Revenue Recognition Flashcards
For a contract modification to result in a new separate contract, the additional goods must _______
must be distinct and consideration must reflect appropriate stand alone prices
How is revenue recognized Over time
revenue recognized while performance obligation is being satisfied.
Step 1 of 5 Revenue Recognition process
**1) Identify contracts with customers:
**
- Collection must be probable, meaning customer has ability and intent to pay most consideration due.
- Contract has commercial substance
- Contract right and payment terms are identifiable
- Parties are committed to perform.
A contract may be formal or informal, written or oral, and may have implicit or explicit contract terms. What’s the 5 step revenue recog process
- Identify the Contract
- Identify Performance Obligations
- Determine the Transaction Price
- Allocate the Transaction Price
- Recognize Revenue
Revenue Recognition: Over Time vs. At a Point in Time
How is revenue allocated and recognized when a contract includes a product and a service plan sold at bundled prices?
How do sales returns affect financial statements in the same period and prior periods
What’s the bundle allocation method
What’s the bundle allocation method
First, you take the stand alone prices of the item within a bundle (ie stand alone washer/washer repair) and total them. (ie 900 + 100)
Then you find the % of those standalone item prices within the total of those items combined before the discounted bundle price. (ie 90% and 10%)
Then find the total discount by subtracting the total of standalone prices from the bundle total.
(ie (900+100) - (950) = 50$ discount)
Then find % of discount allocated to each item (ie 50 * 90% = 45 washer and 50 * 10% = 5 repair)
Then subtract those discounts allocations from the items standalones (ie 900 - 45 & 100 - 5) = 855 and 95. These are adjusted stand alone prices
You do the same for all mini bundles. After, that, add all adjusted stand alone prices, find their % of the total adjusted stand alone price, and multiply that by the total new revenue offer to the customer to find each individual item cost.
What are the methods for measuring progress on long-term contracts, and what examples match each method?
When is revenue recognized under the accrual basis of accounting, and what is irrelevant
How is income recognized under the cost-to-cost method
What are the principles and formulas of the cost-to-cost method in long-term contracts
How is a sale with a right of return recorded
What are the criteria for revenue recognition over time vs. point in time
What are the criteria for a contract to recognize revenue
How is unearned revenue calculated when there is a significant financing component
How are profit and LOSS recognized in long-term construction contracts?
What is used to calculate profit in the FINAL year of a long-term contract
When is revenue recognized for long-term contracts AT A POINT IN TIME
What are the journal entries for long-term construction contracts
What is the core revenue recognition principle, and why are other related concepts incorrect
When is a contract modification treated as a separate contract
When is revenue recognized for nonrefundable upfront fees
How is the blended price calculated for remaining products in a contract modification when the additional products do not reflect standalone selling prices
When is the completed-contract method preferable
When estimates are unreliable or hazards make forecasts doubtful, deferring revenue and expenses until contract completion.
What are conditional and unconditional rights in revenue recognition, and how are they presented
What method is used to determine the transaction price when variable consideration has more than two possible outcomes
How is common stock received for services recorded
How should the transaction price in a contract covering equipment, installation, and training be allocated when the buyer lacks the expertise to install the equipment but the training can be purchased elsewhere.
How should revenue be recognized when a customer qualifies for a volume discount based on historical experience
How are contract costs incurred during the year calculated using the percentage-of-completion method
Does a contract exist for revenue recognition if it is cancelable without penalty and no work has started on the performance obligations
How do you figure out if there’s a current liability or asset under the percentage-of-completion method
When can revenue be recognized under a bill-and-hold arrangement
How do you calculate gross profit under the completed-contract method
How do you allocate revenue with discounts in a contract
