SoftTek Inc. licenses customer-relationship software to Lopez Company. In addition to providing the software itself, SoftTek promises to provide consulting services by extensively customizing the software to Lopezs information technology environment, for a total consideration of $600,000. In this case, SoftTek is providing a significant service by integrating the goods and services (the license and the consulting service) into one combined item for which Lopez has contracted. In addition, the software is significantly customized by SoftTek in accordance with specifications negotiated by Lopez. Which of the following statements is most likely true regarding the given information?

Select one:

a.

The total consideration of $600,000 should be recognized altogether at a one point in time.

b.

The software license and the service should be separately recognized as two performance obligations

c.

The total consideration of $600,000 should be recognized altogether over a period of time.

d.

None of the above is correct.

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On January 1, 2020 Hallette Company sold goods to Mary Miller Company for $400,000 in exchange for $100,000 in cash and a 5-year zero-interest bearing note with a face amount of $401,468 and a present value of $300,000. Hallette Company also determined that the note has an imputed interest rate of 6%. The goods have an inventory cost on Hallettes books of $275,000. Which of the following will be part of a correct entry by Hallette?

Select one:

a.

On January 1, 2020 it should record a debit to Notes Receivable in the amount of $300,000.

b.

On January 1, 2020 it should record a debit to Inventory of $275,000.

c.

On December 31, 2020 it should record a credit to Interest Revenue of $18,000.

d.

On January 1, 2020 it should record a credit to Sales Revenue of $401,468.

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Shreve Co. entered into a contract that involves meeting two performance obligations. Shreve Co. are required by the contract to deliver two products. Product A has a stand-alone selling price of $100, and product B has a stand-alone selling price of $200. The price for the combined product is $240. How much of the transaction price would be allocated to the performance obligation for delivering product A?

Select one:

a.

$40

b.

$60

c.

$80

d.

$100

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Eagle Bend Co. enters into a contract offering variable consideration. The contract pays Eagle Bend $2,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $4,000 and a 40% chance the contract will pay an additional $6,000, depending on the outcome of the consulting contract. Eagle Bend concludes that this contract qualifies for revenue recognition over time.

Assume Eagle Bend estimates variable consideration as the most likely amount. What is the amount of revenue it would recognize for the first month of the contract?

Select one:

a.

$2,000

b.

$2,667

c.

$2,800

d.

$2,400

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Allen Co. wrote a contract that involves two separate performance obligations. Allen cannot estimate the stand-alone selling price of product A. Product B has a stand-alone selling price of $200. The price for the combined product is $240. How much of the transaction price would be allocated to the performance obligation for delivering product A if the residual approach is used?

Select one:

a.

$40

b.

$50

c.

$60

d.

Not sure.

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Clayton Consulting operates a website that links experienced statisticians with businesses that need data analyzed. Statisticians post their rates, qualifications, and references on the website, and Clayton receives 25% of the fee paid to the statisticians in exchange for identifying potential customers. Lovelace Associates contacts Clayton and arranges to pay a consultant $4,500 in exchange for analyzing some data. Claytons income statement would include the following with respect to this transaction:

Select one:

a.

Revenue of $4,500

b.

Revenue of $4,500, and cost of services of $3,375

c.

Revenue of $1,125

d.

Revenue of $5,625 and cost of services of $4,500

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To entice more customers into the store on Mondays, MamaJane's Co. is selling a slice of pizza for $1 less on Mondays. Normally a slice of pizza sells for $3. When Barbara buys a slice of pizza from MamaJane's on a Monday with cash, how should MamaJane's recognize this transaction?

Select one:

a.

Revenue of $3 should be recognized and $1 as a discount expense.

b.

Revenue of $2 should be recognized.

c.

Revenue of $2 should be recognized and $1 of unrealized revenue recognized.

d.

Revenue of $2 should be recognized and $1 of discount liability recognized.

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To promote sales, Baltic Co. offers a promotional coupon with every product it sells. The coupon gives the customer an opportunity to buy an electric trimmer that normally sells for $50 for only $30 (i.e., a 40% discount). The coupon must be redeemed within one year of the purchase. Baltic Co. estimates that 80% of customers will take advantage of the coupon. What is the stand-alone selling price of the coupon?

Select one:

a.

$16

b.

$20

c.

$30

d.

$50

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