chapter 18

Question 1

asset-liability approach

Answer 1

• account for revenue based on the asset or liability arising from contracts with customers
• are required to analyze contracts with customers

Question 2

contract

Answer 2

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

Question 3

contracts must have

Answer 3

1. commercial substance
2. parties’ approval
3. rights are established
4. payment terms are identified
5. consideration might be collected

Question 4

performance obligation

Answer 4

is a promise to provide a distinct product or service to a customer

Question 5

five-step process for revenue recognition

Answer 5

1. identify the contract with customers
2. identify the separate performance obligations
3. determine the transaction price
4. allocate the transaction price to the separate performance obligations
5. recognize revenue when each performance obligation is satisfied

Question 6

bill and hold arrangement criteria

Answer 6

1. the reason for bill-and-hold arrangement must be substantive
2. product must be separated
3. must be ready for a physical transfer
4. company can’t have the ability to use the product or direct it to another customer