FAR 2

Question 1

When is revenue recognized generally?

Answer 1

When the title of the asset transfers to the buyer.

Question 2

What is the 5 step revenue recognition model?

Answer 2

1. Identify the contract with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognize revenue as a performance obligation is fulfilled

Question 3

How does one distinguish between performance obligations?

Answer 3

When services are similar in nature and can be performed similarly, they are considered one performance obligation. Services are separate performance obligations when they provide benefits whether they are combined with other resources or by themselves AND when they are separately identifiable from other services (typically when this service can be offered by other parties).

Question 4

What is the effect on financial statements of these accounting changes?

Answer 4

-Change in Estimate: Prospective Approach (current and future FS affected)
-Change in Principle: Retrospective Approach (current and past FS affected), the changes will be applied to most prior FS period if comparative FS displayed, changes are recorded net of tax in beginning RE
-Correction of an Error: AKA Prior Period Adjustment (PPA), Retrospective; changes applied to period experienced in if present on comparative FS, on current period if not; changes are recorded net of tax in beginning RE

Question 5

Exceptions for changes in accounting estimates?

Answer 5

Occur when a change in accounting principle is indistinguishable from a change in accounting estimate. This is assumed a change in acctg estimate.
2 Main Exceptions
-To LIFO
-Depreciation Method

Question 6

COGS Formula

Answer 6

COGS=Beginning Inventory+ Purchases-Ending Inventory

Question 7

Inventory Turnover Formula

Answer 7

Inventory Turnover=COGS/Average Inventory

Question 8

Days in Accounts Receivable Formula

Answer 8

Days in A/R=A/R Net/(Net Sales/365)