raise 4. When a customer pays a seller a significant period of time after the goods are delivered, the consideration received by the seller always includes both transaction revenue and interest income. True False 5. If the customer buys goods and promises consideration in a form of a non-cash asset, the seller values the transaction based on the fair value of the non-cash asset, not on the stand-alone price of the goods sold True False 6. GAAP requires that incremental costs of obtaining a contract must be capitalized and amortized over the time of the contract. True False 7. Construction in Progress is an inventory account typically valued at on the balance sheet at net realizable value. True False 8. The first step of the revenue recognition model is to identify the contract with the customer. to identify the performance obligations to the customer. to recognize revenue when it is earned. to determine the transaction price. 9. A company should only apply the revenue recognition standard to contracts that meet all of the following criteria except the contract has commercial substance. collectability of consideration is probable. each party's rights regarding goods and services to be transferred are identified. the transaction price is fixed and determinable. 10. A company must account for a contract modification as a new contract if the modification adds distinct goods or services at a price that reflects their stand-alone selling price. the seller has the right to receive consideration equal to the stand-alone selling price of the promised goods or services o the promised goods or services are distinct and separable from other goods or services promised in the original contract the promised goods or services are distinct and the contract has commercial substance. = = ill 12. In January, Cigare Corp. agrees to a contract to sell 14,000 sports caps for $140,000 to Dilly, Inc. In March, after 5,000 caps have been delivered. Cigare and Dilly modify the agreement to sell an additional 6,000 caps for $33,000 which is significantly lower than Cigare's stand-alone selling price at that time. During April, Cigare delivers 2,000 caps. How much revenue will Sigare recognize for the month of April? $17,300 $16,400 $15,500 $11,000 13. A is an explicit or implicit promise in a contract with a customer to transfer goods or services. constructive obligation performance obligation liability obligation constructive liability 14. What is the appropriate revenue recognition procedure for upfront payments received in a contract with a customer? capitalize and amortize over the contract term defer recognition until the end of the contract recognize immediately recognize whenever the related performance obligation is satisfied 15. The role of the agent in a principal-agent relationship is to provide goods or services to a customer. arrange for the principal to provide goods or services to a customer, develop and maintain goodwill of the principal's customers. collect payment from the customer and remit it to the principal. 16. A customer agrees to pay a seller over time with a promissory note. Which of the following statements related to this situation is false? The transaction price is determined by adjusting the promised amount of future consideration to reflect the time value of money The objective for the adjusting for time value of money is to separate the contract into a revenue element and a financing element. Focu 17. Donner Construction enters into a contract with a customer to build a warehouse for $600,000 on March 30, 2020 with a performance bonus of $30,000 if the building is completed by August 31, 2020. The bonus is reduced by $10,000 each week that completion is delayed. Donner commonly includes these completion bonuses in its contracts and based on prior experience, estimates the following completion outcomes: Completed by Probability August 31, 2020 60% September 7, 2020 30% September 14, 2020 10% What is the transaction price for this transaction? $630,000 $625,000 $615,000 $600,000 18. The transaction price for multiple performance obligations should be allocated based on total transaction price less residual value. forecasted cost of satisfying performance obligation. what the company could sell the goods for on a stand-alone basis. Cselling price from the company's competitors. 19.BoTeck is a full-service technology company. It provides equipment, installation services, and training services. For a recent major group sale, the transaction price had a variable component contingent upon a threshold being reached. Revenue allocated to equipment and installation services was recognized in fiscal year 2019; revenue allocated to training services is being recognized over the next two years through the end of 2021. Now, in February 2020, the contingent outcome previously expected has proven to be false and the transaction price has changed such that additional revenue should be recognized for these performance obligations What is the proper accounting for this change in transaction price for equipment and installation services? prior period adjustment to increase 2019 revenue for the full amount of change increase 2020 and 2021 revenue by allocating adjustment equally to each year for the proportional amount of change increase 2020 revenue by allocating adjustment to January and February equally to each month for the proportional amount of change increase 2020 revenue by adjusting February for the full amount of change Foc 20. Exhibit 17-1 The following information relates to a project of the Cumberland Construction Company: 2018 2019 2020 Actual total costs incurred to date $136,000 S616,000 $882,000 Estimated costs to complete 714,000 264,000 The contract price was $1,200,000. Cumberland uses the cost-to-cost method of revenue recognition Refer to Exhibit 17-1. What amount of revenue would be recognized in 2018? $400,000 $192,000 $136,000 SO 21. A contract asset represents the seller's performance obligation arises when a customer's payment of consideration occurs prior to the seller's performance under the contract represents the seller's unconditional right to receive consideration from a customer. arises when the seller's right to consideration from a customer is conditional upon something other than the passage of time. 22. What type of account is Construction in Progress? C c asset contra asset expense receivable Focus receivable 23. A construction project is expected to take two-and-a-half years to complete. Partial Billings is less than Construction in Progress. The two accounts are reported together on the balance sheet in the current assets section. long-term assets section. current liabilities section. long-term liabilities