F1: M3-M4 Revenue Recognition

Question 1

What are the general steps for allocating revenue to multiple performance obligations?

Answer 1

1. Identify the Stand-Alone Selling Prices
2. Add them together and find weighted average.
3. Apply percentage to the total bundled agreement.

Question 2

Sell Side: How are repurchase agreements recorded when they are entered into?

Answer 2

The seller records a journal entry for the amount of cash they receive and then a financing liability. This essentially acts as way to obtain capital with interest paid in the higher repurchase price.

Question 3

Name the 5-step approach for revenue recognition.

Answer 3

1. Identify the Contract
   2.Identify Separate Performance obligations
2. Determine Transaction Price
3. Allocation the transaction price to the performance obligations
4. Recognize revenue when or as the entity satifies the performance obligations.

Question 4

Under what circumstances can a firm recognize revenue in a bill-and-hold arrangement?

Answer 4

There has to be a substantive reason for the arrangement. For example, if a customer can’t take delivery because their warehouse is being built. If the product is build to a specific customers needs and can’t be re-used.

Question 5

In a consignment relationship. who maintains the inventory on their books?

Answer 5

The consignor