Question 1

Under the contract-based approach,revenue is recognized whenever a company's net position in a contract decreases.

Accepted Answer

Under the contract-based approach, revenue is recognized when a company satisfies a performance obligation by transferring a promised good or service to a customer, not merely when its net position in a contract decreases.

Question 2

A contract has commercial substance when the risk,timing,or amount of
the company's future cash flows is expected to change as a result of the contract.

Accepted Answer

Commercial substance refers to the ability of a contract or transaction to affect the future cash flows of a company. If there is no change in the risk, timing or amount of future cash flows as a consequence of the contract, then it lacks commercial substance. Therefore, the statement is true.

Question 3

Revenue recognition approaches differ between IFRS and ASPE.

Accepted Answer

IFRS and ASPE have different criteria for recognizing revenue, which can result in different timing and amounts of revenue recognition.

Question 4

There must be a receipt of cash in order for a company to recognize revenue.

Accepted Answer

A receipt of cash is not necessary for a company to recognize revenue. Revenue can be recognized when a transaction occurs, even if payment is not received immediately. This is called accrual accounting.

Question 5

When making sales on account,there are costs that may be incurred in the future;an example of a cost is bad debts.

Accepted Answer

Bad debts are a cost that may be incurred in the future when making sales on account. This is because some customers may not pay their debts, resulting in losses for the company.

Question 6

When a company uses a multi-step income statement,all revenues are presented first regardless of the source.

Accepted Answer

In a multi-step income statement, revenues are categorized and presented separately, typically dividing operating revenues from non-operating revenues, rather than listing all revenues together regardless of the source.

Question 7

Private companies must report comprehensive income in their financial statements.

Accepted Answer

Private companies are not universally required to report comprehensive income in their financial statements; this requirement depends on the accounting standards they follow and the regulations of the jurisdiction in which they operate.

Question 8

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.

Accepted Answer

The selling price needs to be determined at the time of sale in order for the selling company to quantify the economic benefits of the transaction, as it directly impacts revenue recognition and the measurement of profitability.

Question 9

Revenue and gains arise from a company's ordinary activities.

Accepted Answer

Revenue arises from a company's ordinary activities, while gains may result from peripheral or incidental transactions.

Question 10

When customers are granted a right to return goods purchased,management must estimate the extent of expected returns.

Accepted Answer

When customers are granted a right to return goods, management must estimate the extent of expected returns in order to properly account for inventory and revenue.

Question 11

The multi-step income statement allows readers to easily identify gross profit and profits earned from operating activities.

Accepted Answer

The multi-step income statement breaks down revenue and expenses into categories, allowing for easier identification of gross profit and profits earned from operating activities.

Question 12

Comprehensive income must be reported on a separate statement called the Statement of Comprehensive Income or on the statement of income,immediately below next income.

Accepted Answer

Comprehensive income includes other comprehensive income items such as gains and losses on available-for-sale securities, foreign currency translation adjustments, and adjustments for pension benefits, which are not included in the traditional net income statement. Therefore, it is required to be reported separately on the Statement of Comprehensive Income.

Question 13

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

Accepted Answer

The answer of When following ASPE,part of the revenue recognition...

Question 14

A service warranty is considered to be a separate performance obligation under the contract-based approach for revenue recognition.

Accepted Answer

According to the contract-based approach for revenue recognition (as outlined in ASC 606), each distinct performance obligation must be identified and accounted for separately. A service warranty is often considered to be a distinct performance obligation, and therefore would be accounted for separately from the initial sale of a product or service.

Question 15

Under IFRS,companies offering sales discounts must adjust the original amount of the sales revenue by the expected sales discount.

Accepted Answer

Under IFRS, companies must adjust the original amount of sales revenue by the expected sales discount in order to accurately report the net revenue earned from the transaction. This adjustment is necessary because sales discounts represent a reduction in the original price negotiated between the buyer and seller, and therefore should be reflected in the financial statements.

Question 16

Under the accrual basis,accounting revenues are recognized when they are earned regardless of whether the related cash was received by the company.

Accepted Answer

This is the basic principle of accrual accounting where revenues are recognized when they are earned, not when cash is received. Similarly, expenses are recognized when they are incurred, not when they are paid.

Question 17

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

Accepted Answer

In retail stores, the revenue is typically recognized at the time of sale, when the customer purchases the product or service. This is in accordance with the revenue recognition principle of accrual accounting.

Question 18

The amount of revenue is one of the most significant amounts reported in the financial statements.

Accepted Answer

Revenue represents the total amount of money earned by a company and is a crucial metric for evaluating a company's financial performance. It is typically listed as one of the top line items in a company's income statement, making it one of the most important amounts reported in the financial statements.

Question 19

The choice of presenting expenses based on their nature or function rests with management.

Accepted Answer

The choice of presenting expenses based on their nature or function is a matter of managerial judgment and preference. Therefore, it is true that the decision rests with management.

Question 20

A single-step income statement requires several steps to reach a company's net profit or loss.

Accepted Answer

A single-step income statement only requires one step to reach a company's net profit or loss.

Quiz 4: Revenue Recognition and the Statement of Income