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Exam 5: Revenue Recognition

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Question 91

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On June 1, 2018, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2018. Under the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract. - Assume Emmet estimates variable consideration as the expected value. How much revenue should Emmet recognize on this contract in 2018?

A) $25,000
B) $26,125
C) $28,750
D) $50,000

E) B) and C)
F) B) and D)

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Question 92

Multiple Choice

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Arizona Desert Homes (ADH) constructed a new subdivision during 2017 and 2018 under contract with Cactus Development Co. Relevant data are summarized below: -ADH recognizes revenue upon completion of the contract. For 2017, what is the journal entry to record revenue?

A)
B)
C)
D) No entry.

E) C) and D)
F) A) and B)

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Question 93

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Which of the following is not true about revenue recognition with respect to long-term construction contracts?

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?

Veras Bus Transportation provides on-campus bus services for universities. On January 1, it enters into a one-year contract with Moose University to operate five bus lines traveling throughout the campus. Under the contract, Veras will be paid $100,000 on the last day of each month. In addition, Veras will receive an additional $120,000 at the end of each six-month period, provided it remains free of accidents. • On January 1, based on historical experience, Veras estimated that there is a 75% chance that it will remain free of accidents for the entire year. • On March 20, three of the most senior drivers at Veras abruptly left. As a result, Veras had to hire inexperienced drivers to fill the vacant positions. Consequently, Veras revised its estimate to a 30% chance that it would earn the semiannual bonus. • On June 30, Moose confirmed that there was no accident between January and June, so Veras would be entitled to the semiannual bonus. Veras bases estimates of variable consideration on the most likely amount it expects to receive. -Prepare Veras' June 30 journal entry to account for the revenue earned from June 1 - June 30, as well as any necessary adjustments to revenue presumed to have been previously recorded.

Which of the following is not true about accounting for revenue from franchise arrangements?

The following information applies to the questions displayed below. Wilson Links Products sells a product that involves two separate performance obligations: the SwingRight golf club weight and the SwingCoach teaching software. SwingRight has a stand-alone selling price of $150. Wilson sells both the SwingRight and the SwingCoach as a package deal for $200. The SwingCoach software is not sold separately. Wilson is aware that other vendors charge $100 for similar software, and Wilson's prices are generally 10% lower than what is charged by those vendors. Wilson estimates that it incurs approximately $65 of cost per copy of the software, and usually charges 50% above cost on similar products. -Estimate the stand-alone selling price of the software using the residual approach.

If the seller is a principal, the seller has primary responsibility for delivering a product or service.

No allocation of contract price is required if the transaction involves multiple performance obligations that are satisfied at different points in time.

In 2018, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC recognizes revenue over time according to percentage of completion for this contract, and provides the following information (dollars in millions) : -What are CCC's estimated remaining construction costs on the project at the end of 2018?

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 2017 and completed in 2018. 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 2017 and 2018.

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

On June 1^st, Lucy & Bros received an order for 500 cupcakes. Lucy delivered the cupcakes to the client on June 25^th. A $50 deposit was received on June 5^th and the remaining $450 was paid on June 30^th. Lucy likely would recognize revenue on:

Sahara Desert Homes (SDH) reports under IFRS and constructed a new subdivision during 2017 and 2018 under contract with Cactus Development Co. Relevant data are summarized below: SDH uses the cost recovery method under IFRS to recognize revenue. - What is the journal entry in 2017 to record revenue?

Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that this contract qualifies for revenue recognition over time. -Assume Sanjeev estimates variable consideration as the expected value. What is the amount of revenue Sanjeev would recognize for the first month of the contract?

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

On December 15, 2018, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sales method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2019, and December 15, 2020. Ignore interest charges. - Rigsby has a December 31 year-end. At December 31, 2019, Rigsby would report in its balance sheet:

Revenue on a multiple-element contract typically is allocated to independent parts of the contract based on their relative selling prices.

Under U.S. GAAP, if a license gives a customer access to symbolic intellectual property, revenue always should be recognized over time.

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. -The amount of revenue that GAAP, regarding software revenue recognition, would require Sullivan to attribute to the software program (as opposed to the technical support) is (rounded) :