Reference no: EM133165361

Questions -

Q1. On July 15, 2021, Richard Co. signed a contract to provide Dale Bakery with an ingredient-weighing system for a price of $90,000. The system included finely tuned scales that fit into Dale's automated assembly line, Richards's proprietary software modified to allow the weighing system to function in Dale's automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. (Ricard competes with other vendors who offer ongoing calibration contracts for Richard's systems.) If Richard 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. Richard delivered and installed the equipment and software on August 1, 2021, and the calibration service commenced on that date. How many performance obligations exist in this contract?

A) 0

B) 1

C) 2

D) 3

Q2. On July 15, 2021, Ortiz & Co. 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 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, 2021, and the calibration service commenced on that date.

Assume that the scales, software and calibration service are viewed as one performance obligation. How much revenue will Ortiz recognize in 2021 for this contract?

A) $37,500

B) $0

C) $63,000

D) $90,000

Q3. On April 1st, Don the Builder entered into a contract of one-month duration to build a barn for Smith. Don is guaranteed to receive a base fee of $5,000 for his services in addition to a bonus depending on when the project is completed. Smith created incentives for Don to finish the barn as soon as he can without jeopardizing the structural integrity of the barn. Smith offered to pay an additional 30% of the base fee if the project finished 2 weeks early and 10% if the project finished a week early. The probability of finishing 2 weeks early is 30% and the probability of finishing a week early is 60%.

What is the expected transaction price with variable consideration estimated as the expected value?

A) $5,750

B) $5,000

C) $5,500

D) $4,750

Q4. Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that this contract qualifies for revenue recognition over time.

Assume that Sanjeev estimates variable consideration as the most likely amount. After Sanjeev has recognized revenue for two months of the contract, he changes his assessment of the chance the contract will pay him $3,000 to 70%. What adjustment to revenue should Sanjeev recognize to account for that change in estimate?

A) Debit of $1,000

B) Credit of $334

C) Credit of $1,000

D) Debit of $334 -4-

Q5. Which of the following is true about accounting for contract assets (CIP in excess of billings) in each balance sheet prior to completion of long-term construction contracts?

A) Contract assets are likely to be larger if revenue is recognized over time than if revenue is recognized at a point in time.

B) Contract assets are likely to be smaller if revenue is recognized over time than if revenue is recognized at a point in time.

C) Contract assets are likely to be the same size regardless of whether revenue is recognized over time or at a point in time.

D) There is no way to tell how revenue recognition timing will affect the size of contract assets without more information.

Q6. Indiana Co. began a construction project in 2021 with a contract price of $150 million to be received when the project is completed in 2023. During 2021, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed.