Revenue Recognition

Question 1

For a contract modification to result in a new separate contract, the additional goods must _______

Answer 1

must be distinct and consideration must reflect appropriate stand alone prices

Question 2

How is revenue recognized Over time

Answer 2

revenue recognized while performance obligation is being satisfied.

Question 3

Step 1 of 5 Revenue Recognition process

Answer 3

**1) Identify contracts with customers:
**
- Collection must be probable, meaning customer has ability and intent to pay most consideration due.

- Contract has commercial substance

- Contract right and payment terms are identifiable

- Parties are committed to perform.

Question 4

A contract may be formal or informal, written or oral, and may have implicit or explicit contract terms. What’s the 5 step revenue recog process

Answer 4

1. Identify the Contract
2. Identify Performance Obligations
3. Determine the Transaction Price
4. Allocate the Transaction Price
5. Recognize Revenue

Question 5

Revenue Recognition: Over Time vs. At a Point in Time

Answer 5

Question 6

How is revenue allocated and recognized when a contract includes a product and a service plan sold at bundled prices?

Answer 6

Question 7

How do sales returns affect financial statements in the same period and prior periods

Answer 7

Question 8

What’s the bundle allocation method

Answer 8

Question 9

What’s the bundle allocation method

Answer 9

First, you take the stand alone prices of the item within a bundle (ie stand alone washer/washer repair) and total them. (ie 900 + 100)

Then you find the % of those standalone item prices within the total of those items combined before the discounted bundle price. (ie 90% and 10%)

Then find the total discount by subtracting the total of standalone prices from the bundle total.
(ie (900+100) - (950) = 50$ discount)

Then find % of discount allocated to each item (ie 50 * 90% = 45 washer and 50 * 10% = 5 repair)

Then subtract those discounts allocations from the items standalones (ie 900 - 45 & 100 - 5) = 855 and 95. These are adjusted stand alone prices

You do the same for all mini bundles. After, that, add all adjusted stand alone prices, find their % of the total adjusted stand alone price, and multiply that by the total new revenue offer to the customer to find each individual item cost.

Question 10

What are the methods for measuring progress on long-term contracts, and what examples match each method?

Answer 10

Question 11

When is revenue recognized under the accrual basis of accounting, and what is irrelevant

Answer 11

Question 12

How is income recognized under the cost-to-cost method

Answer 12

Question 13

What are the principles and formulas of the cost-to-cost method in long-term contracts

Answer 13

Question 14

How is a sale with a right of return recorded

Answer 14

Question 15

What are the criteria for revenue recognition over time vs. point in time

Answer 15

Question 16

What are the criteria for a contract to recognize revenue

Answer 16

Question 17

How is unearned revenue calculated when there is a significant financing component

Answer 17

Question 18

How are profit and LOSS recognized in long-term construction contracts?

Answer 18

Question 19

What is used to calculate profit in the FINAL year of a long-term contract

Answer 19

Question 20

When is revenue recognized for long-term contracts AT A POINT IN TIME

Answer 20

Question 21

What are the journal entries for long-term construction contracts

Answer 21

Question 22

What is the core revenue recognition principle, and why are other related concepts incorrect

Answer 22

Question 23

When is a contract modification treated as a separate contract

Answer 23

Question 24

When is revenue recognized for nonrefundable upfront fees

Answer 24

Question 25

How is the blended price calculated for remaining products in a contract modification when the additional products do not reflect standalone selling prices

Answer 25

Question 26

When is the completed-contract method preferable

Answer 26

When estimates are unreliable or hazards make forecasts doubtful, deferring revenue and expenses until contract completion.

Question 27

What are conditional and unconditional rights in revenue recognition, and how are they presented

Answer 27

Question 28

What method is used to determine the transaction price when variable consideration has more than two possible outcomes

Answer 28

Question 29

How is common stock received for services recorded

Answer 29

Question 30

How should the transaction price in a contract covering equipment, installation, and training be allocated when the buyer lacks the expertise to install the equipment but the training can be purchased elsewhere.

Answer 30

Question 31

How should revenue be recognized when a customer qualifies for a volume discount based on historical experience

Answer 31

Question 32

How are **contract costs** incurred during the year calculated using the percentage-of-completion method

Answer 32

Question 33

Does a contract exist for revenue recognition if it is cancelable without penalty and no work has started on the performance obligations

Answer 33

Question 34

How do you figure out if there’s a current liability or asset under the percentage-of-completion method

Answer 34

Question 35

When can revenue be recognized under a bill-and-hold arrangement

Answer 35

Question 36

How do you calculate gross profit under the **completed-contract method**

Answer 36

Question 37

How do you allocate revenue with discounts in a contract

Answer 37

Question 38

What are the 4 key journal entries in long-term construction contracts?

Answer 38