CH 6

Question 1

Revenues

Answer 1

inflows or other enhancements of assets of an entity or settlements of its liabilities ( or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entities ongoing major or central operations

Question 2

Measuring and reporting revenue is a

Answer 2

critical aspect of financial reporting

Question 3

It is important to not only

Answer 3

determine how much revenue to recognize (record), but also when to recognize it

Question 4

Five steps to revenue recognition

Answer 4

1. Identify the contract
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognize revenue when (or as) each performance obligation is satisfied

Question 5

Single (3,4,5)

Answer 5

3. Amount seller is entitled to receive from customer
4. No allocation required
5. At a point in time, over a period of time

Question 6

Multiple (3,4,5)

Answer 6

3. Amount seller is entitled to receive from a customer
4. Allocate a portion to each performance obligation
5. At whatever time is appropriate for each performance obligation

Question 7

a customer is more likely to control a good or service if the customer has

Answer 7

1. an obligation to pay the seller
2. legal title to the asset
3. physical possession of the asset
4. assumed the risks and rewards of ownership
5. accepted the risk

Question 8

Recognizing revenue at a single point in time

Answer 8

Indicators are used to determine when control has transferred from the seller to the customer

Question 9

recognizing revenue over a period of time

Answer 9

Revenue is recognized over a period of time if any of the following criteria is met

Question 10

over time criteria

Answer 10

1. The customer consumes the benefit of the sellers work as it is performed ( cleaning service)
2. The customer controls the asset as it is created (constructing a building extension)
3. The seller is creating an asset that has not alternative use to the seller and the seller has the legal right to receive payment for progresses to date (an order of jets customized for the U.S. air force)

Question 11

Revenue is recognized in

Answer 11

proportion to the amount of performance obligation that has been satisfied

Question 12

Recognizing revenue when the three criteria do not apply

Answer 12

Recognize revenue at the point in time when the performance obligation has been completely satisfied
Usually occurs at the end of the contract

Question 13

Determining progress toward completion

Answer 13

To recognize revenue over time, a seller needs to estimate progress towards completion
output and input based est.

Question 14

Output-based est.

Answer 14

measured as the proportion of the goods or services transferred to date

Question 15

Input-based date est.

Answer 15

measured as the proportion of effort expanded thus far relative to the total effort expected to satisfy the performance obligation

Question 16

Recognizing revenue for contracts that have multiple performance obligations

Answer 16

steps 2 and 4 come into play

Question 17

Step 2

Answer 17

Sellers account for a promise to provide a good or service as a performance obligation if the good or service is distinct from other goods or services in the contract

Question 18

a good or service is distinct if

Answer 18

both
capable of being distinct
separately identifiable from other goods or services in the contract