Exam 4: Revenue and Recognition

Which statement best explains the cost recovery method?

Discuss when it is acceptable to use the residual approach to allocate the transaction price to performance obligations.

Which accounting method is permitted under ASPE for construction contracts in limited circumstances?

Based on the note disclosure provided below for XYZ Group,when would the following types of revenue be recognized? a)Consignment sales of vehicles (Sales with repurchase commitments). b)Financial services. c)Lease rentals. d)Post-sale services (Multiple-component contracts). e)Sale of products. Revenues from the sale of products are recognized when the risks and rewards of ownership of the goods are transferred to the customer,the sales price is agreed or determinable and receipt of payment can be assumed.Revenues are stated net of discounts,allowances,settlement discount and rebates.In the case of long-term contracts,revenues are generally recognized in accordance with IFRS 15 (Revenue)on the basis of the stage of completion of work performed using the percentage of completion method.Revenues also include lease rentals and interest income from financial services.Revenues for the Financial Operations sub-group also include the interest income earned by Group financing companies. If the sale of products includes a determinable amount for subsequent services ("multiple performance obligation contracts")the related revenues are deferred and recognized as income over the period of the contract.Amounts are normally recognized as income by reference to the expected pattern of related expenditure. Profits arising on the sale of vehicles for which a Group company retains a repurchase commitment (buy-back contracts)are not recognized until such profits have been realized.The vehicles are included in inventories and stated at cost.

Here are some financial records for Accounting Plus Magazine which started operations in October 2018.Sales for its first month were as follows: What would be the deferred revenue at Oct 31,2018? (Round to the nearest dollar).

Which statement is correct about unintentional errors on construction contracts?

On December 1,2018,SuperTech sold 100 locks for laptop computers at $50 each with a 90-day unconditional right of return.Since this is a new product for SuperTech,it has no past history regarding estimated returns.Which of the following is TRUE regarding SuperTech's December 31,2018 financial statements?

Which of the following statements about the value creation process is not correct?

Which of the following statements is correct about the revenue recognition criteria for a performance obligation satisfied over time?

You are an accountant working at Phantastic Pharmaceutical Inc.and have been asked to explain to your controller the possible points at which revenue could be recognized by your organization.Identify two alternatives that are in accordance with IFRS 15 for recognizing revenue at Phantastic.

Explain how a company records revenue and expenses for a long-term contract under IFRS.Include an explanation of how changes in estimates are accounted for under this method.

Larimar Computers provides customers the option to purchase products with three installment payments made over 12 months (equal payments at the end of the 4th,8th,and 12th months).In January 2018,Larimar sold $39,000 of computers to one customer on this installment plan.The cost of these computers is $30,420. Required: Using the installment sales method,record the journal entries for Larimar's installment sales made in January 2018 and the subsequent payments received on each installment date.Assume all installment payments are received,and ignore the time value of money.

Hedley Corporation sold hardware and software for $70,000 cash.In addition,the company will provide support on the software for 1 year and maintenance on the hardware for 3 years.The observable stand-alone selling prices are as follows: a.Determine how revenue should be allocated to the various components in this transaction. b.Apply the appropriate revenue recognition criteria to determine when revenue should be recognized for the various components of this transaction.

Smile Operators entered into a contract to build a swimming complex for $1,800,000.Construction commenced on July 1,2017,with a planned completion date of December 31,2019.A summary of the related accounting information is provided below: How much gross profit would be recognized in 2018 if the company uses the completed contract method under ASPE?

In early 2015,Ecotravel Corp.won a contract to build a rapid transit line connecting downtown Vancouver to the airport and the suburb of Richmond (the RAV line).The contract was for $2.2 billion to be received over the construction period of six years,ending in November 2021.Ecotravel has a December 31 year-end and uses the percentage of completion method to account for long-term contracts. Required: a.Ecotravel's management expects the gross profit on the total project to be 20%,and that $352 million would be incurred on the project by December 31,2015. 1.How much gross profit (or loss)will Ecotravel record in the 2015 fiscal year if management's estimates are accurate? 2.Provide the journal entry to record revenue,cost of goods sold,and expected loss (if applicable)for fiscal 2015. b.Assume that it is now early 2019 and you are preparing the adjusting entries for 2018.The accounting records indicate that,by the end of 2017,a total of $758 million in revenue and $680 million in cost of goods sold had been recorded.You also know that $372 million in costs were incurred on the project in 2018,and management's best estimates indicate another $1,208 million in costs will be required to complete the project. 1.How much gross profit (or loss)should Ecotravel record in the 2018 fiscal year if management's estimates are accurate? 2.Provide the journal entry to record revenue,cost of goods sold,and expected loss (if applicable)for fiscal year 2018.

Fancy Cars sold a used car for $35,000 cash.The company will also provide 4 oil changes per year for 5 years and an extended service-type warranty for 5 years.This is the first time that Fancy has offered an extended warranty.They intend to offer it to customers on a stand-alone basis but have not yet established a sales price.The observable selling prices of the car and oil changes follow: a.Determine how revenue should be allocated to the various components in this transaction. b.Apply the appropriate revenue recognition criteria to determine when revenue should be recognized for the various components of this transaction.

RU FIT Centre opened for business on April 5,2018.For revenue recognition purposes,all memberships are assumed to be issued at the beginning of the month,with 1-year memberships costing $600 and 2-year memberships costing $960.During April,32 1-year memberships and 25 2-year memberships were sold.RU FIT Centre prepares monthly financial statements.Which of the following statements is correct?

Which statement best explains the completed contract method?

Aurora Gold Company produced 650,000 ounces of gold in 2018.Average sales price was $870/oz.The price was $870/oz at the start of the year and $870/oz at the end of the year.Production cost averaged $588/oz,which has been stable for several years.The company had 50,000 ounces in inventory at the beginning of the year,and 20,000 ounces at the end of the year. Required: a)Calculate Aurora Gold's revenue,cost of goods sold,and gross profit,assuming the company recognizes revenue at the point of sale/delivery. b)Determine the amount that should be shown as ending inventory on Aurora's 2018 balance sheet.

On September 1,2018,Electric Depot sold 100 laptop computers at $750 each with a 120-day unconditional right of return.Customers have 90 days to pay.Based on past experience,Electric Depot estimates that approximately 1% will be returned.Which of the following is TRUE regarding Electric Depot's December 31,2018 financial statements?