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Exam 5: Income Measurement

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Question 71

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A contract does not exist for purposes of applying the revenue recognition principle in all of the following cases except for when:

A) The seller believes it is not probable that it will collect the amount it's entitled to receive under the contract.
B) The seller and buyer did not sign a formalized written contract.
C) The seller and buyer can terminate the contract without penalty and neither has performed any obligations under the contract.
D) The seller believes it is highly likely but not certain that the buyer will agree to the terms of the contract.

E) All of the above
F) C) and D)

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Question 72

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Assuming Brunetti uses the most likely value to estimate the variable consideration,calculate the transaction price.

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Based on the most likely amoun...

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Question 73

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Orange Inc.offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased.The warranty normally has a price of $150,but Orange offers it for $120 when purchased along with an oPhone.Orange anticipates a 75% chance that a customer will purchase the extended warranty along with the oPhone.Assume Orange sells to 1,000 oPhones with the extended warranty discount offer.What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts?

Mammoth Publishing,Inc.owns a weekly magazine called "Nova Health," and sells annual subscriptions for $96.Customers prepay their subscription fee and receive 52 issues starting in the following month.The company also offers new subscribers a 25% discount coupon on its other weekly magazine called "Fishing & Camping," which has a list price of $84 for an annual subscription.Mammoth estimates that approximately 10% of the discount coupons will be redeemed. Required: (a)How many performance obligations are in a single subscription contract? Explain the reasons for your answer. (b)Prepare the journal entry to account for one new subscription of "Nova Health," clearly identifying the revenue or deferred revenue associated with each performance obligation.

Are sellers ever constrained from including variable consideration in the transaction price used to estimate revenue? Explain,providing indicators of circumstances that could require that constraint.

CompuTime Center sells a full assortment of computer parts,including motherboards,video cards,and cables.It also offers complementary computer assembly services.A customer places an order for an advanced workstation,and CompuTime asks for $3,500.If CompuTime were to sell only the parts in an advanced workstation,with no assembly,the price would be $3,300. Required: Assuming that computer parts and assembly service are separate performance obligations,estimate the stand-alone selling price of the assembly service based on the residual approach.

In franchise arrangements,the franchisor's performance obligations are not separately identifiable,so revenue must be recognized over time.

Which of the following is not an indicator that revenue can be recognized over time?

Moretti Department Store sells gift cards that expire three years from the date of purchase.During 2014,Moretti sold $50,000 of gift cards,of which $1,500 were redeemed during 2016.At the end of 2016,it is estimated that approximately $800 of the 2014 balance remains unused,and Moretti concludes that it will never be redeemed.Moretti sold another $55,000 of gift cards in 2015,of which $22,000 were redeemed in 2016,and $60,000 of gift cards in 2016,of which $40,000 were redeemed in 2016. Required: How much revenue with respect to gift cards should Moretti recognize in 2016?

Which of the following is not a performance obligation?

A company is effectively leveraging when:

Use the following to answer questions Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,800,000.The project was begun in 2015 and completed in 2016.Cost and other data are presented below: -Assume that Beavis recognizes revenue upon completion of the project. Required: Compute the amount of gross profit recognized during 2015 and 2016.

Mary signed up and paid $1200 for a 6 month ceramics course on June 1^st with Choplet Ceramics.As of August 1^st,Choplet's accounting records would indicate:

Under which of the following circumstances is it most appropriate to use the residual method to estimate stand-alone selling prices?

In 2016,Chicago Construction began work on a three-year construction project to build a new performing arts complex (the PAC).The PAC contract price is $150 million.Chicago recognizes revenue on this contract over time according to percentage of completion.At the end of 2016,the following financial statement information indicates the results to date for the PAC (missing items denoted by letter): Required: Compute the following,placing your answer in the spaces provided and showing supporting computations below:

Use the following to answer questions The following table presents a summary of ratio analysis for Uncle Joe's Coffee,based on the most recent 12 months and five-year comparisons of Uncle Joe's with averages in the restaurant industry and the services sector,respectively. -What limitations exist in drawing meaningful comparisons about the performance of Uncle Joe's from the data above?

Use the following to answer questions Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,800,000.The project was begun in 2015 and completed in 2016.Cost and other data are presented below: -Assume that Beavis recognizes revenue upon completion of the project. Required: Prepare all journal entries to record costs,billings,collections,and profit recognition.

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

What is the expected transaction price with variable consideration estimated as the most likely amount?

Stayman Associates has sold a good to a buyer and wants to recognize revenue.Which of the following is an indicator that control of a good has passed from Stayman to the buyer?