Module 1 Quiz

Question 1

When should the seller of a good or service recognize revenue?

• When they identify the separate performance obligations in the contract
• When they determine the transaction price
• When they identify the contract with customers
• When they determine that the performance obligation is satisfied

Answer 1

When they determine that the performance obligation is satisfied.

Question 2

What is an example of a contract liability?

• Unearned magazine subscription
• Mortgage Payable
• Service Revenue
• Prepaid subscription

Answer 2

Unearned magazine subscription

Question 3

Stossel Company sells 300 units for $200 each to Liberty Inc. for cash. Stossel allows Liberty to return any unused product within 30 days and receive a full refund. The cost of each product is $120. To determine the transaction price, Stossel decides that the approach that is most predictive of the amount of consideration to which it will be entitled is the most likely amount. Using the most likely amount, Stossel estimates that 10 units will be returned, the costs of recovering the units will be immaterial, and the returned units are expected to be resold at a profit.

Which amount of refund liability should Stossel record at the time of sale?

• $0
• $800
• $1,200
• $2,000

Answer 3

$2000
$200 X 10 units = $2000

Question 4

What best describes the percentage-of-completion method?

• It is used mainly for short-term contracts.
• Revenue and gross profits are recognized each period based upon progress.
• Revenue and gross profits are recognized only when a contract is completed.
• It is used for construction costs, which are accumulated in the Billings on Construction in Progress account.

Answer 4

Revenue and gross profits are recognized each period based upon progress