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Blooms: Understand
Topic: Recognize revenue―Point in time or over time
[QUESTION]
55. Which of the following statements is not applicable to revenue recognition guidance
under ASC Topic 606?
a. Firms must disaggregate revenues into categories that depict how revenue is affected
by economic factors.
b. The standard applies a minimum number of categories that must be provided.
c. Disaggregated revenues are to be disclosed in a note to the financial statements.
d. Revenue may be disaggregated by geographic region.
56. Which of the following statements is not applicable to contract acquisition costs
under ASC Topic 606 guidance for revenue recognition?
a. Incremental costs of acquiring a contract must be capitalized and amortized over the
life of the contract.
b. Costs that would be incurred regardless of whether a contract is obtained are not
capitalized.
c. The capitalization requirement is subject to a practical expedient.
d. Costs must be capitalized even if the amortization period is one year or less.
57. Which of the following statements is not applicable to ASC Topic 606 guidance for
revenue recognition?
a. A contract asset is written down if it is deemed impaired and any related loss is
recognized.
b. A contract asset is impaired if the carrying amount exceeds the recoverable amount.
c. The recoverable amount is the remaining expected consideration to be received less the
costs of providing the goods and services that have not yet been expensed.
d. A contract asset is written down if it is deemed impaired and any related loss is
deferred.
58. The new ASC Topic 606 provides a model for revenue recognition that includes
a. five steps.
b. four steps.
c. three steps.
d. two steps.
59. Under ASC Topic 606, which of the following is not a criteria for revenue
recognition?
a. Rights regarding goods or services have been identified.
b. Delivery has occurred or services have been rendered.
c. Collectibility is probable.
d. The shipping terms are clearly stated in the contract.
60. Revenue for goods to be sold under a consignment arrangement of a manufacturer
and a retail store should be recognized by the manufacturer when
a. the manufacturer delivers the product to a retail store.
b. the seller promises to pay the manufacturer.
c. the goods are sold by the retail store.
d. the seller receives payment for the goods.
61. In the case of sales where the customer is billed before delivery of the goods,
a. the seller should always recognize revenue before the products are delivered to the
customer.
b. the goods belong to the customer and revenue recognition is deferred until delivery.
c. the seller may recognize revenue if control of the goods has been transferred to the
customer even though physical delivery has not taken place.
d. revenue will not be recognized until the goods are shipped to the customer.
62. In the case of goods delivered to a consignee under a consignment arrangement,
a. the consignor should not recognize revenue until the goods are transferred to a third
party.
b. the cash received to date should be recognized by the consignor as deferred revenue
until merchandise is delivered to the consignee.
c. revenue should be recognized when the consignor collects payment from the
consignee.
d. the seller should recognize revenue although the goods have not yet been transferred to
a third party.
63. Payments to a customer for slotting fees
a. can never be recognized.
b. must be expensed immediately.
c. might be considered a reduction in the selling price of goods sold to the customer.
d. are always expensed over the period benefited for the right to shelf space.
64. Internet companies that simply act as agent or broker for the transfer of goods must
record revenue based on
a. the cost of the product sold.
b. the fees it charges sellers.
c. the sales price of the product.
d. the gross profit of the product sold.
65. Which of the following statements does not apply to the principal/agent relationship
under ASC Topic 606 guidance for revenue recognition?
a. An agent reports revenue only for the net amount retained.
b. An agent may recognize revenue when its performance obligation to the principal is
satisfied.
c. A principal recognizes revenue for the gross amount paid by the customer.
d. Inventory risk is not an important factor in determining the relationship.
66. Under ASC Topic 606, revenue should be recognized for services when
a. the customer promises to pay for the service and the service date is confirmed.
b. the service contract is in writing and signed.
c. the service performance obligation is satisfied.
d. it is assured that there will be no need for warranty performance after service is
rendered.
67. The cost-plus approach
a. refers to contracts that are modified from their original terms during the course of the
contract.
b. refers to contracts where the contractor is not expected to recover all costs incurred in
completing the project.
c. is not allowed under ASC Topic 606 guidance for revenue recognition.
d. uses an assumed reasonable profit margin to determine the stand-alone price.
68. Examples of variable consideration include the following except:
a. rebates.
b. slotting fees.
c. performance bonuses.
d. volume discounts.
69. Wilson, Inc. sells, installs and maintains manufacturing equipment. The contract with
its customers to purchase equipment includes installation and includes a one-year
maintenance contract, renewable for up to five years. Because the useful life of the
equipment is expected to be five years, the company can reasonably expect its customers
to renew the maintenance contracts for the full five years. Wilson records the cost of
installation of the equipment as a capitalized contract and amortizes the cost over the
five-year maintenance agreement period. Because of a defect in model A5403, Wilson
anticipates that many of its customers will trade in the model and not renew the
maintenance contracts. Wilson, Inc. should
a. write down the full amount received for maintenance contracts for the full five years.
b. write down the full amount of installation costs.
c. write down the contract asset and recognize a loss equal to the difference between the
amount of maintenance contracts expected and the carrying amount.
d. do nothing until the customers fail to renew the maintenance contracts.
70. The new ASC Topic 606 for revenue recognition
a. addresses when and how revenue should be recognized in contracts that provide both
goods and services to customers.
b. eliminates both the percentage-of-completion method and the installment sales method
of revenue recognition.
c. will require companies to recognize a net liability contract position on all new
contracts; revenue will then arise from increases in the net contract position over the life
of the contract.
d. is more rules based than are existing standards.
71. Which of the following statements is not true regarding ASC Topic 606?
a. Long-term construction contracts is an area where the new standard clearly differs
from existing guidance.
b. Adoption for calendar reporting entities is first required for calendar 2018.
c. Current guidance on long-term contracts gives more flexibility to firms for determining
when revenue is recognized.
d. The new standard precludes the use of percentage-of-completion method for long-term
construction contracts.
72. Which of the following methods can be used to recognize revenue when a
performance obligation is satisfied over time?
a. The output method
b. The present value method.
c. The future value method..
d. The fair value method.
73.Which of the following statements is true regarding the new ASC Topic 606 for
revenue recognition?
a. The focus is on when the firm has earned the consideration to which it is entitled.
b. Early adoption is not allowed.
c. The new rules are more rules-based than principle-oriented.
d. Under IFRS, both public and non-public firms must adopt by 2018.
74. Which of the following statements is true regarding the five-step model in the ASC
Topic 606 guidance for revenue recognition?
a. The sale itself is the sole criterion for recognizing revenue.
b. If a sale is not paid for on time, the seller should not recognize revenue.
c. The performance obligations in the contract need to be identified.
d. The transaction price is not relevant.
75. 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?
a. The contract has commercial substance.
b. Collection is probable.
c. Payment terms may not include a variable component.
d. The rights of each party can be identified.
76. Contracts must be
a. legally enforceable.
b. in writing.
c. communicated verbally.
d. drafted by an attorney.
77. The residual approach to allocate transaction prices to multiple performance
obligations in a contract is appropriate when
a. The stand-along price of one or more of the goods or services is highly variable or
uncertain.
b. None of the goods and services included in the contract are not sold on a stand-alone
basis.
c. The stand-alone price of all of the goods or services is known.
d. None of these.
78. A patient of Dr. Jones presents his Medicare card after his appointment. The total
charge for the services was $100; however, Medicare will pay only $60 for this service
and the patient is to pay $20. Acceptance of the patient’s Medicare insurance creates a
contract
a. for payment of $100, regardless of what Medicare will pay.
b. for $20 and an $80 discount or price concession.
c. for payment of $80 and a $20 discount or price concession.
d. for payment of $60 and a price concession of $40.
79. Under the ASC Topic 606, which of the following statements is not a criteria that
may determine whether the percentage of completion method may be used to recognize
revenue
a. The customer receives and consumes the goods and services as the performance
obligations are satisfied.
b. The firm’s performance creates or enhances an asset under the customer’s control.
c. Satisfying the performance obligations does not create an asset with an alternative use
and the firm has a right to receive payment fro performance to date.
d. All of these are criteria that may be used to determine whether the percentage of
completion method may be used.
80. Which of the following statements does not apply to the installment sales method?
a. Deferred gross profit on installment sales is generally treated as a deduction from
installment sales in calculating the gross profit percentage.
b. Selling, general and administrative expenses related to installment sales are treated as
period costs.
c. The deferred gross profit account is generally classified as a contra-account to accounts
receivable.
d. The accounting system must match cash collections with the specific sales year to
which the cash collections relate.
81. Which of the following statements is true prior to ASC Topic 606 regarding
accounting for revenue recognition?
a. Under GAAP, the completed-contract method is always an acceptable alternative to the
percentage-of-completion method of accounting for a long-term construction project.
b. At the end of a long-term construction project, “retained earnings” will be the same
whether the completed-contract or the percentage-of-completion method of accounting is
used for the project.
c. Net asset balances will be the same no matter what revenue recognition method is
used.
d. Input measures are not applicable to any revenue recognition accounting method.
82. According to revenue recognition under ASC Topic 606, which of the following is a
factor applicable to identifying performance obligations in a contract?
a. The length of the contract.
b. The obligation is distinct in the context of the contract.
c. The payment terms of the contract.
d. The shipping terms of the contract
83. Regarding ASC Topic 606 guidance for revenue recognition, which of the following
statements is not true?
a. Prior to ASC Topic 606, U.S. GAAP related to revenue recognition was generally
based on industry-specific guidance.
b. The FASB was involved with deciding to create a single, unifying framework for
revenue recognition.
c. ASC Topic 606 is based on principles that are radically different from prior guidance.
d. A goal was to create a framework that could be applied to any industry and provide
similar results for similar fact sets.
84. Which of the following statements is not true regarding ASC Topic 606 guidance for
revenue recognition?
a. ASC Topic 606 applies to the sales of used equipment.
b. ASC Topic 606 includes the definition of a customer.
c. ASC Topic 606 allows for the combination of certain separate contracts.
d. ASC Topic 606 covers contract modifications.
85. Which of the following statements is true regarding contracts in ASC Topic 606
guidance for revenue recognition?
a. Contracts need to be legally enforceable to be considered under ASC Topic 606.
b. Contracts need to be in written form to be considered under ASC Topic 606.
c. No consideration can be received before a contract exists.
d. No price concessions can be made to an existing contract.
