Chapter 18, Problem 1CA

To determine

Revenue recognition: GAAP (Generally accepted accounting principle) states that under specific conditions only the revenue is recognized and accounted for.

Contract assets: When the right to payment is based on factors other than passage of time and the goods are already transferred.

Contract liabilities: An entity’s obligation to transfer the product or services to the customer before the consideration is prepaid by the customer or the time that the customer’s consideration is due for products or services will be yet provided by the entity.

(a)

To describe: To describe the revenue recognition step.

To determine

(b)

To explain: To explain the importance of contracts in revenue recognition.

To determine

(c)

To explain: To explain the fair value measurement concepts applied in implementation of the five-step process.

To determine

(d)

To determine how to apply accounting definitions in this process.