Chapter 3 Test Flashcards
1
Q
Quality Assurance Warranty
A
- Part of performance obligation to deliver products of acceptable quality
- Not a separate Performance Obligation
2
Q
Extended Warranty
A
- Separate Performance Obligation
- Option to purchase separately
- Provides a service beyond quality assurance
- Example – Car Warranty
3
Q
Principal - Performance Obligation
A
- To provide goods and services - Vulnerable to risks associated wit holding inventory
4
Q
Principal - Recording Revenue
A
- Total sales price paid by customer
- Also recognizes cost of goods sold
5
Q
Agent - Performance Obligation
A
- To facilitate a transaction between a principal and a customer.
6
Q
Agent - Recording Revenue
A
- Only the commission it receives on the transaction
7
Q
Revenue Recognition – Bill-and-Hold Sale
A
- Revenue recognized when the delivery to the customer occurs, not when the customer purchase the goods.
8
Q
Revenue Recognition – Licenses
A
- Point in Time if the buyer isn’t dependant on seller for use and updates (Music Download)
- Over the License Period if the buyer is dependent on the seller for use and updates (virus protection software, brand names)
9
Q
Revenue Recognition - Franchises
A
Both Point in Time and Over Time recognition - Point in Time for initial set up costs, over time for franchise license and sales
10
Q
Consignment Arrangements
A
- Consignor transfers goods to consignee, but retains legal title. Once the item is sold, the consignee gets a cut.
11
Q
Revenue Recognition - Consignment Arrangements
A
- Recognize Revenue once the item is sold to a third party.
12
Q
Revenue Recognition - Gift Cards
A
- When a Gift Card is redeemed or the likelihood of redemption is viewed as remote
13
Q
Variable Consideration
A
- Portion of a transaction price depends on the outcome of future events (Construction - Incentive payments ; Entertainment - Royalties ; Manufacturing - Volume Discounts/Product Returns)
14
Q
Variable Consideration - Expected Value
A
- Use probabilities to determine the Expected Value.
- 75% chance you get paid 100,000 - 75K Value
- 25% chance you get paid 80,000 - 20K Value
- Expected Value is the Sum, 95K
15
Q
Variable consideration - Most Likely Amount
A
- Choose which option you think is most likely to occur and record that.
- Make adjusting entries if it doesn’t happen