F1-M3 - Revenue Recognition: Part 1

Question 1

What is the mnemonic for the five step approach to revenue recognition

Answer 1

I STAR

Question 2

What are the five Steps approach to revenue recognition

Answer 2

ISTAR - I( Identify the contract), S (Separate performance obligations), T (Transaction Price), A (Allocate the price to separate obligations), R - Recognize revenue when entity satisfies performance obligation.

Question 3

_______ are agreements between parties that create enforceable rights or obligations. In order for revenue to be recognized,

Answer 3

Contracts

Question 4

a contract must: be approved by ______ , contain _______ for each party and payment terms, have ______ and involve probable likelihood that the entity will collect substantially all consideration owed.

Answer 4

all parties, identifiable rights, commercial substance

Question 5

_______ is a promise to transfer either a good or a service to a customer.

Answer 5

Performance Obligation

Question 6

To be distinct, the promise must be ______ from other goods/services within the contract and the benefit must be available to the _______ or when combined with their own resources.

Answer 6

1) separately identifiable, 2) customer independently

Question 7

______ is the amount of consideration that an entity is entitled to receive in exchange for transferring goods and/or services to a customer

Answer 7

Transaction Price

Question 8

What items should be factored into the transactions price for a contract (4)

Answer 8

1) variable consideration, 2) significant financing, 3) noncash considerations, 4) consideration payable to the customer should be factored into the transaction price.

Question 9

If a contract contains more than one performance obligation, the __________ will need to be allocated to each separate obligation based on the amount of the expected, stand-alone consideration applicable to each unique obligation.

Answer 9

overall transaction price

Question 10

for Allocation of the price; _____, _________, and __________ should all be factored into the allocation process.

Answer 10

Discounts, variable consideration, and transaction price changes

Question 11

______ is recognized when the performance obligation is satisfied through transferring the good/service to the customer (who obtains control).

Answer 11

Revenue

Question 12

What are the two ways satisfaction can occur: (2)

Answer 12

Over time and a point in time.

Question 13

A _______ is booked when the entity has a right to consideration in exchange for goods/services transferred to the customer prior to actual payment.

Answer 13

contract asset

Question 14

A ________ is booked when an entity has the obligation to transfer goods/services when the customer has already paid prior to performance.

Answer 14

contract liability

Question 15

Criteria must be met in order to recognize revenue: (5)

Answer 15

1) approved contract and committed to perform obligation, 2) The rights are identified, 3) payments terms can be identified, 4) Contract has commercial substance - cash flows are expected to change as a result on the contract 5) Probable for collection of consideration under contract

Question 16

(JE) What is the journal entry if the consideration is paid but obligation has not been fulfilled

Answer 16

DR - Cash, CR - Unearned Revenue

Question 17

(JE) What is the journal entry to record the fulfillment of the obligation after you have received cash in previous period.

Answer 17

DR - Unearned Revenue - CR- Revenue

Question 18

When two contracts are entered by the same customer or with related parties of the customer or near the same time. The contract should _________

Answer 18

be combined as a single contract

Question 19

When a contract modification occurs it is either treated as (2)

Answer 19

A new contract or part of an existing contact

Question 20

When a contract modification occurs and the scope increases to the addition of distinct good and services and the price increases it should be treated as __________

Answer 20

A new contract

Question 21

When a contract modification occurs as a part of an existing contract with an adjustment to _______ to reflect the change in the transaction price

Answer 21

Revenue

Question 22

If there is more than one performance obligation within a contract, the transaction price should be allocated to each separate performance obligation based on the __________

Answer 22

The consideration that would be expected for satisfying each unique obligation

Question 23

What are the criteria to recognize revenue over a period of time

Answer 23

1) creates or enhances an asset the customer controls 2) receives and consumers the benefit of the entity’s performance as the entity performs it (subscription) 3) the entity performance does not create an asset with alternative use and has enforceable goths to receive payments.

Question 24

If revenue is not recognized over a period of time, how it it recognized

Answer 24

A point of time

Question 25

(JE) To create a contract Asset

Answer 25

Dr Contract Asset CR - Revenue

Question 26

When a contract requires payment on a date before payment is made

Answer 26

Dr Recevable, Contract Liability (unearned revenue)

Question 27

What does FASB ASC 606 - Revenues from Contractors with Customers exclude (4)

Answer 27

1) Insurance contracts, 2) lease contracts, 3) Financial Instruments, 4) Contracts with non-customers