Final review

Final Examination Prep
The final examination for this course is provided below.

Circle your choice for the best answer to each question.

1. An entity that has contracted to obtain goods or services:
a. Is a supplier
b. Is a customer
c. Cannot also be a subsidiary
d. Is collaborating on research and development activities

2. Contract criteria must be re-evaluated:
a. At the end of each reporting period
b. At the end of the fiscal year
c. Only when the seller notes a significant change in the relevant facts and circumstances
d. If the customer does not send back a confirmation as part of the year-end audit

3. A contract does not exist when:
a. There is no signature on the document
b. It is being combined with another contract for accounting purposes
c. Each party has a unilateral right to terminate the agreement and without compensating the other party
d. There has been no prior legal review of the contract terms

4. A good or service is considered to be distinct when:
a. The customer separately pays for the item
b. Delivery of the item is separately identified within the contract
c. Functionality of the deliverable is not assured unless this item is delivered
d. There is a standalone price for the item

5. The transaction price includes the following, except for:
a. Sales tax
b. Fees for services rendered
c. Freight charge
d. Rush charge

6. The expected value method is used when:
a. There are a large number of possible payment amounts
b. The result must match one of the prices that could be paid
c. The amount of consideration to be paid is fixed
d. All performance obligations have been fulfilled 66

7. The following factor should be present before including a financing component in a contract:
a. A short payment interval
b. There is a significant difference between the contract price and the cash price
c. The credit rating of the customer
d. The cash reserves of the seller

8. If the customer pays the seller with a noncash asset:
a. Do not account for the receipt until the asset has been liquidated
b. Use the residual method to determine its value
c. There is no contract
d. Measure the consideration at its fair value

9. The balance in a refund liability account is based on:
a. The amount of consideration paid to customers
b. The cost of goods sold reduction associated with expected returns
c. The number of units that the seller expects to have returned to it
d. The net amount of revenue apportioned to refunds

10. A contract modification may be accounted for as a separate contract when:
a. Distinctly different goods or services have been added to the contract
b. The price has increased materially
c. Some goods or services have not yet been transferred to the customer
d. The sellers entitlement to be paid has not been disturbed

11. All of the following criteria must be met before a contract fulfillment cost can be recognized as an asset, except for:
a. The cost is linked to a specific contract
b. The cost would have been incurred even if the seller had not obtained the contract
c. There is an expectation that the cost will be recovered by the seller
d. The cost will be used to satisfy future performance obligations

12. Under a customer acceptance clause, the seller can still recognize revenue prior to acceptance if:
a. The seller pays the customer to skip the acceptance review
b. There are no circumstances under which early recognition can be enacted
c. It creates a sufficiently large reserve to offset any possible customer rejections
d. The seller can determine in advance that the acceptance criteria will be met

13. When a seller grants a customer the right to acquire additional goods at a discount, the seller recognizes revenue when:
a. The customer places an order for the additional goods
b. The customer pays for the additional goods
c. The option expires
d. There is a recognizable standalone selling price for the option

14. It is permissible to recognize the entire amount of a pledge instead of its present value:
a. When the funds are to be received within one year
b. Under no circumstances
c. When the pledged amount is in the form of long-term assets
d. When the pledge is legally enforceable 67

15. When the seller has the right to repurchase an asset, this is known as:
a. A sale-leaseback
b. A put option
c. A forward
d. A call option

16. No revenue related to breakage should be recognized when:
a. It is probable that there will be a significant revenue reversal
b. The seller can estimate the amount of breakage
c. There is a remote likelihood that the customer will exercise its remaining rights
d. There are no unclaimed property laws

17. A contract liability arises when:
a. The seller expects to have a right to recovered products under a sales return arrangement
b. An impairment has not yet been recognized
c. The seller has been paid more than it has yet performed under a contract
d. The seller purchases a large amount of materials at the beginning of the contract period

18. The disaggregation concept is used to:
a. Identify recognition methods
b. Break down revenue to reflect the nature, amount, and timing of cash flows
c. Note the assets associated with completing the terms of a contract
d. Identify all major customers by name

19. The following method can be used to keep from mistakenly identifying third parties as customers:
a. In-process review of each proposed sale transaction
b. Build logic into the accounting software
c. Have the board of directors approve a guiding policy
d. Adopt a different method for assigning customer account names

20. To ensure that the most recent justification document is used by the staff for standalone pricing:
a. Include this issue in their annual performance reviews
b. Ensure that the document is revised regularly
c. Retain all document versions
d. Adopt version control

Last Completed Projects