F2-M1 Revenue Recognition

Question 1

When to recognize revenue at point in time method

Answer 1

Revenue to be recognized upon completion of contract, only losses to be recognized immediately irrespective of method

Question 2

When service contract are sold , how to Account for service revenue

Answer 2

When service contracts are sold Deferred revenue increases but service revenue only increses when service are performed.

Question 3

When calculating construction profit of current period, what is needs to be take in to consideration

Answer 3

First you need to deduct cost till date from contract price
then you have to figure total cost from the problem
then it will arrive for gross profit
then very important to find percentage completion of work by taking into consideration (cost to date/ total cost of construction.
then percentage complete multiply by gross profit will give profit for current period

Question 4

what is the effect on treasury stock on debt to capital ratio?

Answer 4

when we repurchase share total stock holders equity reduce and total debt remain same so debt to equity ratio increases

Question 5

how to share dividend when there is participating cumulative preferred stock?

Answer 5

preferred stock splits dividend distribution with common share holder only after the common share holder have received percentage dividend equal to preferred shareholder. The remaining dividend is shared in relation to relative capitalization.

Question 6

footnote disclosure

Answer 6

footnote disclosures should include information on changes in stockholders’ equity as well as any other information about significant asset and/or liability accounts.

Question 7

how does advances affect accrual

Answer 7

“Advances” affect cash flow but do not affect accrual basis expense,

Question 8

how to allocated proceed from issuance of stocks and bonds?

Answer 8

it should be based on “issue proceeds” on relative fair market value. so you have to find out total proceed received and allocate that proceed based on relative fair market value of security.

Question 9

does stock split affects treasury stocks?

Answer 9

yes , whatever the stock splits declared it also affects treasury stocks numbers.

Question 10

what is the effect of stock dividend on stock holders equity and retained earnings?

Answer 10

a stock dividend less than 20-25% transfer fmv of stock dividend at declaration date from retained earning to capital stock and paid in capital.

Question 11

how does treasury resale affects the number of shares outstanding?

Answer 11

it increases the number of outstanding shares