part 1.basic theory

Question 1

realization

Answer 1

is the process of converting noncash resources and rights into money through the sale of assets for cash or claims to cash.
realization occurs at the time of sale rather than when cash is collected

Question 2

sales is recognized when

Answer 2

generally sales is recognized at the date of delivery.

at that point 2 criteria are met: 1) revenue is realized or realizable and 2) it is earned

Question 3

revenue from the sale of a product may be recognized at the time of sale only if all of the following is met

Answer 3

1) the seller’s price is fixed or readily determinable
2) the buyer has paid the seller or is obligated to pay the seller, the obligation not being contingent on resale of product.
3) the buyer’s obligation to the seller remains unchanged in the event of damage or destruction of the product
4) the buyer is independent from the seller
5) the seller does not have any significant obligations regarding resale of the product by the buyer
6) the amount of future returns can be reasonably estimated

Question 4

fair value

Answer 4

is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under market conditions

Question 5

transaction approach

Answer 5

transaction approach (earnings process is virtually complete)

Question 6

percentage of completion

Answer 6

reasonable assurance of collection contract price. long term construction

Question 7

net realizable value

Answer 7

difficulty of determining costs. defer expense recognition until unit sold

Question 8

installment and cost recovery method

Answer 8

absence of reasonable basis for estimating degree of collectability

Question 9

product cost

Answer 9

associated with particular sale

Question 10

period cost

Answer 10

can’t associate with particular sale so they become expenses with passage of time