In class we discussed a number of situations where a seller could recognize reve

Question

In class we discussed a number of situations where a seller could recognize revenue before it has fully completed every obligation under a contract. Which of the following items does NOT represent one of these situations?

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Question 21 pts

In class we discussed a couple situations where a seller would not be able to recognize revenue even though it had shipped an item to a customer. Which of the following items does NOT represent one of these situations? (i.e., in which of these cases can revenue be recognized?)

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Question 31 pts

Seller’s sales contract specifies that legal title transfers to customers upon shipment from its facility. However, in the event that a product is lost or damaged in shipment, Seller has a past practice of supplying a replacement product at no charge to the customer. When should Seller recognize revenue?

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Question 41 pts

For which type of customer acceptance are revenues recognized net (instead of gross)?

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Question 51 pts

In 2015, Constructor Corp. began a three-year, long-term construction project that qualified for percentage-of-completion accounting. Constructor’s customer agreed to pay $300,000. By the end of 2015, Constructor had incurred costs of $60,000 and expected to spend an additional $180,000 over the next two years. How much revenue will Constructor report on the project in its 2015 income statement?

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Question 61 pts

On December 12, 2014, Customer purchased two pieces of equipment for $105. Seller delivered Item A on December 13 but doesn’t expect to deliver Item B until the following February. Seller doesn’t sell either items separately (only as a pair), but Seller estimates the individual selling prices to be $40 for item A and $80 for item B. Assuming this contract meets the criteria for separation as a multiple-element arrangement, how much revenue can Seller recognize in the fiscal year ending December 31, 2014?

Explanation / Answer

Q.In class we discussed a number of situations where a seller could recognize revenue before it has fully completed every obligation under a contract. Which of the following items does NOT represent one of these situations?

Ans.Sale with a return policy (provided certain conditions are met)

Q.n class we discussed a couple situations where a seller would not be able to recognize revenue even though it had shipped an item to a customer. Which of the following items does NOT represent one of these situations? (i.e., in which of these cases can revenue be recognized?)

Ans.Goods shipped but still in transit, with FOB destination terms

Q.Seller’s sales contract specifies that legal title transfers to customers upon shipment from its facility. However, in the event that a product is lost or damaged in shipment, Seller has a past practice of supplying a replacement product at no charge to the customer. When should Seller recognize revenue?

Ans.When the product arrives at the customer’s facility

Q.For which type of customer acceptance are revenues recognized net (instead of gross)?

Ans.Acceptance based on seller-specified objective criteria

Q.

In 2015, Constructor Corp. began a three-year, long-term construction project that qualified for percentage-of-completion accounting. Constructor’s customer agreed to pay $300,000. By the end of 2015, Constructor had incurred costs of $60,000 and expected to spend an additional $180,000 over the next two years. How much revenue will Constructor report on the project in its 2015 income statement?

Ans.75000

Q.On December 12, 2014, Customer purchased two pieces of equipment for $105. Seller delivered Item A on December 13 but doesn’t expect to deliver Item B until the following February. Seller doesn’t sell either items separately (only as a pair), but Seller estimates the individual selling prices to be $40 for item A and $80 for item B. Assuming this contract meets the criteria for separation as a multiple-element arrangement, how much revenue can Seller recognize in the fiscal year ending December 31, 2014?

Ans.

A multiple-element arrangement is separated into more than one unit of accounting if all of the following criteria are met:

·      The delivered item(s) has value to the client on a stand-alone basis;

·      There is objective and reliable evidence of the fair value of the undelivered item(s); and

·      If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the company.

If these criteria are not met, the arrangement is accounted for as one unit of accounting which would result in revenue being recognized on a straight-line basis or being deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If these criteria are met for each element and there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative fair value. There may be cases, however, in which there is objective and reliable evidence of fair value of the undelivered item(s) but no such evidence for the delivered item(s). In those cases, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered item(s) equals the total arrangement consideration less the aggregate fair value of the undelivered item(s).

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