Acct 351 test

With respect to delaying revenue recognition until completion of a long-term contract, it is the case that:

• estimated losses on the overall contract are recognized before the contract is completed.

• expenses are recognized each period, but revenue is only recognized when the contract is completed.

• use of this approach is not permitted under generally accepted accounting principles.

• neither gains nor losses are recognized until the contract is completed.

Which of the following is considered a performance obligation?

• Up-front registration fees for a gym membership

• Extended warranties on electronic products

• Quality-assurance warranties on electronic products

• A processing fee to obtain a bank loan

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?

• $0

• $1,000,000

• $3,000,000

• $12,000,000

In 2024, JRE2 would report gross profit (loss) of:

• $(223,000).

• $(150,000).

• $(206,000).

• $0.

Pick the option

• option a

• option b

• option c

• option d

On June 1^st, Lucy & Bros received an order for 500 cupcakes. Lucy delivered the cupcakes to the client on June 25^th. A $50 deposit was received on June 5^th and the remaining $450 was paid on June 30^th. Lucy likely would recognize revenue on:

• June 1^st

• June 5^th

• June 25^th

• June 30^th

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:

• he paints the painting, because the painting is produced while he works.

• he transfers the painting to a barbershop.

• the barbershop sells the painting.

• the barbershop's right of return expires.

On July 15, 2024, Ortiz & Company signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $90,000. The system included finely tuned scales that fit into EverFresh's automated assembly line, Ortiz's proprietary software modified to allow the weighing system to function in EverFresh's automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. Ortiz’s scales will only work with its proprietary software, and that software is not usable with other weighing systems. Ortiz competes with other vendors who offer ongoing calibration contracts for Ortiz's systems. If Ortiz was to provide these goods or services separately, it would charge $60,000 for the scales, $10,000 for the software, and $30,000 for the calibration contract. Ortiz delivered and installed the equipment and software on August 1, 2024, and the calibration service commenced on that date.

How many performance obligations exist in this contract?

• 0

• 1

• 2

• 3

What is the amount of gross profit on the project recognized by CCC during 2024?

Construction in progress = Actual costs incurred + Gross profit recognized

• $160 million

• $72 million

• $48 million

• Cannot be determined from the given information

Which of the following is not true?

• Licenses for functional intellectual property typically have revenue recognized at a point in time.

• Licenses for symbolic intellectual property convey a right of use, and not a right of access.

• Licenses for functional intellectual property can be viewed as conveying an access right.

• Software and media are examples of functional intellectual property.