F1M4

Question 1

Incremental Costs

Answer 1

costs that would not have been incurred if the contract had not been obtained

Question 2

incremental costs are recognized as

Answer 2

an asset

Question 3

costs that are capitalized in a contract

Answer 3

DM, DL, MOH

Question 4

Costs to be expensed in a contract

Answer 4

selling and g&a costs

Question 5

principle

Answer 5

i.e. Delta Airlines

revenue recognized is equal to gross

Question 6

agent

Answer 6

i.e. Hotwire.com

revenue recognized as net

Question 7

indicators of principle

Answer 7

1. Primarily responsible for fulfilling contract
2. entity have inventory risk
3. Entity have discretion in establishing prices for other party’s goods/services

Question 8

Repurchase Agreement

Answer 8

entity sells an asset and either promises to or has the option to buy it back

Question 9

forward

Answer 9

Entity obligation to buy back asset

Question 10

call

Answer 10

entity right to repurchase asset

Question 11

forward/call repurchasing option

Answer 11

less than selling price: lease

More than selling price: financing arrangement

Question 12

Put

Answer 12

an entity’s obligation to repurchase an asset at the customer’s request

Question 13

Put (less than selling price) repurchasing option

Answer 13

1. lease (significant economic impact)

2. sale with right of return (not significant economic impact)

Question 14

Put option (more than selling price) repurchasing option

Answer 14

1. Financing arrangment (repurchase is MORE than market value)
2. sale with right of return (repurchase is LESS than market value)

Question 15

Bill and hold arrangment

Answer 15

contracts in which the entity bills a customer for a product that has not yet been delivered to customer

Question 16

when is revenue recognized in a bill and hold

Answer 16

whenever the customer obtains controls of product

Question 17

Customer has control of product in bill and hold when

Answer 17

1. substantive reason for arrangement
2. Product has been separately identified as belonging to customer
3. product is ready for transfer to customer
4. entity cannot use the product or direct it to another customer

Question 18

Consighnment

Answer 18

dealer has not obtained control; revenue recognized when dealer sells product

Question 19

Indicators of Consignment

Answer 19

1. entity controls product until specified event
2. dealer does not have unconditional obligation to pay
3. entity can require return

Question 20

If a warranty can be purchased separately

Answer 20

it is a distinct performance obligation

Question 21

refund liability

Answer 21

entity should recognize a refund liability if it it anticipates to receive back a portion of consideration

Question 22

Percentage of completion method requirements

Answer 22

1. can estimate profit

2. provide a reliable measure towards completion

Question 23

Type of account ‘Construction in Progress’

Answer 23

Inventory

Question 24

Type of account ‘Progress Billing’

Answer 24

contra-Inventory

Question 25

Type of account ‘Billings in excess of cost’

Answer 25

Current liability

Question 26

How to compute gross profit in % of completion

Answer 26

contract price - estimated TOTAL contract price

Question 27

How to compute % of completion

Answer 27

costs incurred to date/total estimated cost of contract

Question 28

How to compute GP to date

Answer 28

total sales price * percent completion

Question 29

Estimated loss in a contract

Answer 29

Recognized immediately

Question 30

Under completed contract method, profit is recognized when

Answer 30

contract is completed

Question 31

How to calculate revenue in completion of contract

Answer 31

contract price- total costs

Question 32

losses in contracts

Answer 32

Recognized in full the year they are discovered