Exam 2 Acct ch 18 t/f

The new standard, Revenue from Contracts with Customers, adopts an expenseliability approach as the basis for revenue recognition.
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The new standard, Revenue from Contracts with Customers, adopts an expenseliability approach as the basis for revenue recognition.
(F) The new standard, Revenue from Contracts with Customers, adopts an assetliability approach as the basis for revenue recognition.
The revenue recognition principle states that revenue is recognized when the performance obligation is satisfied.
true
The firststep of the fivestep revenue recognition model is to identify the contract with customers.
true
When a customer gives cash for a shirt at a retail store and takes the shirt from the store after paying, revenue is recognized at that point in time because the performance obligation by the store has been satisfied.
true
For revenue arrangements with multiple performance obligationsand it is difficult to estimate what the good or service would sell for as standalone unitsthe company should combine the items into a new aggregated revenue item and allocate the total transaction price to this new separate revenue item.
(F) For revenue arrangements with multiple performance obligations, and it is difficult to estimate what the good or service would sell for as standalone units, the company should use their best estimate of what the good or service might sell for as a standalone unit and allocate the transaction price to the separate performance obligations.
Revenue should be recognized when the two parties have signed the contract even if neither party has started to perform under the contract.
(F) A key feature of revenue recognition is that the signing of the contract by the two parties is not recorded (does not result in a journal entry) until one or both of the parties perform under the contract.
Companies often make payments to their customers such as discounts, volume rebates, coupons and free products. These elements have no effect on revenue but should be accordingly expensed.
(F) When companies make payments to their customers such as discounts, volume rebates, coupons and free products, these elements reduce the consideration received and the revenue to be recognized. They are not treated as an expense.
The best measure of fair value is what the company could sell the good or service for on a standalone basis.
True
A billandhold sale results when the buyer has not taken title nor billing but has taken delivery of the item.
(F) Billandhold sales result when the buyer is not yet ready to take delivery but does take title and accepts billing.
In a principalagent relationship, amounts collected on behalf of the principal are recorded as revenue by the agent.
(F) In a principalagent relationship, amounts collected on behalf of the principal are not recorded as revenue by the agent. Instead, revenue for the agent is the amount of commission it receives (usually a percentage of total revenue).
During a consignment relationship, the consignee does not record the merchandise as an asset on its books.trueAn assurancetype warranty is a warranty that provides an additional service beyond the servicetype warranty.(F) An assurancetype warranty is a warranty that the product meets agreedupon specifications in the contract at the time the product is sold. A servicetype warranty is a warranty that provides an additional service beyond the assurancetype warranty.Servicetype warranties represent a separate service and are an additional performance obligation.trueConditional rights should be reported separately from unconditional rights (receivables) on the balance sheet.trueA company accounts for a contract modification as a new contract if either (1) the promised goods or services are distinct, or (2) the company has the right to receive an amount of consideration that reflects the standalone selling price of the promised goods or services.(F) A company accounts for a contract modification as a new contract if both (1) the promised goods or services are distinct, and (2) the company has the right to receive an amount of consideration that reflects the standalone selling price of the promised goods or services.Under the revenue guidance—as long as a contract exists (it is probable that the customer will pay)—the amount recognized as revenue is not adjusted for customer credit risk.trueWhen a longterm construction contract exists and a company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced, it should probably use the completedcontract method.(F) Under a longterm contract, a company satisfies a performance obligation and recognizes revenue over time if one of three criteria are met and one of the criteria is that "the company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced." Therefore, since one of the criteria is met it should recognize revenue over time—which is better recognized using the percentageofcompletion method than the completedcontract method.Output measures can produce inaccurate results if the units used are not comparable in time, effort, or cost to complete.trueUnder the costtocost basis, the percentage of completion is measured by comparing costs incurred to date with the most recent estimate of revenues collected to date.(F) Under the costtocost basis, the percentageofcompletion is measured by comparing costs incurred to date with the most recent estimate of the total costs to complete the contract.Under the percentageofcompletion method, the difference between the Construction in Process and the Billings on Construction in Process accounts is reported in the balance sheet as a current asset if a debit, and as a contra asset if a credit.(F) Under the percentageofcompletion method, the difference between the Construction in Process and the Billings on Construction in Process accounts is reported in the balance sheet as a current asset if a debit, and as a current liability if a credit.The principle advantage of the completedcontract method in accounting for longterm construction contracts is that reported income is based on final results rather than on estimates of unperformed work.trueThe major disadvantage of the completedcontract method as compared with the percentageofcompletion method is that total net income over the life of the construction contract is normally smaller under the completedcontract method.(F)The total net income or gross profit over the life of a construction contract is the same under both the percentageofcompletion method and the completedcontract method. The major difference between the methods is the timing of the recognition of gross profit during the life of the contract.The annual entries to record costs of construction, progress billings, and collections from customers under the completedcontract method would be identical to those illustrated under the percentageofcompletion method with significant exclusion of the recognition of revenue and gross profit.trueWhen there is a loss in the current period on a profitable contract, under both the percentageofcompletion and the completedcontract methods, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.(F) When there is a loss in the current period on a profitable contract, under the percentageofcompletion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.When a franchisor provides access to the rights of the franchise rather than transferring control, the franchise revenue is recognized over time, rather than at a point in time.True