ACC 300 Chapter 18

Question 1

The five step process

Answer 1

Identify the contract with customers, identify the separate performance obligations in the contract, determine the transaction price, allocate the transaction price to performance obligations, recognize revenue when each performance obligation is satisfied

Question 2

Identify contract with customers

Answer 2

When entering a contract the company is getting rights to recieve an asset from customer and assumes obligations to give goods or services to the customer

Question 3

Identifying performance obligations

Answer 3

Promising a good or service to a customer. May have separate ones if a good or service is separately identifiable from others in the contract

Question 4

Determine transaction price

Answer 4

The amount the company will get from a customer from providing a good or service. Have to consider discounts, bonuses, time value of money and others

Question 5

Allocate transaction price to performance obligations

Answer 5

When there is more than one performance obligation the price is split up between them based on the fair value.

Question 6

Recognizing revenue when each performance obligation is satisfied

Answer 6

Satisfies the performance obligation when the control switches to the customer. Can happen over a period of time

Question 7

New standard will be an improvement by

Answer 7

More robust framework, improving comparability, simplifying by reducing number of requirment

Question 8

Valid contract exists when

Answer 8

Conract has commerical substance, parties have approved the contract, identifies rights of the parties, payment is identified, probable collectibility

Question 9

Variable cosideration

Answer 9

Includes future events as price consessions, volume discounts, rebates, credits, performance bonuses

Question 10

Expected value

Answer 10

Probability weighted amount in a range of probable consideration outcomes

Question 11

Most likely amount

Answer 11

The single most likely outcome

Question 12

Only recognize varible consideration when

Answer 12

Experience with similar contracts, based on experience they dont expected a reversal of revenue

Question 13

Indicators of control include

Answer 13

Company has right to payment, company transfered legal title to the asset, company transfer physical possession, customer has risk and ownership, customer accepted asset

Question 14

Contract asset reported as AR

Answer 14

Unconditonal rights to consideration because performance obligation has been satisfied

Question 15

Contract asset reported as a contract asset

Answer 15

Conditional rights to consideration because one performance obligation has been satisfied but others must be met before billing can occur

Question 16

Percentage of completion method

Answer 16

Used when a company can reasonablu estimate its progress satisfaction of the performance obligation

Question 17

Cost to cost basis

Answer 17

Cost incurred to date/current estimate of total cost

Question 18

Billings on construction in process is deducted

Answer 18

From the construction account

Question 19

Billing on construction current asset

Answer 19

Net amount is a debit

Question 20

Billings on construction current liability

Answer 20

Net amount is a credit

Question 21

Completed contract method

Answer 21

Revenue and gross profit are recognized when the contract is competed

Question 22

Losses on long term contracg

Answer 22

Have to be recognized immediatly and through the CIP account