Question

1. A company should only apply the revenue recognition standard to contracts that meet all of the following criteria except

a. the contract has commercial substance.

b. each party's rights regarding goods and services to be transferred are identified.

c.the transaction price is fixed and determinable.

d. collectability of consideration is probable.

2. When a company is determining its dividend policy, the company must adhere to legal requirements. The legal requirements are determined by

a. the state in which the company was incorporated.

b. the Financial Accounting Standards Board (FASB).

c. the Federal Trade Commission (FTC).

d. the Securities and Exchange Commission (SEC).

True or False? The most common "potential common shares" that may be included in computing DEPS are share options, warrants, and convertible preferred stock and bonds.

Answer 1

Ques 1. The correct answer is B.

In order for revenue recognition to be achieved, it must meet four key conditions:

• Persuasive evidence of an arrangement exists;
• Delivery has occurred or services have been rendered;
• The seller's price to the buyer is fixed or determinable; and.
• Collectability is reasonably assured

'Each party's rights regarding goods and services to be transferred are identified' is not a necessary condition.

Ques 2. The correct answer is D

The legal requirements regarding dividend policy of a company are determined by Securities and Exchange Commission (SEC) which is the regulator of securities market

Ques 3. The given statement is TRUE

Examples of potential common stock
1. Options to purchase common stock
2. Warrants to purchase common stock
3. Convertible preferred stock
4. Convertible debt securities