Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ACCT 301 > Ch 18 > Flashcards

Ch 18 Flashcards

1
Q

FASB and IASB indicated that reporting for revenue

A

Was unsatisfactory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

IASB and FASB issued a diverged standard on revenue recognition called

A

Revenue from contracts with customers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Boards believe new standard will improve GAAP and IFRS BY

A

Providing a more robust framework for addressing revenue recognition issues

Improving comparability of revenue recognition practices across entities, industries, jurisdiction, and capital markets

Simplifying prepapartion of financial statements by reducing # of requirements to which companies must refer

Required enhanced disclosures to help financial statement users better understand amount, timing and uncertainty of revenue that is recognized

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Asset liability approach is the basis for

A

Revenue recognition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Asset liability approach recognized and measures revenue based

A

On changes in assets and liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Board decided that focusing on

A

Recognition and measurement of assets and liabilities

And changes in assets or liabilities over life of contract brings more discipline to measurement of revenue COMPARED TO EARNED AND REALIZED STANDARDS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

The process of key concept of revenue recognition is the REVENUE RECOGNITION PRINCIPLE which

A

States that revenue is recognized when performance obligation is satisfied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Contract

A

Is an agreement between two or more parties that creates enforceable rights or obligations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Contract Can be?

A

Written, oral or implied from customary business practice

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

When is revenue recognized only?

A

When a valid contract exists

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

On entering contract with customer, a company obtains rights to

A

Receive consideration from customer and assumes obligations to transfer goods and services to customer (performance obligation)

The combination of those rights and performance obligation give rise to an net asset or net liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

The contract must meet 5 conditions:

Company applies revenue guidance to contract according to following criteria

A
  1. Contract must have commercial substance
  2. Parties approve contract
  3. Identification of rights of parties established
  4. Payment terms are identified
  5. It is probable that consideration will be collected
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

A key feature of revenue arrangement is that the contract between two parties is not recorded until when?

A

Until one or both of parties perform under contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Until performance occurs

A

No net asset or net liability occurs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Performance obligation

A

Is the promises to provide a product or service to the customer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

To determine whether a performance obligation exists, the company must provide what?

A

A distinct product or service to the customer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

When is a product or service distinct?

&I when does this typically occur?

A

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

This typically occurs when a company can sell a good or service on a standalone basis (sold separately)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

To determine whether a company has to account for multiple performance obligations is

A

The company promise to sell good or service to customer must be separately identifiable from other promises within contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the objective of separating performance obligations

A

Is to determine whether the nature of company’s promise is to transfer individual goods and services to customer or to transfer a combined item or items for which individual goods or services are inputs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

When the service is distinct and not interdependent

A

Can be sold separately as two performance obligations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

When a service is distinct but interdependent then it should be accounted for

A

As one performance obligations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Transaction price is

A

Amount of consideration a company expects to receive from a customer in exchange for transferring goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Why is the transaction price contract often easily determined?

A

Because the customer agreed to pay a fixed amount to company over short period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

In other contracts companies must consider the following factors

A

Variable consideration

TVM

No cash consideration

Consideration paid or payable to customer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

In variable consideration, the price of good or service is dependent on what?

A

Future events

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

The future events may include?

A

Price increases, volume discounts, rebates, performance bonuses or royalties

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Company estimates the amount of consideration it will receive from contract because?

A

It will determine the amount of revenue to recognize

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What do companies use to estimate variable consideration?

Pg. 988

A

Expected value
- probability weighted amount in range of possible consideration amounts

OR

Most likely amount: the single most likely amount in a range of possible consideration outcomes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

A company only allocates variable consideration of it is

A

Reasonably assured that it will be entered to that amount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Companies therefore may only recognize variable consideration if

A
  1. They have experience with similar contracts and are able to estimate cumulative amount of revenue
  2. Based on experience highly probable there will not be significant reversal of revenue previously recognized
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What happens when the two criteria of recognizing variable consideration is not met?

A

Revenue recognition is constrained

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Companies account for time value of money if involved

A

Significant financing component

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

When sales transaction involves significant financing component ( interest is accrued on consideration to be paid over time) the fair value is determined by?

A

Measuring consideration received or by discounting the payment using an imputed interest rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Imputed interest rate is can be more determined when

A

Prevailing rate for similar instrustment of issuer with similar credit rating

Rate of interest that discounts minimal amount of instrument to current sale price of good or services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Companies do not have to reflect time value of money to determine transaction price if the time period payment is less than

A

Year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Companies sometimes receive what? In the form of goods services or other non cash consideration

A

Considerations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Companies generally recognize revenue on basis of what?

A

FV of what is recieved

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

A contribution is often a type of?

A

Asset
(Securities, land buildings or use of facilities)

But if could be the forgiveness of debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Customers sometimes contribute goods and services such as

A

Equipment or labor as consideration for goods provided or services performed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

The previous consideration should be recognized as

A

Revenue based on fair value of consideration recieved

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Consideration paid or payable to customers include

A

Discounts , rebates , coupons, free products or services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Discount volume rebates coupons free products or services reduce what?

A

Consideration recieved and revenue recognized

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

In many cases companies provide cash discounts to customers for

A

A short period of time

44
Q

In most cases companies record the revenue at

And sales discount if

A

Full price

If payment is made within discount period

45
Q

Companies often have to allocate transaction price to

A

More than one performance obligation in contract

46
Q

If the allocation is needed, transaction price allocated to performance obligations is based on

A

Relative fair values

47
Q

The best measure of fair value is when a company

A

Could sell the good service for a standalone basis referred as standalone selling price

48
Q

If info not available impatiens should use

A

Best estimate of what good or service might sell for a sandalone unit

49
Q

A company satisfies its performance obligation when

A

A customer obtains control of good or service

50
Q

The concept control is a deciding factor in determining?

A

When a performance obligation is satisfied

51
Q

The customer controls product or service when

A

It has the ability to direct use of and obtain substantially all the remaining benefits from asset or service

52
Q

Control also includes customers ability to

A

Prevent other companies from directing the use of or receiving benefits from asset or service

53
Q

What are the change in control indicatiors?

A
  1. Company has the right to payment for asset
  2. The company has transferred legal title to asset
  3. Company has transferred physical possession of asset
  4. Customer has significant risks and rewards of ownership
  5. Customer has accepted asset
54
Q

The change in control indicators are list of indicators not

A

Requirement or criteria

55
Q

All of the indicators need to be met for management to conclude control has been transferred

A

FALSE!!!

All indicators do not need to be met

56
Q

Companies recognize revenue if one of the following 3 criteria are met

A

Customer recieved and consumes benefits

The customer control asset as it created

Company does not have alternative use for asset created or enhanced

57
Q

A company recognized revenue from performance obligation over time by measuring

A

Progress toward completion

58
Q

Method for measuring progress should depict what?

A

The transfer of control from company to customer

59
Q

For many service arrangements revenue is recognized on

A

Straight line basis BBC performance obligation is being satisfied over contract period

60
Q

What methods do companies use to determine extent of progress toward completion?

A

Cost to cost and units of delivery methods

61
Q

What r the objectives of methods

A

To measure extent of progress in terms of costs units or value added

62
Q

Input measures

A

Cost incurred and labor hours worked

63
Q

Output measures

A

Units of delivery measured as tons produced, floors of building completed

64
Q

The most popular input measure used to determine progress toward completeioj is

A

Cost to cost basis

65
Q

What are the accounting for revenue recognition issues?

A 
Sales and returns and allowances
Repurchase agreements
Bill and hold
Principal agent relationships
Consignments
Warranties
No refundable upfront fees
66
Q

Sales returns and allowances

A

Customers granted right to return product for various reasons (dissatisfaction of product)

67
Q

Customers granted right to return product and receive any combination of the following

A
  1. Full or partial refund of any consideration paid
  2. Credit can be applied against amounts Owed or that will be owed
  3. Another product in exchange
68
Q

Repurchase agreements

A

Allows them to transfer an asset to a customer but have unconditional (forward) obligation or unconditional right (call option) to repurchase asset at a later date

69
Q

If the company has forward obligation or call option to repurchase asset for an amount greater than or equal to selling price, the transaction is what type of transaction by company?

A

Financing

70
Q

Bill and hold arrangements

A

Contract under which an entity bills a customer for a product but the entity still retains physical possession of product until it is transferred to customer at a point in time in future

71
Q

Bill and hold sales results when the buyer is

A

Not ready to take delivery but does take title and accepts billing

72
Q

Principal agent relationships

A

Principals performance obligation is to provide goods or perform services for a customer

73
Q

Examples include

A

Travel company facilitates booking of cruise excursions by finding customers

Priceline agent facilitates the sale of various services such as car rentals

74
Q

Amounts that are collected on behalf of principle are not

A

Revenue of agent

75
Q

Revenue of agent is the amount

A

Of commission it receives

76
Q

Consignments

A

Manufacturers or wholesales deliver goods but retain title to goods until sold

77
Q

Specialized method of marketing certain types of products makes use of agreement known as

A

Consignment

78
Q

Consignor is

A

Manufacturer or wholesaler

79
Q

Consignee is the

A

Dealer who is to act as an agent for consignor in selling merchandise

80
Q

Consignor recognizes revenue only

A

After receiving notification of sale

81
Q

Consignor makes a profit on

A

Sale

Carries merch as inventory

82
Q

Consignor makes commission on

A

Sale

83
Q

Consignee does not record merchandise as an

A

Asset, upon sale of merch , consignee has liability for net amount due to consignor

84
Q

Consignor periodically receives from consignee a report called

A

Account sales that shows merchandise received, sold and expenses chargeable to consignment and cash remitted

85
Q

Consignees only recognize

A

Commission revenue

86
Q

What are the two types of warranties?

A
  1. Warranties that product meets agreed upon specifications in contract at time product is sold
    •assurance type warranty (included in sales
    price)
  2. Warranties that provide additional service beyond assurance type warranty
    •service type warranty (not included in sales
    price)
    • recorded as separate performance
    obligation
87
Q

Companies sometimes receive payments (upfront fees) from customers before

A

They deliver product or perform good or service

88
Q

Upfront fees generally relate to what?

A

Initiation, activation or set up of good or service to be provided or performed in the future

89
Q

In most cases upfront payments are not

Examples include

A

Refundable

Examples include membership in health club or buying club, activation fees for phone

90
Q

In most situations these payments are for future delivery of products and services and therefore should not be

A

Recorded as revenue at the time of payment

91
Q

Companies use what to recognize revenue

A

Asset liability approach

92
Q

Contract assets are two types

A
  1. Unconditional rights to receive consideration bc the company has satisfied its performance obligation with customer
  2. Conditional rights to receive consideration because company satisfied one performance obligation but must satisfy another performance obligation in contract before it can bill customer
93
Q

Companies should report unconditional rights to receive

A

Consideration as a receivable on the balance sheet

94
Q

Conditional rights on balance sheet should be reported separately as

A

Contract assets

95
Q

Contact liability

A

Company obligation to transfer goods or services to customer for which company has recieved consideration from customer

96
Q

Contract liability is referred as

A

Unearned sales revenue , unearned service revenue etc

97
Q

Contract modification

A

Companies sometimes change contract terms while it is onfoing

98
Q

When a contract modification occurs companies determine

A

Whether a new contract results or whether it’s a modification of existing contract

99
Q

Separate performance obligation

A company accounts for contract modification as a new contract if both of the following conditions are satisfied

A

Promised goods or services are distinct (sold separately and not interdependent)

Company has right to receive amount of consideration that reflects standalone selling price of goods or services

100
Q

Prospective modification

Company should

A

Account for effect of change in period of change as well as future periods of change affects both

Not change previously reported results

101
Q

Costs to fulfill contact

Companies divide fulfillment costs in two categories

A
  1. Those that give rise to an asset

2. Those that are expense as incurred

102
Q

Companies only capitalize costs that are

A

Direct incremental and recoverable

103
Q

Collectibility

A

Refers to customers credit risk, risk that a customer will be unable to pay the amount of consideration in accordance with contract

104
Q

Under revenue guidance- as long as contract exists the amount recognized as revenue is not

A

Adjusted for customer credit risk

105
Q

Whether a company gets paid for satisfying performance obligation is not

A

Consideration in determine revenue recognition.

106
Q

Disclosure requirements for revenue recognition are designed to help financial statement users understand

A

Nature, amount timing and uncertainties of revenue

107
Q

Companies disclose qualitative and quantitiative info about the following

A

Contract with customers
Disaggregatjon of revenue
Presentation of open and close balances in contract assets and liabilities

Significant judgments
Determine transaction price,allocation of transaction price and determine time of revenue

Assets recognize from costs incurred to fulfill contract
Close balance of asset recognized to obtain or fulfill contract , amount of amortization recognition

ACCT 301 (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions