Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Textbook Question
Chapter 17, Problem 2C
The first step in the revenue recognition process is determining if a contract is in place between the seller and the customer. A contract is an agreement between two or more parties that creates enforceable rights and obligations. The standard states that a contract may be written, oral, or implied by customary business practices. To be a contract, the accounting standard states that it must meet five criteria.
Required:
Discuss the criteria necessary for a contract to be considered under the revenue recognition process. How would a company account for a contract that does not meet the criteria?
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Which of the following statements regarding contracts is incorrect?a. Identifying the contract with the customer is the first step of the revenue recognition model.b. A contract must be written to be valid.c. For a business that provides services, the performance obligation is generally satisfiedwhen the service provider has substantially completed the service for the customer.d. A contract is an agreement between two parties that creates enforceable rights orperformance obligations.
The FASB has established a Five-Step process to recognize revenue. Which of the following is not one of those steps?
A.
Ability to identify the contract with the customer.
B.
Determination thatcollection of the entitled contractual consideration from the customer is probable.
C.
Properly identify all of the performance obligations within the contract.
D.
Ability to determine the transaction price.
E.
Properly identify all of the deliverables and allocate the transaction price to each.
(Fundamentals of Revenue Recognition) Respond to the questions related to the following statements.1. A wholly unperformed contract is one in which the company has neither transferred the promised goods or services to the customer nor received, or become entitled to receive, any consideration. Why are these contracts not recorded in the accounts?2. Performance obligations are the unit of account for purposes of applying the revenue recognition standard and therefore determine when and how revenue is recognized. Is this statement correct?3. Elaina Company contracts with a customer and provides the customer with an option to purchase additional goods for free or at a discount. Should Elaina Company account for this option?4. The transaction price is generally not adjusted to reflect the customer’s credit risk, meaning the risk that the customer will not pay the amount to which the entity is entitled to under the contract. Comment on this statement.
Chapter 17 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 17 - Prob. 1GICh. 17 - Prob. 2GICh. 17 - When a company recognizes revenue during a period,...Ch. 17 - Prob. 4GICh. 17 - Prob. 5GICh. 17 - What is the proper accounting for a wholly...Ch. 17 - If a seller enters into more than one contract...Ch. 17 - Prob. 8GICh. 17 - Prob. 9GICh. 17 - Prob. 10GI
Ch. 17 - Prob. 11GICh. 17 - Prob. 12GICh. 17 - Prob. 13GICh. 17 - Prob. 14GICh. 17 - Prob. 15GICh. 17 - Prob. 16GICh. 17 - If the standalone selling price of a good or...Ch. 17 - Prob. 18GICh. 17 - Prob. 19GICh. 17 - If the sellers performance creates on asset (e.g.,...Ch. 17 - Describe input and output methods used to measure...Ch. 17 - Prob. 22GICh. 17 - Prob. 23GICh. 17 - Prob. 24GICh. 17 - Prob. 25GICh. 17 - A company should recognize revenue when a. the...Ch. 17 - A contract between one or more parties creates: a....Ch. 17 - Morgan Company and its customer agree to modify...Ch. 17 - Chlorine Corp. has a contract to deliver pool...Ch. 17 - Prob. 5MCCh. 17 - Prob. 6MCCh. 17 - In accounting for a long-term construction...Ch. 17 - Prob. 9MCCh. 17 - Prob. 10MCCh. 17 - CustomTee Inc. contracts with various customers to...Ch. 17 - Yankee Corp. agrees to provide Albany Company 24...Ch. 17 - Prob. 3RECh. 17 - Prob. 4RECh. 17 - LongDrive sells a specialized golf club that has...Ch. 17 - Prob. 6RECh. 17 - VolleyElite runs a volleyball program consisting...Ch. 17 - Enterprise Solutions Inc. licenses its...Ch. 17 - Prob. 9RECh. 17 - Magical Memories sells Florida theme park vacation...Ch. 17 - Prob. 11RECh. 17 - Robotics Inc. contracts with a customer to build a...Ch. 17 - CoolShoes sells its elite tennis shoes to sports...Ch. 17 - Using the information in RE17-13, what journal...Ch. 17 - GameDay sells recreational vehicles along with...Ch. 17 - Prob. 16RECh. 17 - Using the information provided in RE17-16, prepare...Ch. 17 - Prob. 18RECh. 17 - Prob. 19RECh. 17 - Company enters into a contract with Dearborn Inc....Ch. 17 - Consider each of the following scenarios: a. A...Ch. 17 - On August 1, 2019, Aiken Corp. enters into a...Ch. 17 - On January 1, 2019, Spring Fashions Inc. enters...Ch. 17 - On January 1, 2019, Loud Company enters into a...Ch. 17 - Assume the same facts as in El7-5. On July 1,...Ch. 17 - Assume the same facts as in E17-5 and ignore...Ch. 17 - Prob. 8ECh. 17 - GrillMaster Inc. sells an industry-leading line of...Ch. 17 - WaterWorld Inc. operates an aquarium and water...Ch. 17 - Prob. 11ECh. 17 - Jonas Consulting enters into a contract to provide...Ch. 17 - On March 1, 2019, Elkhart enters into a new...Ch. 17 - On January 5, 2019, ShoeKing Corp. sells for cash...Ch. 17 - On January 1, 2019, Piper Company entered into an...Ch. 17 - On January 1, 2019, Fulton Inc. enters into a...Ch. 17 - Prob. 17ECh. 17 - On December 1, 2019, AwakcAllNight Inc. sells...Ch. 17 - Rix Company sells home appliances and provides...Ch. 17 - Assume the same facts as in E17-19, except that...Ch. 17 - Crazy Computer Store sells a back-to-school bundle...Ch. 17 - Each of the following is an independent situation...Ch. 17 - Prob. 23ECh. 17 - Prob. 24ECh. 17 - Koolman Construction Company began work on a...Ch. 17 - Prob. 26ECh. 17 - Each of the following independent situations...Ch. 17 - JustKitchens Inc. provides services to restaurants...Ch. 17 - On January 1, 2019, ForeRunner Inc. enters into a...Ch. 17 - January 2, 2019, TI enters into a contract with...Ch. 17 - Prob. 5PCh. 17 - Prob. 6PCh. 17 - Fender Construction Company receives a contract to...Ch. 17 - SoccerHawk Merchandise Inc. enters into a 6-month...Ch. 17 - Prob. 9PCh. 17 - Prob. 10PCh. 17 - Blackmon Company provides locator services to the...Ch. 17 - Prior to ASU 2014-09 changing the principles...Ch. 17 - The first step in the revenue recognition process...Ch. 17 - Prob. 3CCh. 17 - One of the more difficult issues that companies...Ch. 17 - Prob. 5CCh. 17 - On October 1, 2019, Grahams WeedFeed Inc. signs a...Ch. 17 - On January 1, 2019, Mopps Corp. agrees to provide...Ch. 17 - Prob. 8CCh. 17 - Revenue for a company is recognized for accounting...Ch. 17 - Prob. 10C
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- At what point does revenue recognition occur? A. When the purchase order is received B. When the seller receives the money for the job C. When the seller has met performance D. When the purchaser makes paymentarrow_forwardA company should recognize revenue when a. the revenue is earned b. die contract is signed c. the seller satisfies the performance obligation d. the consideration is receivedarrow_forwardA contract between one or more parties creates: a. the date that cash is paid by the customer b. enforceable rights and obligations for the parties c. revenue for recognition d. the fixed amount of payments for the good or servicearrow_forward
- Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services. That core principle is implemented by (1) identifying a contract with a customer, (2) identifying the performance obligations in thecontract, (3) determining the transaction price of the contract, (4) allocating that price to the performanceobligations, and (5) recognizing revenue when (or as) each performance obligation is satisfiedarrow_forwardWhich of the following is not included in the FASB's 5-step model for evaluating when a company should recognize revenue? Identify the contract with a customer. Identify the performance obligations in the contract. Determine the transaction price. Recognize revenue when cash payment is received.arrow_forwardThe third step in the process for revenue recognition is to (Enter 1, 2, 3, or 4 that represents the correct answer): determine the separate performance obligations in the contract. allocate transaction price to the separate performance obligations. determine the transaction price. determine the amount of revenue when each performance obligation is satisfied.arrow_forward
- In general, revenue is recognized whena. The sales price has been collectedb. A purchase order has been receivedc. A good or service has been delivered to a customerd. A contract has been signedarrow_forwardIn accordance with IFRS 15, customer loyalty awards on the goods or services sold, the transaction price received or receivable by the entity must be allocated between the goods or services sold and the customer loyalty awards redeemable in the future partly as revenue and partly as a liability. must be recognized in full as a liability. must be recognized in full as revenue. must be recognized in full as an expense.arrow_forwardExplain the revenue recognition process when a performance obligation is satisfied over time according to IFRS 15-Revenue from Contracts with Customers.arrow_forward
- NZ IFRS 15 identifies the seven important elements of a contract with a customer that need to be carefully reviewed by a reporting entity in relation to the recognition of revenue. These seven steps must be applied to each contract with a customer in a sequential manner. a. True b. False Please Introduction and explanation step by step without plagiarism pleasearrow_forwardIn applying the revenue recognition principle, which of the following statements regarding multiple performance obligations is incorrect? A. If the transaction has multiple performance obligations, the transaction price is allocated among the different performance obligations. B. Revenue is recognized after all performance obligations are satisfied. C. A contract might have multiple performance obligations. D. The business can recognize revenue when (or as) it satisfies each performance obligation by transferring a good or service to a customer.arrow_forwardBriefly describe the guidelines provided by GAAP for the recognition of revenue by a franchisor for an initialfranchise feearrow_forward
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