124) Sanjeev enters into a contract offering variable consideration. The contract pays him
$1,000/month for six months of continuous consulting services. In addition, there is a 60%
chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an
additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that
this contract qualifies for revenue recognition over time.
Assume that Sanjeev estimates variable consideration as the most likely amount. After Sanjeev
has recognized revenue for two months of the contract, he changes his assessment of the chance
the contract will pay him $3,000 to 70%. What adjustment to revenue should Sanjeev recognize
to account for that change in estimate?
A) Debit of $1,000
B) Debit of $334
C) Credit of $1,000
D) Credit of $334
125) On June 1, 2018, Emmet Property Management entered into a 2-year contract to oversee
leasing and maintenance for an apartment building. The contract starts on July 1, 2018. Under
the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an
additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds
90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the
revenue recognition over time is appropriate for this contract.
Assume Emmet estimates variable consideration as the expected value. How much revenue
should Emmet recognize on this contract in 2018?
A) $25,000
B) $26,125
C) $28,750
D) $50,000
126) On June 1, 2018, Emmet Property Management entered into a 2-year contract to oversee
leasing and maintenance for an apartment building. The contract starts on July 1, 2018. Under
the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an
additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds
90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the
revenue recognition over time is appropriate for this contract.
Assume Emmet estimates variable consideration as the most likely amount. How much revenue
should Emmet recognize on this contract in 2018?
A) $25,000
B) $26,125
C) $28,750
D) $50,000
127) On June 1, 2018, Emmet Property Management entered into a 2-year contract to oversee
leasing and maintenance for an apartment building. The contract starts on July 1, 2018. Under
the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an
additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds
90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the
revenue recognition over time is appropriate for this contract.
Assume that Emmet accrues revenue each month, and estimates variable consideration as the
most likely amount. On November 1, Emmet revises its estimate of the chance the building will
exceed the 90% occupancy threshold to a 70% chance. What is the total amount of revenue
Emmet should recognize on this contract in November of 2018?
A) $3,125
B) $4,167
C) $4,792
D) $7,291
128) Which of the following is not an indicator that the constraint on recognizing variable
consideration should be applied?
A) Poor (limited) evidence on which to base an estimate
B) A broad range of outcomes that could occur
C) A short delay before uncertainty resolves
D) A history of the seller changing payment terms on similar contracts
129) On January 1, 2018, Elite Advertising was contracted to run a marketing campaign for
Pharm King’s new dieting pills. In addition to getting a base fee of $150,000 for the 3-year
campaign, Elite also may get an additional 5% of the base fee as a bonus if a targeted sales level
is reached at the end of three years. Elite currently lacks sufficient information to make an
estimate of the likelihood of the expected bonus, with the marketing director indicating that “If
you forced me to make an estimate, I’d say we have a 50/50 chance. But don’t quote me on that –
it’s really too early to tell.” Elite concludes this contract qualifies for revenue recognition over
time, and estimates variable consideration using the most likely amount. How much revenue
should Elite recognize as of December 31, 2018?
A) $50,000
B) $51,250
C) $52,500
D) $57,500
130) Boomerang Computer Company sells computers with an unconditional right to return the
computer if the customer is not satisfied. Boomerang has a long history selling these computers
under this returns policy and can provide precise estimates of the amount of returns associated
with each sale. Boomerang most likely should recognize revenue:
A) When Boomerang delivers a computer to a customer, ignoring potential returns.
B) When Boomerang delivers a computer to a customer, in an amount that is reduced by the
expected returns.
C) When Boomerang receives cash from the customer.
D) When a customer returns a computer.
131) Gunk Goblin sells vacuums and just launched a policy where customers have the right to
return a vacuum during a three-year period following purchase. Gunk management has no
experience under this sort of policy and does not believe it can accurately estimate returns. What
is the longest period of time that Gunk may have to wait before recognizing revenue associated
with one of these sales?
A) No time delay, recognize revenue upon delivery.
B) Gunk should recognize revenue as cash is received.
C) Gunk should defer revenue recognition until costs are recovered.
D) Three years, after the right of return has expired.
132) Under which of the following circumstances is it most appropriate to use the residual
method to estimate stand-alone selling prices?
A) The seller hasn’t previously sold the product and hasn’t determined a price for it.
B) The seller provides the product bundled with other goods or services.
C) The seller does not have competitors from which to observe market prices of similar products.
D) The seller is unable to accurately estimate variable consideration associated with the contract.
133) Which of the following is not an approach for estimating stand-alone selling prices?
A) Adjusted market assessment approach
B) Expected cost plus margin approach
C) Residual approach
D) Fair market appraisal approach
The following information applies to the questions displayed below.
Wilson Links Products sells a product that involves two separate performance obligations: the
SwingRight golf club weight and the SwingCoach teaching software. SwingRight has a stand-
alone selling price of $150. Wilson sells both the SwingRight and the SwingCoach as a package
deal for $200. The SwingCoach software is not sold separately. Wilson is aware that other
vendors charge $100 for similar software, and Wilson’s prices are generally 10% lower than what
is charged by those vendors. Wilson estimates that it incurs approximately $65 of cost per copy
of the software, and usually charges 50% above cost on similar products.
134) Estimate the stand-alone selling price of the software using the adjusted market assessment
approach.
A) $50
B) $80
C) $90
D) $97.50
135) Estimate the stand-alone selling price of the software using the expected cost plus margin
approach.
A) $50
B) $80
C) $90
D) $97.50
136) Estimate the stand-alone selling price of the software using the residual approach.
A) $50
B) $80
C) $90
D) $97.50
137) Which of the following does not apply to a seller who is a principal?
A) Has control over goods or services
B) Primarily responsible for providing goods or services to customer
C) Exposed to risks associated with holding inventory
D) Primary performance obligation is to facilitate the transfer of goods or services
138) Which of the following applies to a seller who is an agent?
A) Warehouses inventory
B) Liable for the delivery of goods or services to the client
C) Charges a commission for each transaction
D) Records revenue at full transaction price
139) Explodia.com sells fireworks over the Internet. Customers access Explodia’s website and
select particular products, and Explodia refers the customer order to a fireworks manufacturer
who fulfills the order, ships to the customer, and pays Explodia a 20% commission. Which of the
following is true about Explodia?
A) Explodia is an agent in this transaction.
B) Explodia is primarily responsible for providing the product to the customer.
C) Explodia’s income statement would report gross revenue and cost of sales associated with
these transactions.
D) Explodia warehouses inventory.
140) Jing Statistical Services operates a website that links experienced statisticians with
businesses that need data analyzed. Statisticians post their rates, qualifications, and references on
the website, and Jing receives 25% of the fee paid to the statisticians in exchange for identifying
potential customers. VetMed Associates contacts Jing and arranges to pay a consultant $1,500 in
exchange for analyzing some data. Jing’s income statement would include the following with
respect to this transaction:
A) Revenue of $1,500
B) Revenue of $1,500, and cost of services of $1,125
C) Revenue of $375
D) Revenue of $1,875 and cost of services of $1,500
141) Assume a contract for the sale of goods specifies that payment is to be made four months
after delivery of a product. The seller is likely to do which of the following, with respect to the
time value of money over the life of the contract?
A) Recognize interest expense.
B) Recognize interest revenue.
C) Recognize additional cost of goods sold.
D) Ignore the time value of money.
142) Assume a contract for the sale of goods specifies that payment is to be made 15 months
prior to delivery of a product. The seller is likely to do which of the following with respect to the
time value of money over the life of the contract?
A) Recognize interest expense.
B) Recognize interest revenue.
C) Recognize additional cost of goods sold.
D) Ignore the time value of money.
143) Johnson sells $100,000 of product to Robbins, and also purchases $10,000 of advertising
services from Robbins. The advertising services have a fair value of $8,000. Johnson should
record revenue on its sale of product to Robbins of:
A) $100,000
B) $98,000
C) $92,000
D) $90,000
144) Which of the following is not true?
A) Licensing fees are recognized as revenue over time whenever the seller expects its ongoing
activities to affect the benefits that the buyer receives from intellectual property.
B) License fees are recognized as revenue over time for any license that is viewed as providing a
right of access.
C) License fees are recognized as revenue at a point in time if the buyer expects that the seller’s
future activities will not affect the benefit the buyer derives from the intellectual property.
D) Licensing fees are recognized as revenue at the end of the license period, when the seller has
completed its performance obligation to provide access to its intellectual property.
145) Which of the following is not true?
A) Licenses for functional intellectual property typically have revenue recognized at a point in
time.
B) Licenses for symbolic intellectual property convey a right of use, and not a right of access.
C) Licenses for functional intellectual property can be viewed as conveying an access right.
D) Software and media are examples of functional intellectual property.
146) Maas LLP developed software that helps farmers to plow their fields in a manner that
prevents erosion and maximizes the effectiveness of irrigation. Sunny Dale paid a licensing fee
of $20,000 for a copy of the software. Although Sunny Dale can use the software as long as it
wants, Maas expects that Sunny Dale will use the software for approximately 5 years. Maas does
not anticipate any further interaction with Sunny Dale following transfer of the license. How
much revenue should Maas recognize in the first year of the contract?
A) $0
B) $4,000
C) $5,000
D) $20,000
147) The Ultimate Frisbee League (UFL) licenses its trademark to Tank-Skin Apparel. Under the
license arrangement, Tank-Skin pays the UFL a $1 million initial license fee plus a bonus when
annual sales of Tank-Skin merchandise reach a threshold. The license agreement is for 4 years.
How much of the $1 million initial license fee should the UFL recognize as revenue in the first
year of the contract?
A) $0
B) $250,000
C) $1,000,000
D) Cannot tell from information given.
148) The Ultimate Frisbee League (UFL) licenses its trademark to Tank-Skin Apparel. Under the
license arrangement, Tank-Skin pays the UFL a $1 million initial license fee plus a bonus when
annual sales of Tank-Skin merchandise reach a threshold. The license agreement is for 4 years.
Assume that the UFL anticipates that, in addition to receiving the $1 million license fee, it will
receive a bonus of $2 million in year 1 of the contract and a bonus of $3 million in years 2-4 of
the contract based on Tank-Skin’s sales. Also assume that the UFL is convinced that it is
probable there will not be a significant reversal of any revenue recognized with respect to the
bonus in subsequent periods. At the inception of the contract, what is the amount of transaction
price that the UFL would estimate with respect to this license arrangement?
A) $0
B) $1,000,000
C) $3,000,000
D) $12,000,000
149) The Fremont (Ireland) Flyers were a semi-professional carriage racing team that competed
up until the early 1930’s. Mary Smith owns the Fremont Fliers’ trademark, and recently licensed
it to the Fremont (California) Flyers roller derby team. The license allows the roller derby team
to use the trademark for five years for a total of $15,000.
Under U.S. GAAP, how much revenue would Mary recognize in year 1 of the license?
A) $0
B) $1,500
C) $3,000
D) $15,000
150) The Fremont (Ireland) Flyers were a semi-professional carriage racing team that competed
up until the early 1930’s. Mary Smith owns the Fremont Fliers’ trademark, and recently licensed
it to the Fremont (California) Flyers roller derby team. The license allows the roller derby team
to use the trademark for five years for a total of $15,000.
Under IFRS, how much revenue would Mary recognize in year 1 of the license?
A) $0
B) $1,500
C) $3,000
D) $15,000
151) Which of the following is not true about accounting for revenue from franchise
arrangements?
A) Franchise arrangements often include a performance obligation for a license as well as for
delivery of goods or services.
B) Franchise arrangements typically include one or more performance obligations for which
revenue is recognized at a point in time.
C) Franchise arrangements typically include one or more performance obligations for which
revenue is recognized over a period of time.
D) Franchise arrangements typically include one performance obligation because the goods or
services included in the arrangement are not separately identifiable.
152) Pita Pal sells fast-food franchises. Pita Pal receives $75,000 from a new franchisee for
providing initial training, equipment, and furnishings that together have a stand-alone selling
price of $75,000. Pita Pal also receives $36,000 per year for use of the Pita Pal name and for
ongoing consulting services (starting on the date the franchise is purchased). Rachel became a
Pita Pal franchisee on March 1, 2018, and on May 1, 2018 Rachel had completed training and
was open for business. How much revenue in 2018 will Pita Pal recognize for its arrangement
with Rachel?
A) $75,000
B) $99,000
C) $105,000
D) $111,000
153) Which of the following is typically true for a bill-and-hold arrangement?
A) Revenue is recognized at the point in time when the arrangement is made.
B) Revenue is recognized at the point in time when goods are manufactured.
C) Revenue is recognized at the point in time when the delivery of goods is made.
D) Revenue is recognized at the point in time at which payment from the customer is received.
154) On June 1st, Joseph & Company received a $500 deposit for 80 cases of wine. On June
10th the customer identified specific vintages that are included in Joseph’s inventory, and asked
that Joseph not ship the wine until June 20 so the customer could ready space to store the wine,
so Joseph set those wines aside for the customer, boxed and ready for shipment to the customer.
On June 20th the wine was shipped and delivered to the customer. Joseph likely would recognize
revenue on
A) June 20th.
B) June 10th.
C) June 1st.
D) Upon consumption of the wine by the customer.
155) Which of the following is most true regarding consignment arrangements?
A) Revenue is recognized at the point in time when the consignment arrangement is made.
B) Revenue is recognized when goods are transferred to the consignee.
C) Revenue is recognized upon sale by the consignee to an end customer.
D) Revenue is never recognized because GAAP does not allow such arrangements.
156) Todd Sweeney is an artist who sells his work under consignment (he displays his work in
local barbershops, and customers purchase his work there). Sweeney recently transferred a
painting on consignment to a local barbershop.
Sweeney most likely should recognize revenue when:
A) He paints the painting, because the painting is produced while he works.
B) He transfers the painting to a barbershop.
C) The barbershop sells the painting.
D) The barbershop’s right of return expires.
157) Todd Sweeney is an artist who sells his work under consignment (he displays his work in
local barbershops, and customers purchase his work there). Sweeney recently transferred a
painting on consignment to a local barbershop.
After Sweeney has transferred a painting to a barbershop, the painting:
A) Should be counted in Sweeney’s inventory until the barbershop sells it.
B) Should be counted in the barbershop’s inventory, as the barbershop now possesses it.
C) Should be counted in either Sweeney’s or the barbershop’s inventory, depending on which
incurred the cost of preparing the painting for display.
D) We lack sufficient information to know who should carry the painting in inventory.
158) Bull’sEye sells gift cards redeemable for Bull’sEye products either in-store or online.
During 2018, Bull’sEye sold $2,000,000 of gift cards, and $1,800,000 of the gift cards were
redeemed for products. As of December 31, 2018, $150,000 of the remaining gift cards had
passed the date at which Bull’sEye concludes that the cards will never be redeemed. How much
gift card revenue should Bull’sEye recognize in 2018?
A) $2,000,000
B) $1,950,000
C) $1,850,000
D) $1,800,000