Lesson 1

Question 1

What is an asset-liability approach?

Answer 1

The approach recognizes and measures revenue based on changes in assets and liabilities.

Question 2

What is the 5 step process for Revenue Recognition?

Answer 2

1. Identify the contract with customers
2. Identify the separate performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the separate performance obligations.
5. recognize revenue when each performance obligation is satisfied.

Question 3

What is the Revenue Recognition Principle?

Answer 3

Recognize revenue in the accounting period when the performance obligation is satisfied.

Question 4

Detailed example of the 5 steps of R.R.

Answer 4

Question 5

What is control when it comes to R.R.?

Answer 5

R.R. is essentially a change in control from one firm to another firm. When a firm has control of the assets, it has the ability to direct the use of and obtain substantially all the remaining benefits from the assets.

Control also includes the ability to prevent other firms from directing the use of or receiving the benefits from the assets.

Question 6

What are the 5 components of a valid contract?

Answer 6

1. The contract has commercial substance (Tyler gives cash for the coffee)
2. The parties have approved the contract. (Tyler agrees to purchase the coffee and Bean agrees to sell it.)
3. Identification of the rights of the parties is established. (Tyler has the right to the coffee and Bean as the right to receive cash.)
4. Payment terms are identified. (Tyler agrees to pay $3 for the coffee.)
5. It is probable that the consideration will be collected. (Bean received $3 before it delivered the coffee.)

Question 7

When is the performance obligation satisfied?

Answer 7

when the “customer” obtains control of the asset. (Tyler obtains control of the coffee.)

Question 8

What is a contract?

Answer 8

It is an agreement that creates enforceable rights or obligations.

Question 9

What is a performance obligation?

Answer 9

It is a promise in a contract to provide a product or service to a customer. It only exists if the customer can benefit from the good or service on its own or together with another resource.

Question 10

What is the transaction price?

Answer 10

It is the amount of consideration that a company expects to receive from a customer in exchange for transferring goods and services.

Question 11

What does allocate the transaction price mean?

Answer 11

Allocate the transactions price based on relative fair values.

Question 12

Airbus signed a contract to deliver airplanes to American Airlines.
Which step in the process of RR does this represent?

Answer 12

Identify the contract with customers.

Question 13

To address inconsistencies and weaknesses in revenue recognition, which comprehensive RR standard was developed?

Answer 13

Revenue from contracts with customers.

Question 14

Airbus has only one performance obligation - to deliver airplanes to American Airlines, which has a transaction price of $200 million.
Which step in the process of RR does this represent?

Answer 14

Allocate transaction price to the separate performance obligations.

Question 15

Airbus records revenue of $200 million for the sale of the airplanes to American Airlines when it satisfies its performance obligation.
Which step in the process of RR does this represent?

Answer 15

Recognize revenue when each performance obligation is satisfied.

Question 16

Which describes the converged standard on RR?

Answer 16

Recognizes and measures revenue based on changes in assets and liabilities.

Question 17

Which approach does the new standard, Revenue from Contracts with Customers, adopt?

Answer 17

An asset-liability approach for revenue recognition