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Exam 4: Revenue Recognition and the Statement of Income

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Question 41

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A contract has commercial substance when the risk, timing, or amount of the company's future cash flows is expected to change as a result of the contract.

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Question 42

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The choice of presenting expenses based on their nature or function rests with management.

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Question 43

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The amount of revenue is one of the most significant amounts reported in the financial statements.

In the retail industry, when customers pay cash at the time of sale, revenue is recognized

Under IFRS, companies offering sales discounts must adjust the original amount of the sales revenue by the expected sales discount.

If your university or college presents its expenses using the terms academic, administration, and student services, the university is presenting their expenses

When customers are granted a right to return goods purchased, management must estimate the extent of expected returns.

Under the accrual basis, accounting revenues are recognized when they are earned regardless of whether the related cash was received by the company.

When a company reports net income, financial statement users see this as a sign that

During the current year, BMI Corporation sold $1,250,000 in goods that cost $750,000. Cash sales were $500,000 and credit sales $750,000. BMI collected $500,000 of the credit sales during the year. What amount of revenue should BMI recognize for the year under the revenue recognition criteria of the contract-based approach?

Revenue recognition approaches differ between IFRS and ASPE.

Basic EPS is

EPS may be reported either on the statement of financial position or the statement of income.

Gossip Girl publishes and sells magazines catering to teenage girls. Subscriptions are sold for $36 for twelve monthly issues. The following chart indicates how many magazines were sold during 2020 and what payment they had received from subscribers by year-end. The first magazine is delivered the same month the subscription is sold. Gossip Girl uses the earning approach for revenue recognition. Instructions a) How much cash did Gossip Girl collect in 2020? b) What amount of revenue should Great Gossip report for the year ended December 31, 2020? c) Are there differences between the amount of cash collected and the revenues recognized? If so, explain why.

Variable consideration in the transaction price refers to, at least in part:

On September 1, Duval Enterprises collected rent for 3 months in advance. The total collected was $1,200. How much rent revenue should Duval recognize for the month of September?

On January 2, 2020 Geek Computers enters into a contract with Bison Protection, a well-established fire protection company, to upgrade and install new computers at 65 work stations. As part of the contract Geek computers also agrees to connect and network all of the computers. Contract details include the following: $\bullet$ The total contract price is $67,500. $\bullet$ The normal retail price of the computers is $48,750. Geek Computers would normally charge $12,500 for an installation of this size and $10,750 for networking services. $\bullet$ The computers cost Geek Computers $500 each. $\bullet$ The contract requires Geek Computers to deliver the computers by January 25, 2020 and have the installation and networking completed by February 15, 2020. $\bullet$ Bison agrees to pay $45,000 upon the delivery of the computers and the balance once the installation is complete, the final payment was made February 28. $\bullet$ Geek Computers uses the contact based approach for revenue recognition. Instructions a) Determine if there is a contract between Geek Computers and Bison Protection. b) If there is a contract, record Geek Computer's entries related to these transactions.

The contract-based approach to revenue recognition must be used under: