Exam 5: Income Measurement

Under IFRS,firms typically use the cost recovery method if they conclude that the percentage-of-completion method is not appropriate to account for a long-term construction contract.

Bria Furniture sells bed frames and mattresses.One of its products is a premium therapeutic bed set produced by OmniSleep,which comes with a mattress and a bed frame.Bria offers a package consisting of the mattress,the frame,and on-site installation by its staff.All of these components can be sold separately,as often done by other vendors,so Bria concludes that these are separate performance obligations.Bria sells the OmniSleep package for $3,000.The mattress and the frame are sold separately for $2,000 and $900,respectively.Other vendors in the same area typically charge $200 for on-site installation.Bria does not sell on-site installation separately.On average,the prices charged by Bria are 10% higher than those of its competitors.Bria estimates that it incurs about $100 of compensation and other costs to provide the installation service.The profit margin over cost is estimated to be approximately 35%. Required: Estimate the stand-alone selling price of the installation service using (a)the adjusted market assessment approach, (b)the expected cost plus margin approach,and (3)the residual approach.

Sellers recognize revenue for gift cards at the point in time control of the gift card is transferred to the customer.

Revenue should be recognized over time for the construction of an annex to a building that the customer owns,even if the seller will not receive payment until the annex is completed.

CompuLand Center sells a full assortment of computer parts,including motherboards,video cards,and cables,and also offers complementary computer assembly services.The assembly service is offered by other vendors for $100 on average,and CompuLand typically charges approximately 20% more than other vendors for similar services on a stand-alone basis.Required: Estimate the stand-alone selling price of the assembly service using the adjusted market assessment approach.

Briefly explain the circumstances in which license revenue is recognized over time versus at a point in time.Provide an example of each.

In the DuPont formula,return on assets equals:

Boomerang Computer Company sells computers with an unconditional right to return the computer if the customer is not satisfied.Boomerang has a long history selling these computers under this returns policy and can provide precise estimates of the amount of returns associated with each sale.Boomerang most likely should recognize revenue:

Assume a contract for the sale of goods specifies that payment is to be made four months after delivery of a product.The seller is likely to do which of the following,with respect to the time value of money over the life of the contract?

Assume a contract for the sale of goods specifies that payment is to be made 15 months prior to delivery of a product.The seller is likely to do which of the following with respect to the time value of money over the life of the contract?

When the expected collection of accounts receivable is difficult to estimate,companies must use the cost recovery method.

Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement.RS can recognize revenue associated with the $50,000:

Sweeney most likely should recognize revenue when:

If the seller is an agent,the seller typically recognizes cost associated with the sale on its own line in the income statement.

When the right of return exists,revenue can be recognized at the point of sale if the seller can make reliable estimates of future returns.

What is the effect of bad debts on revenue recognition?

When accounting for multiple-element software arrangements,the revenue for each element is based on the separate prices stated for each element in the software contract.

Hulkster's 2016 receivables turnover is:

For contracts that include more than one separate performance obligation:

An account receivable is recognized if the seller has a conditional right to receive payment.