Question

1.Which of the following statements is true regarding the new ASC Topic 606 for revenue recognition?

Multiple Choice

• The focus is on when the firm has earned the consideration to which it is entitled.

• Early adoption is not allowed.

• The new rules are more rules-based than principle-oriented.

• Under IFRS, both public and non-public firms must adopt by 2018

2.Assuming the requirements for recognizing revenue over time are met, the measure of completion is computed by dividing

Multiple Choice

• profits earned to date by estimated total profits.

• costs incurred to date by estimated total costs.

• costs incurred to date by the contract price.

• profits earned to date by the contract price.

3.Which of the following is not a necessary condition for a firm to account for a customer contract under the ASC Topic 606 guidance for revenue recognition?

Multiple Choice

• The contract has commercial substance.

• Collection is probable.

• Payment terms may not include a variable component.

• The rights of each party can be identified.

4.Which of the following statements is not applicable to contract acquisition costs under ASC Topic 606 guidance for revenue recognition?

Multiple Choice

• Incremental costs of acquiring a contract must be capitalized and amortized over the life of the contract.

• Costs that would be incurred regardless of whether a contract is obtained are not capitalized.

• The capitalization requirement is subject to a practical expedient.

• Costs must be capitalized even if the amortization period is one year or less.

5.In 2017, Borden Construction was contracted to build an apartment complex for its client, Deer Park Realty Management. The project was estimated to cost $15 million; however, on December 31, 2017, when the project was 75% complete, Borden estimated that the project costs would be much less, and agreed to adjust the contract price to $10 million. Prior to December 31, 2017, Borden Construction had recognized revenue of $10 million. At year end, Borden should:

Multiple Choice

• make a correction for $2.5 million in over-recognized revenue.

• record nothing.

• record additional $5 million in revenue.

• make a correction for $5 million in over-recognized revenue.

6.Under ASC Topic 606 for revenue recognition, which of the following factors is not an indicator of the principal/agent determination?

Multiple Choice

• Inventory risk.

• Credit risk.

• Shipping terms.

• Control of prices of the goods or services.

7.Which of the following statements is not true regarding the treatment of warranties under the new revenue recognition guidance in ASC Topic 606?

Multiple Choice

• A warranty that assures the product is free of defects is not a distinct performance obligation.

• Warranties that provide services beyond assuring the product is defect-free at the time of sale are separate performance obligations.

• A warranty that covers services that are normally considered routine maintenance is an assurance warranty.

• The length of the warranty period should be considered.

8.CPA Now developed an app to help prepare for the CPA exam. Customers may separately purchase (a) the app, (b) updates to the app, and (c) coaching support for the exam, or a package that includes the app and free updates coaching support until they pass the exam. The package deal includes performance obligation(s).

Multiple Choice

• one

• two

• three

• zero

9.In accounting for revenue recognition under ASC Topic 606, revenue can be recognized before a contract exists when cash has been received and:

Multiple Choice

• Goods have already been delivered to a customer, and there is no further obligation for the seller to deliver goods or services.

• The cash has been received for goods identified to be delivered and the cash is refundable.

• The cash has been received for goods or services to be delivered and the cash is nonrefundable.

• Revenue should never be recognized before a contract exists.

10.As part of a new franchise agreement, the franchisor provides quarterly training of the franchisee’s employees, periodic promotion of the franchisee’s weekly specials, annual seminars for the franchisee’s key personnel, as well as allowing the franchisee to utilize the franchisor’s name and logo. This agreement likely includes:

Multiple Choice

• one performance obligation.

• two performance obligations.

• three performance obligations.

• four performance obligations.

11.Examples of variable consideration include all of the following except:

Multiple Choice

• penalties for not completing performing on a contract on time.

• bonuses for completing performance on a contract early.

• discounts on transaction prices.

• all of the answer choices are correct.

Answer 1

The following are the answers of the questions asked.

The option that is correct is mentioned in front of the question number.

1.The focus is on when the firm has earned the consideration to which it is entitled.

2.costs incurred to date by the contract price

3.The rights of each party can be identified.

4.The capitalization requirement is subject to a practical expedient

5.record nothing

6.Control of prices of the goods or services

7.A warranty that assures the product is free of defects is not a distinct performance obligation

8.two

9.Goods have already been delivered to a customer, and there is no further obligation for the seller to deliver goods or services

10.four performance obligations.

11.all of the answer choices are correct

Please refer : https://asc.fasb.org/imageRoot/32/79982032.pdf  

for further reference.