F2-M1 Revenue Recognition

Question 1

What are the entries for unearned revenue?

Answer 1

Upon receipt of cash (DR) Cash (CR) Unearned Rev. When service is provided (DR) Unearned Rev. (CR) Sales revenue. To release inventory for that day, (DR) Cogs (CR) Inventory

Question 2

What must be present in order for the contract modification to be accounting for as a separate contract

Answer 2

The scope of the original has to increase through the addition of goods or services with price increase.

Question 3

What would combine revenue contracts

Answer 3

Distinction of services are added but price is the same

Question 4

What would result in not modification of current contract?

Answer 4

Price of the contract stays the same but services change

Question 5

What is a performance obligation? How does it effect the service revenue account?

Answer 5

Promise to transfer goods or service to a customer, could be product, installation,online access ect. Once the promise has been fulfilled it than can be transferred from unearned rev to sales or service rev.

Question 6

How do discounts effect the price of different obligations within a contract?

Answer 6

They must be proportioned across all obligations.

Question 7

What is the output method when it comes to recognizing revenue

Answer 7

Revenue is recognized based on milestones achieved

Question 8

What is the input method when it comes to recognizing revenue?

Answer 8

Input method is based on resource consumption. Resource consumed, labor hours used, costs incurred relative to expected cost.

Question 9

Regarding sales of products how is the sale of inventory recongized

Answer 9

Once inventory has been delivered. NOT when it is packed and ready and customer is waiting to pick it up.

Question 10

How are Initial fees considered

Answer 10

Account for the initial fee as revenue