Revenue on a long-term contract should not be recognized according to the propor

Question

Revenue on a long-term contract should not be recognized according to the proportion of the performance obligation that has been completed if:

A- Completion rates are certain.

B- Profits are low.

C- Projects are more than five years to completion.

D- The arrangement does not qualify for revenue recognition over time.

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Sullivan Software sells packages of a software program and one year's worth of technical support for $500. Its packaging lists the $500 sales price as comprised of a software program at a price of $450 and technical support with a price of $100, with a $50 discount for the package deal. All of Sullivan's sales are for cash, and there are no returns. Sullivan sells the software program separately for $475 and offers a year of technical support separately for $75.

Sullivan should recognize revenue for the two parts of the arrangement as follows:

A- Recognize the entire $500 when the customer pays cash to buy the package.

B- Recognize the portion of the $500 attributable to the software program when the customer pays cash to buy the package; defer the portion attributable to technical support and recognize over the support period.

C- Defer the entire $500 and recognize over the support period.

D- Recognize the entire $500 upon conclusion of the support period

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Which of the following is not one of the five steps for recognizing revenue?

A- Recognize revenue when (or as) each performance obligation is satisfied.

B- Determine the transaction price.

C- Allocate the transaction price to each performance obligation.

D- Estimate variable consideration.

Explanation / Answer

ANSWER 1: Revenue on a long-term contract should not be recognized according to the proportion of the performance obligation that has been completed if:-

The arrangement does not qualify for revenue recognition over time.

ANSWER 2 : SULLIVAN SOFTWARE:-

Recognize the portion of the $500 attributable to the software program when the customer pays cash to buy the package; defer the portion attributable to technical support and recognize over the support period

ANSWER 3 : not one of the five steps for recognizing revenue

Estimate variable consideration.

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