Chapter 17

Question 1

most revenue transactions pose few problems for revenue recognition because often the transaction is initiated and completed at the same time (t/f)

Answer 1

true

Question 2

the standard, Revenue from contracts with customers

Answer 2

adopts an asset-liability approach for revenue recognition

Question 3

a contract is an agreement between two parties that creates enforceable rights or obligations (t/f)

Answer 3

true

Question 4

the seller of a good or service should recognize revenue when

Answer 4

each performance obligation is satisfied

Question 5

one criterion that indicates that a company should disregard revenue guidance for contracts is when

Answer 5

each party can unilaterally terminate the contract without compensation

Question 6

type of revenue or gain is generally recognized with the passage of time

Answer 6

long-term construction contracts

Question 7

a performance obligation may be based on a customary business practice (t/f)

Answer 7

true

Question 8

in determining the transaction price the company must consider

Answer 8

variable consideration, non cash consideration, time value of money and consideration payable

Question 9

the method of measuring the fair value of a performance obligation is dependent on the standalone selling prices of other goods or services promised in the contract

Answer 9

residual approach

Question 10

an indication that the customer has not taken control of the good or service is

Answer 10

the customer has no significant risks or rewards of ownership

Question 11

companies recognize revenue over a period of time if (1) the customer controls the asset as it is created or (2) the company does not have an alternative use for the asset with the following conditions (a) the customer receives benefits as the company performs and (b) the company has a right to payment (t/f)

Answer 11

true

Question 12

in a bill and hold arrangement this is not one of the criteria which must be met for the customer to have obtained control of the product

Answer 12

the product must be physically located in the sellers warehouse

Question 13

in a bill and hold arrangement these are criteria which must be met for the customer to have obtained control of the product

Answer 13

the reason for the arrangement must be substantive
the product currently must be ready for physical transfer to the customer
the seller cannot have the ability to use the product or to direct it to another customer

Question 14

in a principal-agent relationship the agent should use the gross method to recognize revenue (t/f)

Answer 14

false

Question 15

in a consignment sale the consignee

Answer 15

records a payable when consigned merchandise is sold

Question 16

a nonrefundable upfront fee is generally recorded as revenue when recieved (t/f)

Answer 16

false

Question 17

conditional rights should be reported separately on the balance sheet as contract liabilities (t/f)

Answer 17

false

Question 18

companies expense incremental costs of these costs are incurred to obtain a contract with a customer (t/f)

Answer 18

false

Question 19

when using the percentage of completion method the company

Answer 19

recognized revenues and gross profit each period during the contract

Question 20

a popular input measure used to determine progress toward completion is the cost-to-cost basis (t/f)

Answer 20

true

Question 21

billing on construction in process account is reported

Answer 21

in either the current asset or current liability section

Question 22

under the percentage of completion method, how should the balances of billings on construction in process and construction in process be reported prior to the completion of a long-term contract

Answer 22

net, as a current asset if a debit balance and as a current liability if a credit balance

Question 23

under the cost-recovery method a contract loss would

Answer 23

be reported separately as a liability

Question 24

the principal advantage of the cost recovery method is that reported revenue reflects estimates rather than waiting for final results (t/f)

Answer 24

false

Question 25

a loss in the current period on a contract expected to be profitable upon completion in a later year is

Answer 25

recognized only under the percentage of completion method

Question 26

franchise companies derive their revenue primarily from the sale of initial franchises (t/f)

Answer 26

false

Question 27

in situations where the franchisor provides access to the rights rather than transferring control of the franchise rights the franchise rights revenue is recognized over a period of time rather than at a point in time (t/f)

Answer 27

true

Question 28

to address inconsistencies and weaknesses in revenue recognition a comprehensive revenue standard was developed entitled

Answer 28

revenue from contracts with customer

Question 29

the second step in the process from revenue recognition is to

Answer 29

identify the separate performance obligations in the contract

Question 30

the forth step in the process for revenue recognition is to

Answer 30

allocate the transaction price to the separate performance obligations

Question 31

a contract

Answer 31

is an agreement that creates enforceable rights and obligations

Question 32

a contract between Boeing and Delta in which Boeing supplies planes to Delta

Answer 32

is an agreement that creates enforceable rights and obligations for both parties

Question 33

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

Answer 33

goods or services are distinct and the company has the right to receive the standalone price

Question 34

when dealing with contract modifications, one condition necessary for a separate performance obligation to exist is when

Answer 34

a company provides a distinct product or service

Question 35

the transaction price

Answer 35

is the amount of consideration that a company expects to receive from a customer

Question 36

if a contract involves a significant financing component

Answer 36

the time value of money is used to determine the fair value of the transaction

Question 37

consideration paid or payable to customers

Answer 37

reduces the consideration received and the revenue to be recognized

Question 38

when a customer is able to benefit from a good or service on its own or together with other readily available resources the good or service

Answer 38

is distinct

Question 39

a company has satisfied its performance obligation when the

Answer 39

company has transferred physical possession of the asset

Question 40

the most popular input measure used to determine the progress toward completion is

Answer 40

cost to cost basis

Question 41

the cost to cost basis measures progress towards completion by

Answer 41

comparing costs incurred to date with total costs to complete the contract

Question 42

when sales are made with a right of return the company

Answer 42

records the returned asset in a separate inventory account

Question 43

the role of the agent in a principal-agent relationship is to

Answer 43

arrange for the principal to provide goods or services to a customer

Question 44

the use of the net method of recognizing revenue by an agent

Answer 44

is the correct method in a principal agent relationship

Question 45

consignments are a specialized marketing method whereby the

Answer 45

consignee takes possession of merchandise but the title remains with the manufacturer

Question 46

consigned goods are recognized as revenues by the

Answer 46

consignor when it receives notification and payment from consignee

Question 47

nonrefundable upfront fees

Answer 47

should not be recorded as revenue at the time of payment if they are for future delivery of products and services

Question 48

unconditional rights to receive consideration because a performance obligation has been satisfied are

Answer 48

reported as a receivable on the balance sheet

Question 49

partial satisfaction of multiple performance obligations is reported on the balance sheet as

Answer 49

a contract asset

Question 50

disclosure related to revenue

Answer 50

requires disclosure of remaining performance obligations

Question 51

the percentage of completion method

Answer 51

recognizes revenue and gross profit each period based upon progress

Question 52

in selecting an accounting method for a newly contracted long term construction project the principal factor to be considered should be

Answer 52

the degree to which a reliable estimate of the costs to complete and the extent of progress toward completion is practicable

Question 53

in accounting for long term construction type contract using the percentage of completion method the gross profit recognized during the first year would be the estimated total gross profit from the contract multiplied by the percentage of the costs incurred during the year to the

Answer 53

total estimated costs

Question 54

the billings on construction in process account is an

Answer 54

contra inventory account

Question 55

the principal advantage of the cost recovery method is that

Answer 55

reported revenue is based on final rather than estimates of unperformed work

Question 56

under the cost recovery method

Answer 56

revenue, cost, and gross profit are recognized at the time the contract is completed

Question 57

cost estimates at the end of the second year indicate that a loss with result upon the completion of the entire contract

Answer 57

under the cost recovery method when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability

Question 58

sources of revenue for franchise companies are

Answer 58

sale of the franchise and continuing fees

Question 59

revenue for ongoing sales-based royalty payments should be recognized when

Answer 59

the amount of sales revenue can be determined

Question 60

types of franchising arrangements include all of the following

Answer 60

manufacturer wholesaler wholesaler retailers service sponsor retailer

Question 61

franchise companies derive their revenues from the

Answer 61

initial sales of franchises and related services and from continuing fees based on the franchise operation

Question 62

the category of franchising that has given rise to accounting challenges is

Answer 62

service sponsor retailer