F2

Question 1

What are the four criteria that must be met before revenue can be recognized

Answer 1

1) Persuasive evidence of an arrangement exists (Signed Contract)
2) Delivery has occurred or services have been rendered (Risks & Rewards)
3) The price is fixed and determinable (No price contingencies)
4) Collection is reasonably assured (Standard collection terms)

Question 2

Realization

Answer 2

When the entity obtains cash or the right to receive cash or converted a non-cash resource into cash.

Question 3

Recognition

Answer 3

Record on the Records - The actual recording of transactions and events in the financial statements

Question 4

Accrued Assets

Answer 4

(Interest Receivable)
Dr. A/R
Cr. Accrued Revenue

Question 5

Accrued Liabilities

Answer 5

(Accrued Interest payable, accrued wages)

Dr. Accrued Expenses
Cr. Accrued Liabilities (A/P)

Question 6

Estimated Liabilities

Answer 6

“Probable Future Charges”

Dr. Accd. Exp
Cr. Accrd. Liab.

Question 7

Royalty Revenue

Answer 7

Recognized when earned

Question 8

Deferred Credits (Unearned revenue or deferred revenue)

Answer 8

Future income contracted for and/or collected in advance (rental income, gift certificates, magazine subscriptions)

Dr. Cash
Cr. Unearned/ Def. Revenue

^ Only on the Balance Sheet not the Income Statement

Question 9

Revenue Recognition when the Right of Return Exists

Answer 9

1. Sales Price is Fixed at date of sale
2. Buyer assumes all risks of loss
3. Buyer has paid some consideration
4. Product sold is substantially complete
5. Future Returns can be reasonably estimated

Question 10

Initial Franchise Fee

Answer 10

Revenue when “Substantially Performed”

1) Franchiser has no obligation to refund any payment
2) Initial services required of the franchiser have been performed
3) All other conditions of the sale have been met

Note: Usually on the first day of operations

Question 11

Continuing Franchise Fee

Answer 11

Revenue when Earned