Exam 8: Revenue Recognition

Able sells and delivers a piece of equipment to Smythe for $1,800 on August 1 and the equipment cost $1,200. The sale is a credit sale. How is this transaction accounted for under a perpetual system of inventory?

Novella Company sells annual memberships to its auto club. The memberships cost $900 each. On January 1, Novella sold 6,000 memberships and received cash. How much revenue should Novella record on January 1?

Gray Uniforms is a wholesaler who sells school uniforms to retailers. On August 1, Gray contracts with Excel School Uniforms to sell 2,000 uniforms to Excel to be delivered September 1. The contract price is set at $300 each. The contract provides for a 10% volume discount if sales exceed 3,000 uniforms. The probability of sales exceeding 3,000 uniforms is expected to be 71%. Using the most-likely-amount approach, the consideration is estimated to be ________.

In determining whether the promise to deliver goods and services is separate from other promises the accountant must often rely on ________.

Judgment may be involved in the determination of whether the promise to deliver the good or service is separate from other promises.

Hopner Products enters into a contract with Tulles to sell three different products. The total transaction price is $370,000. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the allocated transaction price of product Z using the expected-cost-plus-a-profit margin approach? (Round intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest whole number.) Product Standalone Price Market Price Forecasted Cost \ 150,000 \ 130,000 \ 100,000 \ 110,000 \ 160,000 \ 85,000 Not Available \ 100,000 \ 140,000

Able sells a piece of equipment to Smythe for $1,800 on August 1. The equipment cost $1000. The equipment is picked up by Smythe on August 10. How many performance obligations are included in this transaction?

Agee Corporation Agee enters into a contract with Pipkin Video to add their programs to Agee's network. Pipkin will pay Agee an upfront fee of $250,000 for 12 months of access, and will also pay a $100,000 bonus if Agee's users access Pipkin Video for at least 10,000 hours during the 12-month period. Agee estimates that it has a 55% chance of earning the $100,000 bonus. -Refer to Agee Corporation. Using the most-likely-amount approach, record the receipt of the upfront fee and the first month's revenue.

Companies may use the completed-contract method only if the contract ________.

The first step in revenue recognition is to ________.

When accounting for revenue for a long-term contract, the percentage of completion used to recognize revenue in the first year usually is determined by measuring ________.

Which of the following is not an indicator to determine when control transfers?

Journal entries for the percentage-of-completion method are only made at the completion of the project.

Costanzo Auto Shop Costanzo Auto Shop signs a contract to provide three different products to a customer for a total transaction price of $975,000. Each product represents a separate performance obligation. Costanzo only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table. Market Standalone Competition Forecasted Zoom-1 \ 262,500 \ 199,500 \ 180,000 Zoom-2 450,000 468,000 375,000 Zoom-3 Not Available Total 7950,000 \ 67,500 -Refer to Costanzo Auto Shop. Allocate the transaction price using expected-cost-plus-a-margin approach.

Fancy Gardens sells an annual magazine subscription for $50. On January 1, 2017, Fancy Gardens sells 2,000 annual subscriptions to its magazine. The magazine is issued monthly, and begins on January 1. Required: Prepare the journal entry to record the initial sale of the subscriptions and the adjusting entry at January 31.

Aztec Company contracted with the Kirk Company to review their revenue recognition policies for recording sales. The contract will pay Aztec $800,000 in the form of a fixed fee. Aztec will also receive $150,000 additionally if Kirk achieves $200,000 in additional revenues. Aztec estimates a 70% chance that Kirk Company will achieve $200,000 in additional revenues. Refer to Aztec Company. Assume that Aztec estimates that the transaction price is the probability weighted amount of expected consideration. The transaction price is ________.

What are the required disclosures concerning significant judgments in revenue recognition?

The general rule is that the transaction price should be allocated to the performance obligations based on the relative standalone selling prices. An exception occurs when the contract includes variable consideration.

Companies should not provide information to financial statement users about warranties and related obligations.

Goods and services are transferred over time if the customer controls the asset as the seller creates it or enhances it over time.