F2 M1

Question 1

when is revenue recognized over time?

Answer 1

1) entity’s performance creates or enhances asset that customer controls
2) customer receives benefits as entity performs
3) asset not created for alternative use and entity has right to receive payment for completed performance

Question 2

when entity receives payment in advance how should revenue be recognized if over time?

Answer 2

recognized evenly through the contract period as services are performed under GAAP accrual basis of accounting

Question 3

calculation of gross profit for construction contracts (over time)

Answer 3

contract price
-actual costs incurred
-estimated costs to complete
= gross profit
* (actual costs incurred/(estimated costs + actual costs)
= profit to date
- revenue previously recognized
= profit

Question 4

criteria that leads to treatment of each service as a distinct obligation

Answer 4

1) buyer able to benefit from each service independently
2) buyer can benefit from each service when combined with other available resources
3) promise to deliver each service separately identifiable from other services

Question 5

when is a contract treated as a separate contract?

Answer 5

1) the scope of the original contract increases through addition of distinct goods or services
OR
2) price increase reflects stand-alone selling prices of additional goods/services
OR BOTH

Question 6

what is a performance obligation?

Answer 6

a promise to transfer a good or a service to a customer

Question 7

examples of performance obligations?

Answer 7

1) an individual good or service (bundle of goods or services) that is distinct
2) series of goods or services that are substantially the same and transferred in same manner

Question 8

when is a transfer of a good or service separately identifiable?

Answer 8

1) entity does not integrate good or service with other goods or services in contract
2) good or services does not customize or modify another good or service in contract
3) good or service does not depend on or relate to other goods or services promised in contract

Question 9

when a good or service is NOT separately identifiable?

Answer 9

1) goods or services highly related or depend on each other
2) good or service is integrated with other goods or services promised in contract into a bundle of goods or services representing combined output

Question 10

if there is more than one performance obligation in a contract what should you do with the transaction price?

Answer 10

allocate transaction price to each obligation based on amt of consideration expected to complete each obligation

Question 11

what is the stand-alone selling price?

Answer 11

the price a company would sell good or service for on stand-alone basis

Question 12

when does a discount exist?

Answer 12

when the sum of stand-alone prices for each obligation within a contract exceeds total consideration of the contract

Question 13

what is variable consideration?

Answer 13

can be attributable to entire contract, individual performance obligations within a contract, or distinct goods or services within a single performance obligation

Question 14

what should you do when the transaction price changes after contract inception?

Answer 14

change should be allocated to performance obligations in contract on same basis that was used at inception

Question 15

should changes in stand-alone selling prices after inception be reallocated?

Answer 15

No

Question 16

examples of output methods for revenue recognition

Answer 16

1) units produced or delivered
2) time elapsed
3) milestones achieved
4) surveys of performance completed
5) appraisals of results

Question 17

examples of input methods for revenue recognition

Answer 17

1) costs incurred in comparison to total expected
2) resources consumed
3) labor hours
4) time elapsed

Question 18

what is a disadvantage of the input method?

Answer 18

may not be a direct relationship between an entity’s inputs and the transfer of control of goods and services to a customer

Question 19

when would revenue be recognized at a point in time?

Answer 19

1) buyer has legal title to asset
2) physical possession of asset has transferred to buyer
3) rewards and risks remain with seller
4) customer accepted asset
5) entity has right to payment and customer has an obligation to pay

Question 20

what creates a current liability on a contract?

Answer 20

when progress billings > costs and estimated earnings

Question 20

difference between at a point in time versus over time?

Answer 20

at a point in time, assets considered homogenous and no customizations and could find another buyer
For over time, assets must be customizable and not for an alternative use

Question 21

what creates a current asset on a contract?

Answer 21

the excess of accumulated costs plus estimated earnings > progress billings

Question 22

how are gross losses calculated?

Answer 22

contract price
- actual costs incurred
-estimated costs to complete

loss is recognized immediately

Question 23

how is gross profit or loss recognized at a point in time?

Answer 23

when the contract is complete

-losses recognized immediately even if contract is not complete

Question 24

what is you have a loss on the same contract in several years? And revenue is recognized at a point in time

Answer 24

entire loss on contract is not shown in year of completion if a loss is known at an earlier date. Losses in earlier years is based on best info available at time. The next years are based on additional expenses incurred which were not anticipated in previous yrs

Question 25

when will a financing arrangement be booked?

Answer 25

when the repurchase price is equal to or greater than the original sale price and the expected market value

Question 26

when should an entity recognize a refund liability?

Answer 26

if an entity receives or expects to receive consideration from a customer and anticipates having to refund a portion or all of that consideration