F2 Flashcards
1
Q
Revenue recognition
A
occurs when an entity satisfies a perform obligation by transferring either a good or a service to a customer
2
Q
five step approach
A
Step 1: Identify the contract with the customer
Step 2: Identify the separate performance obligations in the contract
Step 3: determine the transaction price
Step 4: allocate the transaction price to the separate performance obligations
Step 5: Recognize revenue when or as the entity satisfies each performance obligation
3
Q
a contract is defined as
A
- an agreement between two or more parties that creates enforceable right and obligation
- can be verbal, written, or implied
4
Q
criteria for identifying the contract
A
- all parties have approved and committed to perform their obligations
- the rights of each party contracted goods or services are identified
- payment terms can be identified
- the contract has commercial substance, meaning future cash flows (amount, risk, and timing) are expected to change as a result of the contract
- it is probable (based on the customer’s intent and ability to pay when due) that the entity will collect substantially all of the consideration under the contract
5
Q
when is the criteria assessment performed
A
at contract inception
6
Q
if the criteria are not met but consideration has been paid by the customer then
A
an entity can recognize revenue if the consideration is nonrefundable and either there are no remaining obligations to transfer goods/services, or the contract has terminated
7
Q
when two or more contracts are entered into with the same customer or with related parties of the customer at or near the same time then
A
the contracts should be combined and accounted for as a single contract
8
Q
a modification of a contract is treated as a new contract if
A
- the scope increases due to the addition of distinct goods or services
- the price increase appropriately reflects the stand-alone selling prices of the additional goods/services
9
Q
in order to be considered a distinct performance obligation it must be
A
- the [promise to transfer the good or service is separately identifiable from other goods or services in the contract
- the customer can benefit from the good or service independently or when combined with the customer’s available resources
10
Q
a transfer of good or service is separately indefinable if
A
- an entity does not integrate the good or service with other goods or services in the contract
- the good or service does not customize or modify another good or service in the contract
- the good or service does not depend on or relate to other goods or services promised in the contract
11
Q
not separately identifiable
A
- the goods or services are highly interrelated or interdependent
- the entity provides a significant service of integrating the good or service with other goods or services promised in the contract into a bundle of goods or services that represent the combined output contracted foy by the customer
12
Q
transaction price
A
represents the amount of consideration that an entity can expect to be entitled to receive in exchange for transferring promised goods or services to a customer
13
Q
the amount of variable consideration should be estimated by
A
taking a range of possible amounts and using either the expected value or the most likely amount
14
Q
time value of money should be an adjustment to
A
the transaction price if the timing of the payments per the contract provides either the customer or the entity with a significant benefit in regard to financing the transfer or goods or services
15
Q
noncash consideration should be measured at
A
fair value at contract inception
16
Q
stand-alone selling price
A
the price an entity would sell the promised good or service to a customer on a stand-alone basis
17
Q
Discounts
A
a discount exists when the sum of the stand-alone prices for each obligation within a contract exceeds the total consideration for the contract
18
Q
what do you do when the transaction price changes
A
the change should be allocated to the performance obligations in the contract on the same basis that was used at inception
19
Q
revenue is recognized over time if
A
- the entity’s performance creates or enhances an asset
- the customer simultaneously receives and consumes the benefit of the entity’s performance as the entity performs it (service contracts0
- the entity’s performance does not create an asset with alternative use to the entity and has enforceable right to receive payment
20
Q
output method
A
revenue is recognized based on the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised
21
Q
input method
A
revenue is recognized based on the entity’s efforts or inputs to the satisfaction of the performance obligation relative to the total expected inputs
22
Q
point in time
A
revenue should be recognized at the point in time when the customer obtains control
23
Q
contract asset
A
reflects the entity’s right to consideration in exchange for goods or services that the entity has transferred to the customer
24
Q
if the payment due date is conditioned only by the passage of time, the entity should present this
A
separately as a receivable
25
contract liability
must be booked when an entity has an obligation to transfer goods or services to a customer
26
revenue on a construction contract is recognized over time is any one of these are met
- entity performance creates or enhances an asset (WIP)
- the entity's performance does not create an asset with alternative use to the entity, and the entity has an enforceable right to receive payment
27
when a long-term construction contract meets the criteria for recognizing revenue over time and it is expected to be profitable, it is appropriate to use an input method such as cost-to-cost if
- reasonable estimate profitability
- provide a reliable measure of progress toward completion
28
when a long-term construction contract does not meet the criteria for recognizing revenue over time, revenue and gross profit are recognized when
the contract is completed
29
the incremental costs of obtaining a contract are
costs incurred that would not have been incurred if the contract had not been obtained, and are recognized as an asset if the entity expects that it will recover these costs
30
the costs that are incurred to fulfil a contract that are not within the scope of another standard will be recognized as an asset if they meet all the following
- relate directly to a contract
- they generate or enhance the resources of the entity
- they are expected to be recovered
31
principal
the entity controls the good or service before it is transferred to the customer
32
agent
the entity arranges for the other party to provide the good or service to the customer
33
repurchase agreeement
a contract by which an entity sells an asset and also either promises to or has the option to repurchase the asset
34
can repurchase the asset for less than the original selling price
it will be a lease
35
can repurchase the asset for either equal to/more than the original price
it will be a financing arrangement
36
bill-and-hold arrangements
contracts in which the entity bills a customer for a product that it has not yet delivered to the customer
37
revenue cannot be recognized in a bill-and-hold arrangement until
the customer obtains control of the product
38
consignment
when the dealer or distributor has not obtained control of the product
39
when is revenue recognized in consignment
when the dealer or distributor sells the product to a customer or when the dealer or distributor obtains control of the product
40
if a warranty can be purchased separatley it will be considered a
distinct service because it is promised to the customer in addition to the product covered by the contract. it will then be a performance obligation
41
an entity should recognize a refund liability if
it receives or will receive consideration from a customer and anticipates having to refund a portion or all of the consideration
42
events resulting in estimate changes
- changes in the lives of fixed assets
- adjustments of year-end accrual of officers' salaries and/or bonuses
- write-downs of obsolete inventory
- material, nonrecurring IRS adjustments
- settlement of litigation
- changes in accounting principle that are inseparable from a change in estimate
- revisions of estimates regarding discontinued operations
43
changes in accounting estimate are accounted for
prospectively
44
if a change in accounting estimate affects several future periods, the effect on income from continuing operations, net income, and the related per share information for the current year should be
disclosed in the notes to the financial statements
45
do changes in ordinary accounting estimate usually made each period have to be disclosed
no unless they are material
46
the direct effects of a change in accounting principle are
adjustments that would be necessary to restate the financial statements of prior periods
47
the indirect effects of a change in accounting principle are
differences in nondiscretionary items based on earnings that would have occurred if the new principle had been used in prior periods
48
the cumulative effect of a change in accounting principle is equal to
the difference between the amount of beginning retained earnings and the amount of in the period of change and what the retained earnings would have been if the accounting change had been retroactively applied to all prior affected periods
49
change in accounting principal should be reported
by adjusting the beginning retained earnings in the earliest period presented for the cumulative effect of the change, and if the prior period financial statements are presented, they should be restated
50
if it is "impractical" to accurately calculate the cumulative effect adjustment, then the change is handled
prospectively
51
a change in method oof depreciation, amortization, or depletion is considered
- both a change in accounting principle and a change in estimate
- handled prospectively
52
if a change in accounting entity occurs in the current year then
all pervious financial statements that are presented in comparative financial statements along with the current year should be restated to reflect the information for the new reporting entity
53
if you have a change in an accounting entity then you need to
have a full disclosure of the cause and nature of the change
54
are error corrections accounting changes
no
55
if comparative financial statements are not presented, the error correction should be reported as
an adjustment to the opening balance of retained earnings (net of tax)
56
in order for financial statements to be prepared in accordance with the accrual basis of accounting what needs to be recorded
adjusting journal entries
57
the summary of significant accounting policies includes disclosures of
- measurement base used in preparing the financial statements
- specifies accounting principles and methods use during the period
58
items not included in the significant accounting policies are
- composition and detailed dollar amount of account balances
- details relating to changes in accounting principles
- dates of maturity and amounts of long-term debt
- yearly computation of depreciation, depletion, and amortization
59
the footnotes should include
a description of the entity's major products or services and its principal markets, including the locations of those markets
60
remaining notes contain
all other information relevant to decision makers
61
do you have disclosed the estimated effect of the change if it is reasonably possible that the estimate will change in the near term and will be material
yes
62
concentrations should be disclosed if all the following are met
- it exists at the financial statement date
- it makes the entity vulnerable to the risk of a near-term severe impact
- it is at least reasonably possible that the events that could cause the severe impact will occur in the near term
63
recognized subsequent events
- provide additional information about conditions that existed at the balance sheet date
- must recognize the effects of all events in the financial statement
64
settlement of litigation
if litigation that arose before the balance sheet date is settled after the balance sheet date but before the date that the financial statements are issued or available to be issued, the settlement amount should be considered when determining the liability to be reported on the balance sheet date
65
loss on uncollectible receivable
the effects of a customer's bankruptcy filing must be recognized
66
an entity should not recognize subsequent events that
provide information about conditions that did not exist at the balance sheet date
67
a Non recognized subsequent even should be
disclosed if disclosure is necessary to keep the financial statements from being misleading
68
an entity should not recognize subsequent events that provide
information about conditions that did not exist at the balance sheet date
68
an entity that files financial statements with the SEC must evaluate subsequents events through
the date that the finacial statements are issued
69
entities that do not file statements with the SEC must evaluate subsequent events through
the date that the financial statements are available to be issued
70
financial statements are considered to be issued when
they have been widely distributed to financial statement users in a form and format that complies with GAAP
71
if an entity is not an SEC filer then the entity must disclose
the date through which subsequent events have been evaluated
72
when an entity reissues its financial statements, the entity should not recognize
events that occurred between the date the original financial statements were issued or available to be issued
73
revised financial statements
financial statements that have been revised to correct an error or to reflect the retrospective application of GAAP
74
revised financial statements are considered
reissued financial statements
75
fair value
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal (or most advantageous) market at the measurement date
76
is fair value a market-based measure or entity-based
market based
77
is fair value an exit price or entrance price
exit price
78
fair value does not include
transaction cost but may include transportation costs
79
the fair value of a non-financial asset assumes
the highest and best use of the asset
80
the fair value of a liability should include
the liabilities nonperformance risk
81
orderly transaction
the asset or liability is exposed to the market for a period before the measurement date, long enough to allow for marketing activities that are usual and customary for transactions
82
an orderly transaction cannot be
a forced transaction
83
market participants
buyers and sellers who are independent, knowledgable, and willing
84
principal market
the market with the greatest volume or level of activity for the asset or liability
85
most advantageous market
the market with the best price for the asset or liability
86
market approach
uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities to measure FV
87
income approach
converts future amounts, including cash flows or earnings, to a single discounted amount to measure fair value
88
cost approach
uses current replacement cost to measure the fair value of assets
89
level 1 inputs
- quoted prices in active markets for identical assets or liabilities
- most reliable
90
level 2 inputs
quoted market prices that are directly or indirectly observable for the asset or liability
91
level 3 inputs
unobservable inputs for the asset or liability
92
special purpose framework
- other comprehensive bases of accounting (OCBOA)
- non-GAAP
- cash basis
- modified cash basis
- tax basis
93
entities that are not required to use the accrual basis of accounting may choose to present
cash basis or modified bash basis
94
cash basis
revenues are recognized when cash is received and expenses are recognized when cash is paid
- generally: estates, trusts, political
95
statement of cash and equity in cash basis
- cash is the only asset
- no liabilities are recorded
- equity is equal to cash
96
modified cash basis
- statement of assets and liabilities
- statement of revenues and expenses and retained earnings
97
entities that are not required to use the accrual basis of accounting may choose to present
income tax basis
98
