If noncash consideration such as stock of a publicly-traded company is given in a revenue contract, then the value to be used for the transaction price should be ________.

A) fair value of stock
B) book value of stock
C) historical cost of stock
D) net present value of revenue

Question 41

Aztec Company contracted with the Kirk Company to review their revenue recognition policies for recording sales. The contract will pay Aztec $800,000 in the form of a fixed fee. Aztec will also receive $150,000 additionally if Kirk achieves $200,000 in additional revenues. Aztec estimates a 70% chance that Kirk Company will achieve $200,000 in additional revenues. Refer to Aztec Company. Assume that Aztec estimates that the transaction price is the probability weighted amount of expected consideration. The transaction price is ________.

A) $905,000
B) $800,000
C) $560,000
D) $240,000

Question 42

Agee Corporation
Agee enters into a contract with Pipkin Video to add their programs to Agee's network. Pipkin will pay Agee an upfront fee of $250,000 for 12 months of access, and will also pay a $100,000 bonus if Agee's users access Pipkin Video for at least 10,000 hours during the 12-month period. Agee estimates that it has a 55% chance of earning the $100,000 bonus.

-Refer to Agee Corporation. Using the expected-value approach, determine the transaction price.

Question 43

Greenwell Farm Equipment sells a tractor to Farmer for $40,000 on January 1, 2019. The tractor is delivered that day. Greenwell agrees that the Farmer may delay the payment for 2 years. The market rate of interest is 8%. Refer to Greenwell Farms. How much interest revenue will Greenwell report on January 1, 2019?

A) $43,200
B) $36,800
C) $0.00
D) $3,200

Question 44

Shady Equipment sells a truck to Fred for $180,000 on January 1, 2016. Payment of $180,000 is received two years later and interest is paid at the end of two years. The truck is delivered two years later. The market rate of interest is 7%. Refer to Shady Equipment. How much sales revenue will Shady report on January 1, 2016?

A) $0.00
B) $180,000
C) $167,400
D) $90,000

Question 45

Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $100,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 month period. Jones estimates that it has a 60% chance of earning the $100,000 bonus. Ignore any constraints on variable consideration. Refer to Jones Corporation. Using the expected-value approach, the transaction price would be ________.

A) $150,000
B) $250,000
C) $310,000
D) $350,000

Question 46

Greenwell Farm Equipment sells a tractor to Farmer for $40,000 on January 1, 2019. The tractor is delivered that day. Greenwell agrees that the Farmer may delay the payment for 2 years. The market rate of interest is 7%. Refer to Greenwell Farms. How much interest revenue will Greenwell report over the life of this contract? (Do not round intermediary calculations, and round your final answer to the nearest whole number.) Use the formula approach.

A) $5,062
B) $2,800
C) $5,600
D) $5,796

Question 47

Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $110,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 month period. Jones estimates that it has a 60% chance of earning the $110,000 bonus. Refer to Jones Corporation. Upon collection of the upfront fee, Jones would recognize a(n) ________.

A) unearned revenue of $250,000
B) unearned revenue of $360,000
C) prepaid revenue of $250,000
D) prepaid revenue of $360,000

Question 48

Agee Corporation
Agee enters into a contract with Pipkin Video to add their programs to Agee's network. Pipkin will pay Agee an upfront fee of $250,000 for 12 months of access, and will also pay a $100,000 bonus if Agee's users access Pipkin Video for at least 10,000 hours during the 12-month period. Agee estimates that it has a 55% chance of earning the $100,000 bonus.
Refer to Agee Corporation. Using the most-likely-amount approach, determine the transaction price.

Question 49

Greenwell Farm Equipment sells a tractor to Farmer for $150,000 on January 1, 2019. The tractor is delivered that day. Greenwell agrees that the Farmer may delay the payment for 2 years. The market rate of interest is 10%. Refer to Greenwell Farms. How much sales revenue will Greenwell report on January 1, 2019? Use the formula approach.

A) $150,000
B) $135,000
C) $165,000
D) $123,967

Question 50

If a contract includes noncash consideration, how should the transaction be measured?

Question 51

In determining the transaction price, when does a significant financing component exist?

Question 52

White Labs is a wholesaler who sells microscopes for use in high schools to retailers. On August 1 White contracts with the XYZ to sell 1,000 microscopes to XYZ to be delivered September 1. The contract price is set at $370 each, with a 10% volume discount if sales exceed 2,500 microscopes within the year. The probability of sales exceeding 2,500 microscopes is expected to be 55%. Ignore any constraints on variable consideration. Using the most-likely-amount approach, the consideration to be recognized is estimated to be ________.

A) $333,000
B) $370,000
C) $203,500
D) $37,000

Question 53

What are the issues to consider when determining the transaction price?

Question 54

Agee Corporation
Agee enters into a contract with Pipkin Video to add their programs to Agee's network. Pipkin will pay Agee an upfront fee of $250,000 for 12 months of access, and will also pay a $100,000 bonus if Agee's users access Pipkin Video for at least 10,000 hours during the 12-month period. Agee estimates that it has a 55% chance of earning the $100,000 bonus.

-Refer to Agee Corporation. Using the most-likely-amount approach, record the receipt of the upfront fee and the first month's revenue.

Question 55

Aztec Company contracted with the Kirk Company to review their revenue recognition policies for recording sales. The contract will pay Aztec $600,000 in the form of a fixed fee. Aztec will also receive $150,000 additionally if Kirk achieves $200,000 in additional revenues. Aztec estimates a 65% chance that Kirk Company will achieve $200,000 in additional revenues. Refer to Aztec Company. Assume that Aztec estimates that the transaction price is the most likely value. The transaction price is ________.

A) $600,000
B) $697,500
C) $390,000
D) $750,000

Question 56

Gray Uniforms is a wholesaler who sells school uniforms to retailers. On August 1, Gray contracts with Excel School Uniforms to sell 2,000 uniforms to Excel to be delivered September 1. The contract price is set at $300 each. The contract provides for a 10% volume discount if sales exceed 3,000 uniforms. The probability of sales exceeding 3,000 uniforms is expected to be 71%. Using the most-likely-amount approach, the consideration is estimated to be ________.

A) $813,000
B) $639,000
C) $540,000
D) $426,000

Question 57

Hill and Dale Enterprises offers a promotion that provides a customer signing up for a membership the opportunity to enroll in educational courses. A customer signing up the first time is entitled to a 25% discount off a full year 's worth of courses. A new membership costs $1,600 annually and a year's worth of courses another $1,200. Hill and Dale estimate that approximately 40% of the customers will take advantage of the 25% discount. The company is offering a 10% discount on all courses at this time.
Required:
a. Identify the separate performance obligations in the new customer deal.
b. Allocate the price to the separate performance obligations. Use the most-likely amount approach.
c. Record the journal entry to record the sale of a new membership and one year of courses. The customer paid cash.

Question 58

Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $130,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 month period. Jones estimates that it has a 60% chance of earning the $130,000 bonus. Ignore any constraints on variable consideration. Refer to Jones Corporation. Using the most-likely-amount approach, the transaction price would be ________.

A) $130,000
B) $250,000
C) $328,000
D) $380,000

Question 59

The residual approach of determining a standalone price for a good or service focuses on internal factors by forecasting costs and adding an appropriate profit margin.

Question 60

Shady Equipment sells a truck to Fred for $160,000 on January 1, 2016. Payment of $160,000 is received is received on January 1, 2016, and interest is incurred over two years. The truck is delivered two years later. The market rate of interest is 9%. Refer to Shady Equipment. How much interest expense will Shady report over the term of the contract? (Do not round intermediary calculations, and round your final answer to the nearest whole number.)

A) $30,096
B) $14,400
C) $160,000
D) $47,205

Question 61

Hopner Products enters into a contract with Tulles to sell three different products. The total transaction price is $350,000. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the allocated transaction price of product Z using the adjusted market assessment approach? (Round intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest whole number.) $$\begin{array} { | c | c | c | } \hline \text { Product } & \text { Standalone Price } & \text { Market Price } \\\hline \mathrm { X } & \$ 130,000 & \$ 110,000 \\\hline \mathrm { Y } & \$ 120,000 & \$ 150,000 \\\hline \mathrm { Z } & \text { Not Available } & \$ 110,000 \\\hline\end{array}$$

A) $104,055
B) $116,286
C) $116,667
D) $90,000

Question 62

Hopner Products enters into a contract with Tulles to sell three different products. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the standalone price of product Z using the residual approach? Transaction Price $415,000
$$\begin{array} { c c } \underline{\text { Price }} & \underline{\text { Standalone Price }} \\X & \$ 150,000 \\Y & \$ 125,000 \\Z & \text { Not Available }\end{array}$$

A) $290,000
B) $115,000
C) $140,000
D) $255,000

Question 63

Goods and services may be transferred to a customer over time or at a point in time.

Question 64

Hopner Products enters into a contract with Tulles to sell three different products. The total transaction price is $370,000. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the allocated transaction price of product Z using the expected-cost-plus-a-profit margin approach? (Round intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest whole number.) $$\begin{array} { | c | c | c | c | } \hline \text { Product } & \text { Standalone Price } & \text { Market Price } & \text { Forecasted Cost } \\\hline \mathrm { X } & \$ 150,000 & \$ 130,000 & \$ 100,000 \\\hline \mathrm { Y } & \$ 110,000 & \$ 160,000 & \$ 85,000 \\\hline \mathrm { Z } & \text { Not Available } & \$ 100,000 & \$ 140,000 \\\hline\end{array}$$

A) $159,390
B) $94,868
C) $123,333
D) $185,000

Question 65

Costanzo Auto Shop
Costanzo Auto Shop signs a contract to provide three different products to a customer for a total transaction price of $975,000. Each product represents a separate performance obligation. Costanzo only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table.
$\begin{array}{cccc}&&\text { Market }\\&\text { Standalone }&\text {Competition }&\text {Forecasted }\\\underline{\text { Product} } &\underline{ \text { Selling Price }} & \underline{\text { Price }} & \underline{\text { Cost }} \\\text { Zoom-1 } & \$ 262,500 & \$ 199,500 & \$ 180,000 \\\text { Zoom-2 } & 450,000 & 468,000 & 375,000 \\ \text { Zoom-3 } & \text { Not Available } & \underline{300,000} & \underline{195,000} \\\quad \text { Total } &&7950,000 & \$ 67,500 &\end{array}$


-Refer to Costanzo Auto Shop. Allocate the transaction price using the residual approach.

Question 66

A good or service transferred at a point in time would include a ________.

A) suit
B) magazine subscription
C) gym membership
D) Sam's Club membership

Question 67

Which one of the following is not an indicator of the transfer of control to the buyer?

A) Seller has present right to payment for the asset.
B) Seller has legal title to the asset.
C) Seller has transferred physical possession of property.
D) Customer has accepted the asset.

Question 68

Costanzo Auto Shop
Costanzo Auto Shop signs a contract to provide three different products to a customer for a total transaction price of $975,000. Each product represents a separate performance obligation. Costanzo only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table.
$\begin{array}{cccc}&&\text { Market }\\&\text { Standalone }&\text {Competition }&\text {Forecasted }\\\underline{\text { Product} } &\underline{ \text { Selling Price }} & \underline{\text { Price }} & \underline{\text { Cost }} \\\text { Zoom-1 } & \$ 262,500 & \$ 199,500 & \$ 180,000 \\\text { Zoom-2 } & 450,000 & 468,000 & 375,000 \\ \text { Zoom-3 } & \text { Not Available } & \underline{300,000} & \underline{195,000} \\\quad \text { Total } &&7950,000 & \$ 67,500 &\end{array}$


-Refer to Costanzo Auto Shop. Allocate the transaction price using expected-cost-plus-a-margin approach.

Question 69

If the seller does not meet the three criteria for revenue recognition, then it assumes that goods or services are transferred over time.

Question 70

Costanzo Auto Shop
Costanzo Auto Shop signs a contract to provide three different products to a customer for a total transaction price of $975,000. Each product represents a separate performance obligation. Costanzo only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table.
$\begin{array}{cccc}&&\text { Market }\\&\text { Standalone }&\text {Competition }&\text {Forecasted }\\\underline{\text { Product} } &\underline{ \text { Selling Price }} & \underline{\text { Price }} & \underline{\text { Cost }} \\\text { Zoom-1 } & \$ 262,500 & \$ 199,500 & \$ 180,000 \\\text { Zoom-2 } & 450,000 & 468,000 & 375,000 \\ \text { Zoom-3 } & \text { Not Available } & \underline{300,000} & \underline{195,000} \\\quad \text { Total } &&7950,000 & \$ 67,500 &\end{array}$


-Refer to Costanzo Auto Shop. Allocate the transaction price using the adjusted market assessment approach. Round percentages to two decimal places.

Question 71

Kramer Iron Works
Kramer Iron Works signs a contract to provide three different products to a customer for a total transaction price of $325,000. Each product represents a separate performance obligation. Kramer only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table.
$\begin{array}{cccc}&&\text { Market }\\&\text { Standalone}&\text { Competition }&\text { Forecasted }\\\text { Product } & \text { Selling Price } & \text { Price } & \text { Cost } \\\text { A-1 } & \$ 87,500 & \$ 66,500 & \$ 60,000 \\\text { A-2 } & 150,000 & 156,000 & 125,000 \\\text { A-3 } & \text { Not Available } & \underline{100,000} & \underline{65,000} \\\text { Total } & & \$ 322,500 & \$ 250,00\end{array}$


-Refer to Kramer Iron Works. Allocate the transaction price using the adjusted market assessment approach. Round percentages to two decimal places.

Question 72

An example of a good transferred over time is a ________.

A) refrigerator
B) soft drink
C) magazine subscription
D) suit

Question 73

Kramer Iron Works
Kramer Iron Works signs a contract to provide three different products to a customer for a total transaction price of $325,000. Each product represents a separate performance obligation. Kramer only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table.
$\begin{array}{cccc}&&\text { Market }\\&\text { Standalone}&\text { Competition }&\text { Forecasted }\\\text { Product } & \text { Selling Price } & \text { Price } & \text { Cost } \\\text { A-1 } & \$ 87,500 & \$ 66,500 & \$ 60,000 \\\text { A-2 } & 150,000 & 156,000 & 125,000 \\\text { A-3 } & \text { Not Available } & \underline{100,000} & \underline{65,000} \\\text { Total } & & \$ 322,500 & \$ 250,00\end{array}$


-Refer to Kramer Iron Works. Allocate the transaction price using the residual approach.

Question 74

Kramer Iron Works
Kramer Iron Works signs a contract to provide three different products to a customer for a total transaction price of $325,000. Each product represents a separate performance obligation. Kramer only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table.
$\begin{array}{cccc}&&\text { Market }\\&\text { Standalone}&\text { Competition }&\text { Forecasted }\\\text { Product } & \text { Selling Price } & \text { Price } & \text { Cost } \\\text { A-1 } & \$ 87,500 & \$ 66,500 & \$ 60,000 \\\text { A-2 } & 150,000 & 156,000 & 125,000 \\\text { A-3 } & \text { Not Available } & \underline{100,000} & \underline{65,000} \\\text { Total } & & \$ 322,500 & \$ 250,00\end{array}$


-Refer to Kramer Iron Works. Allocate the transaction price using expected-cost-plus-a-margin approach.

Question 75

Goods and services are transferred over time if the customer controls the asset as the seller creates it or enhances it over time.

Question 76

Which one of the following approaches is not a method for allocating a transaction price to multiple performance obligations?

A) adjusted market assessment
B) expected-cost-plus-a-margin
C) residual
D) present cost basis

Question 77

If a seller does not sell the same goods or services separately, the standalone selling prices should be estimated using prices that maximize observable inputs. What are the three suggested approaches to accomplish this?

Question 78

The general rule is that the transaction price should be allocated to the performance obligations based on the relative standalone selling prices. An exception occurs when the contract includes variable consideration.

Question 79

If the sum of standalone selling prices is greater than the transaction price, then any discount should be allocated to the performance obligations based on the relative ________.

A) historical cost
B) standalone selling prices
C) book values
D) net present values

Question 80

The general rule is that the transaction price should be allocated to the performance obligations based on the relative standalone selling prices unless a discount is ________.

A) not related to all of the contract's performance obligations
B) related to all of the contract's performance obligations
C) less than the standalone selling price
D) not part of the variable consideration