Revenue Recognition and Accounting for Contracts: A Comprehensive Assessment

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Revenue Recognition and Accounting for Contracts: A Comprehensive Assessment1.The last step in the process for revenue recognition is to (Points : 1)allocate transaction price to the separate performanceobligations.recognize revenue when each performance obligation is satisfied.determine the transaction price.identify the contract with customers.Question 2.2.Seadrill Engineering licensed software to oil-drilling firmsfor 5 years. In addition toproviding the software, the company also provides consulting services and support to ensure smoothoperation of the software. The total transaction price is $350,000. Based on standalone values, thecompany estimates the consulting services and support have a value of $100,000 and the softwarelicense has a value of $250,000. Assuming the performance obligations are not interdependent, thejournal entry to record the transaction includes (Points : 1)a credit to sales revenue for $250,000 and a credit to unearned service revenue of $100,000.a credit to service revenue of $100,000.a credit to unearned service revenue of $100,000.a credit to sales revenue of $350,000.Question 3.3.An option to purchase a warranty is recorded as (Points : 1)an expense in the period the goods or services are sold.a warranty liability for all costs incurred after sale due to correction of defects.revenue in the period that theservice-type warranty is in effect.an assurance type warranty which is included in the sales price of the product.Question 4.4.Cost estimates at the end of the second year indicate that a loss will result on completionof the entire contract. Which of the following statements is correct? (Points : 1)Under the completed-contract method, the loss is not recognized until the year the constructionis completed.Under the percentage-of-completion method, the gross profit recognized in the first year mustnot be changed.Under the completed-contract method, when the billings exceed the accumulated costs, theamount of the estimated loss is reported as a currentliability.Under the completed-contract method, when the Construction in Process balance exceeds thebillings, the estimated loss is added to the accumulated costs.Question 5.5.Consigned goods are recognized as revenues by the (Points : 1)

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