F2

Question 1

How do you report a change in estimate?

Answer 1

You report it going forward in the current and future periods — you do not go back and fix past financial statements.

Question 2

List the steps associated with the 5-step approach to revenue recognition.

Answer 2

1. Identify the contract with the customer.
2. Identify the separate performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the separate performance obligations.
5. Recognize revenue when or as the entity satisfies each performance
   obligation.

Question 3

What criteria must be met in order to recognize revenue on a contract?

Answer 3

• All the parties have approved the contract & are committed to performing their
  obligations.
• The rights of each party are identified.
• Payment terms can be identified.
• Future cash flows are expected to change as a result of the contract.
• It is probable that the entity will collect substantially all of the consideration.

Question 4

What criteria must be met in order for a performance obligation to be considered
distinct?

Answer 4

• The promise to transfer the good/service is separately identifiable from other
  goods or services in the contract.
• The customer can benefit from the good/service independently or when
  combined with the customer’s own available resources.

Question 5

Define the transaction price when recognizing revenue.

Answer 5

The transaction price is the amount of consideration an entity expects to receive in
exchange for transferring goods/services to a customer.

Question 6

What factors should be accounted for when determining
the transaction price?

Answer 6

The price should take into account (if applicable):
- Variable consideration
- Significant financing
- Noncash considerations
- Consideration payable to the customer

Question 7

Describe how allocation works when a contract contains more than one performance
obligation.

Answer 7

For contracts with more than one performance obligation, the overall contract
transaction price should be allocated among each obligation based on the stand-alone selling price expected for satisfying each unique obligation (along with applying any discounts and/or variable consideration).

Question 8

Describe how revenue recognition differs when performance is satisfied over time
versus at a point in time.

Answer 8

Revenue is recognized based on measuring progress toward completion using either
output or input methods when the performance obligation is satisfied over time.
In order to recognize revenue when performance is satisfied at a point in time, the
customer must obtain control of the asset.

Question 9

For long-term construction-type contracts, when are losses recognized?

Answer 9

Immediately when discovered, regardless of the method used for revenue recognition.

Question 10

State the formula for recognizing the gain/loss on long-term construction-type
contracts over time.

Answer 10

(Total cost to date / Total Est. Cost of Contract) × Total Est. GP - GP recognized to date

Question 11

Distinguish between the treatment of costs incurred in obtaining a contract as assets
or as expenses.

Answer 11

If an entity expects to recover these costs through the performance of the contract,
the entity will treat them as assets.

If the costs are incurred regardless of whether the contract is obtained, they are treated as expenses.

Question 12

How do control and revenue recognition differ when an entity acts as a principal
versus when it acts as an agent?

Answer 12

A principal has control over the good/service prior to transfer, and revenue equal to
expected gross consideration will be recognized.

An agent does not have control, and revenue equal to the agent’s fee/commission will
be recognized.

Question 13

Describe the accounting treatment for forwards and call options related to repurchase agreements.

Answer 13

Forward or Call Option
- Repurchase price < Original price (lease)
- Repurchase price ≥ Original selling price (financing arrangement)