Question 1

IFRS provides detailed guidance concerning accounting for revenue with respect to multiple-element contracts.

Accepted Answer

The answer of IFRS provides detailed guidance concerning accounting for...

Question 2

Companies recognize revenue only when

Accepted Answer

According to the revenue recognition principle, revenue should only be recognized when control over goods or services has been transferred from the seller to the customer. A contract may exist, but revenue should not be recognized until control has been transferred. Similarly, a performance obligation may be designated in a written contract and a written contract may be in place with variable payment, but revenue should not be recognized until control has been transferred.

Question 3

On June 1^st,Lucy & Bros received an order for 500 cupcakes.Lucy delivered the cupcakes to the client on June 25^th.A $50 deposit was received on June 5^th and the remaining $450 was paid on June 30^th.Lucy likely would recognize revenue on

Accepted Answer

Revenue should be recognized when the goods or services have been delivered and the payment is reasonably assured. In this case, the cupcakes were delivered on June 25th and the remaining $450 was paid on June 30th, so revenue should be recognized on June 25th when the cupcakes were delivered. The deposit received on June 5th is not enough to recognize revenue as it only serves as an assurance of good faith from the client. June 1st is too early to recognize revenue as delivery has not been made yet. June 30th is too late as revenue should be recognized when the goods are delivered, not when full payment is received.

Question 4

The core revenue principle states that

Accepted Answer

The core revenue principle is based on recognizing revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services. This is supported by generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). Option A is close, but it should be noted that payments don't necessarily have to be received for revenue to be recognized. Option C is incorrect because it only addresses one part of the revenue recognition process. Option D is incorrect because the transaction being at arm's length is not a requirement for recognizing revenue.

Question 5

Which of the following is not a characteristic of a distinct good or service?

Accepted Answer

A good or service is distinct if it is both capable of being distinct, as in it can be used on its own or in combination with other goods or services the seller could obtain elsewhere, and it is separately identifiable, as in it is not interrelated with other goods or services in the contract. The good or service having a stand-alone selling price is not part of the definition of a distinct good or service.

Question 6

For a typical manufacturing company,the most common critical point for recognizing revenue is the date:

Accepted Answer

Revenue recognition for a manufacturing company usually occurs when the product is delivered to the customer, as this is when control and ownership of the goods are transferred to the customer. While orders received and production completion are important milestones, revenue cannot be recognized until the customer takes possession of the product. Payment may occur before or after delivery, and is not necessarily related to revenue recognition.

Question 7

Which of the following is not an indicator that revenue can be recognized over time?

Accepted Answer

The other options (A, B, and D) are all indicators that revenue can be recognized over time according to ASC Topic 606, while option C is not. Option C describes a situation where the seller is creating an asset that has an alternative use to the seller and the seller can receive payment for its progress even if the customer cancels the contract. In this scenario, revenue cannot be recognized over time because the seller retains control of the asset and can use it for other purposes if the contract is canceled. Therefore, revenue recognition would be deferred until the customer takes control of the asset.

Question 8

Consider the following three scenarios: I.ABC Lawncare performed lawn maintenance services for Drake Inc.on June 1^st,and received payment of $500 for those services. II.On June 1st,Melly Corp received payment for 100 pounds of raw material to be delivered to Drake Inc.in 6 months III.Lodo,LLC collected cash on June 1st for services rendered on May 1st. Given these scenarios,revenue can not be recognized on June 1^st for

Accepted Answer

Explanation: In scenario II, revenue cannot be recognized on June 1st because the raw materials have not yet been delivered. In scenario III, revenue was already earned in May when the services were rendered, so it cannot be recognized again on June 1st.

Question 9

Which of the following is not an indicator that the customer is likely to have control over a good?

Accepted Answer

The fact that the asset is warehoused by a seller-affiliated third party does not necessarily indicate that the customer has control over the good. Control is determined by a combination of factors such as acceptance, legal title, and physical possession.

Question 10

When accounting for multiple-element arrangements,GAAP indicates that sellers can separately record revenue for part of an arrangement even if the part does not have value to the customer on a stand-alone basis.

Accepted Answer

Under GAAP, revenue for each element in a multiple-element arrangement can only be recognized when it is both separable from other elements (meaning it has standalone value) and if the seller has delivered that element to the customer.

Question 11

Revenue likely is recognized over time for all the following arrangements except for

Accepted Answer

Manufacturing generally stocked items ordered by a favored customer. Revenue for this type of arrangement is typically recognized at a point in time, when the goods are delivered to the customer.

Question 12

On February 1^st,H&B Bank originated a loan for $50,000 at an interest rate of 7.2%.On March 15^th,an interest payment of $300 was received.Which of the following best describes when interest revenue should be recognized?

Accepted Answer

The revenue recognition principle states that revenue should be recognized when it is earned, which is when the company has provided goods or services to the customer. In the case of a loan, interest revenue is earned over time as the borrower pays interest on the outstanding balance. Therefore, option D is the best choice as interest revenue should be recognized over time rather than at a single point in time.

Question 13

Which of the following is one of the steps for recognizing revenue?

Accepted Answer

One of the steps for recognizing revenue is identifying the performance obligations of the contract. This involves determining what goods or services the customer expects to receive and when they expect to receive them. The other answer choices are also involved in revenue recognition in some way, but they are not a specific step in the process.

Question 14

Rothbart Manufacturing agrees to manufacture bumper cars for 12 Banners Amusement Parks.Under the terms of the contract,12 Banners will pay Rothbart a total of $60,000,and 12 Banners can cancel the contract if it so chooses but must pay Rothbart for work completed.Rothbart believes that,if 12 Banners cancelled the contract,Rothbart could sell the bumper cars to another amusement park and still make a profit.The manufacturing contract is expected to last six months,and as of December 31,2016,the job is 80% complete.How much revenue should Rothbart recognize in 2016 for this contract?

Accepted Answer

The answer of Rothbart Manufacturing agrees to manufacture bumper cars...

Question 15

Mary signed up and paid $1200 for a 6 month ceramics course on June 1^st with Choplet Ceramics.As of August 1^st,Choplet's accounting records would indicate:

Accepted Answer

As of August 1st, only two months of the 6 month ceramics course have passed. Therefore, only $400 of revenue can be recognized at this point. The remaining $800 is still considered deferred revenue because Mary has not completed the entire 6 month course, and therefore the service has not been fully rendered.

Question 16

Which of the following is not one of the five steps for recognizing revenue?

Accepted Answer

The five steps for recognizing revenue are:
1. Identify the contract with the customer
2. Identify the performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognize revenue when (or as) each performance obligation is satisfied.

Estimating variable consideration is a part of step 3, determining the transaction price. Therefore, D is the incorrect answer.

Question 17

When accounting for multiple-element software arrangements,the revenue for each element is based on the separate prices stated for each element in the software contract.

Accepted Answer

In multiple-element software arrangements, the revenue for each element is often recognized based on the relative fair value of each element, not necessarily the separate prices stated in the contract, especially when standalone prices are not available or the contract price does not reflect the standalone selling prices.

Question 18

Which one of the following is not one of the five steps for recognizing revenue?

Accepted Answer

The step "Recognize revenue when all the performance obligations have been satisfied" is not accurate. Revenue should be recognized when a performance obligation is satisfied, not when all the obligations are satisfied. The other steps listed are in line with the five-step process for recognizing revenue.

Question 19

On November 1,2016,Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates,with the contract to start immediately.King agreed to pay Taylor $4,800 for the one-year period.Taylor is confident that King will pay that amount,but payment is not scheduled to occur until 2017.Taylor should recognize revenue in 2016 in the amount of

Accepted Answer

The answer of On November 1,2016,Taylor signed a one-year contract...

Question 20

Stayman Associates has sold a good to a buyer and wants to recognize revenue.Which of the following is an indicator that control of a good has passed from Stayman to the buyer?

Accepted Answer

The buyer assuming the risk and rewards of ownership is an indicator that control of the good has passed from Stayman to the buyer, as they are now responsible for any potential losses or gains associated with owning the good. Options A and B do not necessarily indicate that control of the good has passed, as delivery scheduling and credit history do not necessarily affect ownership. Option C actually suggests that control has not yet passed, as the buyer has not yet scheduled delivery.

Quiz 5: Income Measurement