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Becker FAR > M1-F4 - Revenue Recognition: Part 2 > Flashcards

M1-F4 - Revenue Recognition: Part 2 Flashcards

1
Q

______ are costs of obtaining a contract as costs incurred that would not have been incurred if the contract had not been obtained

A

Incremental Cost

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2
Q

Incremental Cost are recognized as ______

A

An Asset

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3
Q

If An entity has cost that would have been incurred regardless of either the contract was obtained, these cost should be

A

Expensed

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4
Q

A _____ controls the good or service before it is transferred to the customer.

A

Principal

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5
Q

Principal entity should recognize revenue equal to the ______ consideration expect to receive

A

Gross amount

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6
Q

The ______ arranges for the other party to provide the good or service tot eh customer

A

Agency

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7
Q

The Agency entity should recognize revenue equal to the __________ (fee or commission for performing the agent function

A

Net Amount

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8
Q

A entity is the agent if : (3)

A

1) not responsible for fulfilling the contract 2) does not have inventory risk, 3) has no discretion in establishing prices for the other party’s goods or services.

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9
Q

A ______ is a contract by which on entity sells an asset and either promise to or has a option to repurchase the asset

A

Repurchase agreement

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10
Q

What are the three forms of repurchase agreements? (3)

A

1) Entity obligation to repurchase the asset - A forward 2) Entity’s right to repurchase the asset (call option) 3) the entity’s obligation to repurchase at the customer request (put option)

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11
Q

A _____ is given an entity’s obligation to repurchase an asset in a repurchase agreement

A

Forward

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12
Q

A _____ gives the entry’ right to repurchase the asset

A

Call option

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13
Q

A _____ the entity obligation to repurchase the asset at the customer request.

A

A put option

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14
Q

On a forward or Call repurchase agreement it would be considered ______ when (Purchase price is less than the selling price)

A

Lease

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15
Q

On a forward or Call repurchase agreement it would be considered ______ when (Purchase price is equal or greater than the selling price)

A

Financing Agreement

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16
Q

On a forward or Call repurchase agreement, if the contract is a financing agreement the entity will recognize ______

A

An Asset and financial liability for any consideration received from he customer and interest expense is the difference between the two.

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17
Q

(JE) Financing Agreement - Repurchase Agreement - What is the journal entry when the repurchase price is equal or greater than the original sells price?

A

Dr Cash CR Financial Liability

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18
Q

(JE) Financing Agreement - Repurchase Agreement - What is the journal entry to record the interest expense when the repurchase price is equal or greater than the original sells price?

A

Dr Interest Expense. CR Financial Liability

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19
Q

(JE) Financing Agreement - Repurchase Agreement - What is the journal entry to record (if the re–purchase lapse) when the repurchase price is equal or greater than the original sells price?

A

DR Financial Liability. CR Revenue

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20
Q

If the entity has an obligation to repurchase the asset at the customer’s request for less than the original sales price, the entity will account for the contract as either (2)

A

1) Lease, 2) Sale with right to return

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21
Q

If the customer has a significant economic incentive to exercise the right since the price to repurchase the asset is less than the original sales price it will be considered

A

A Lease

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22
Q

If the customer does not have a significant economic incentive to exercise the right the nit would be considered as

A

A sale with a right to return

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23
Q

Costs to obtain a contract are treated as assets if the entity expects to recover them; costs are treated as ________ if they are borne regardless of whether the contract is obtained

A

Expenses

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24
Q

In order for contract fulfillment costs to be recognized as an asset, they must __________, ________, and be expected to be _______.

A

1) directly to a contract, 2)generate/enhance the resources of an entity, 3) recovered

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25
Q

As a principal, an entity has control over the good/service prior to transfer, and revenue recognized will equal expected ______ consideration;

A

Gross

26
Q

an agent, an entity does not have control, and revenue equal to a ________ will be recognized.

A

fee/commission

27
Q

Contracts in which an entity sells an asset and promises, or has the option, to later repurchase the asset represent ________

A

repurchase agreements

28
Q

An obligation to repurchase is a forward; a right to repurchase at an entity’s option is a _____ option;

A

call option

29
Q

a right to repurchase at the customer’s option is a ___ option.

A

put option

30
Q

___________ allow revenue to be recognized prior to the customer receiving the product.

A

Bill-and-hold arrangements

31
Q

In order to recognize revenue for Bill and Hold arrangement, there must be (4) criteria.

A

1) substantive reason for holding the product
2) the entity cannot use or redirect the product
3) it must be separately identified
4) ready for transfer to the purchasing customer.

32
Q

A ___________ exists when an entity provides a product to a dealer to be held until it is ultimately sold to a third-party customer

A

Consignment relationship

33
Q

When is revenue recognized under a Consignment Relationship?

A

Revenue is recognized either upon ultimate sale to a customer or after the expiration of a defined period of time.

34
Q

_______ may be treated as separate performance obligations distinct from the product covered in the contract

A

Warranties

35
Q

Separate treatment is likely if the warranty (3)

A

1) not required by law, 2) coverage period is lengthy, 3) specific tasks required regarding compliance assurance.

36
Q

When a customer has a right to return a product, an entity should book:

A

1) Revenue for the amount of consideration it expects to receive; 2) a refund liability; and an 3) asset related to subsequent product recovery.

37
Q

If the entity cannot reasonably estimate returns, it _____________

A

cannot record revenue at the time of the sale and has to wait until the sales cannot be refunded.

38
Q

(JE) what is the journal entry to record a right to return? a product after a sale

A

DR (Total amount received), CR Refund liability (total minus estimated amount to be refunded) - CR Sales Revenue (Difference)

39
Q

(JE) What is the journal entry when an asset related to the subsequent recovery of product when he refund liability is settled - product is returned

A

DR Refund Liability. CR Cash

40
Q

The ___________ method recognizes revenue over the term of the construction project based on estimated profitability and cost estimates following a four-step process.

A

The percentage-of-completion method

41
Q

The __________ method recognizes income on completion of the construction contract.

A

completed contract method

42
Q

Why isn’t the completed contract method used for GAAP or IFRS

A

This method does not match revenues and expenses over the long term.

43
Q

When using the percentage of completion method and completed contract method, how are losses treated?

A

Recognized immediately

44
Q

Under ______, the completed contract method is not permitted.

A

IFRS

45
Q

For IFRS, the The __________ method must be used unless the final outcome of the project cannot be reliably estimated, in which case the cost recovery method is required.

A

percentage-of-completion

46
Q

Under the _________ method, revenue only can be recognized to the extent of costs incurred.

A

cost recovery

47
Q

What is the formula to calculate the GP using Percentage of Completion method?

A

Contract Price - Estimate Total Cost = Gross Profit

48
Q

What are the 4 steps to calculate the Percentage of Completion Method (4)

A

1) Calculate gross profit of completed contract 2) Compute percentage of completion 3) Compute gross profit earned (profit to date) 4) Compute gross profit earned for current year.

49
Q

When a long term construction contract meets criteria for recognizing revenue over time, it is appropriate to use the percentage of completion method if the entity’s accounting system can:

A

1) reasonability estimate profitability and

2) provide a reliable measure of progress towards completion

50
Q

What is the calculation for step 2 of percentage of completion method?

A

Compute % of completion = Total costs to date/ total set costs

51
Q

What is the calculation for step 3 of percentage of completion method?

A

Take step 1 X step 2 = Profit to date

52
Q

What is the calculation for step 4 of percentage of completion method?

A

Profit to date @ CY < Profit to date @ Beg = Current Year Profit

53
Q

(JE) What is the JE to record costs incurred in % of completion?

A

DR Construction in Progress CR Cash/Material

54
Q

(JE) What is the JE to record billings in % of completion?

A

DR A/R. CR Progress Billing

55
Q

(JE) What is the JE to Record payments received in % of completion

A

DR Cash. CR Accounts Recivable

56
Q

(JE) What is the JE to record estimated gross profit during construction?

A

DR Cost of long-term construction contracts DR. Construction in progress. CR Revenue from LT Construction Contract

57
Q

When CIP > greater than Progress Billing, the presentation on the balance sheet is

A

Current Asset (Cost of uncompleted contracts in excess of progress billings)

58
Q

When CIP < less than Progress Billing, the presentation on the balance sheet is

A

Current Liability (progress of billings on uncompleted contracts in excess of costs)

59
Q

% of Completion - CIP includes

A

1) Costs, 2) and estimated gross profit earned to date

60
Q

(JE) What is the JE to close construction accounts at end of contract?

A

DR - Progress Billings CR - Construction in Progress

61
Q

What is the journal entry to close billings to revenue for Completed Contract

A

DR - Progress billings CR - Revenue

62
Q

What is the journal entry to close billings to expense for Completed Contract

A

DR Cost of LT Construction contract CR - Construction in progress

Becker FAR (72 decks)

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