Homework 8th edition Chapter 10

Homework 8th edition Chapter 10 - Multiple Choice...

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Multiple Choice Questions: 10-40. a. 10-41. d. 10-42. d. 10-43. c. 10-44. c. 10-45. d. 10-46. d 10-47. b. 10-48. c. 10-49. a. 10-50. c. 10-51. a. 10-52. c. 10-53. b. 10-54. a. The SEC has emphasized that revenue recognition should be based on two key concepts: Earned, i.e. the revenue earning process has been completed, and Realizable, i.e. the amounts recognized are likely to be realized. The SEC has determined the following criteria must be met in applying the concept: Persuasive evidence of an arrangement exists, Delivery has occurred or services have been rendered, The seller’s price to the buyer is fixed or determinable, Collectibility is reasonably assured. In addition to reviewing the U.S. guidance (see FASB and SEC guidance) for some clients the auditor may need to consult international guidance (e.g., IASB’s International Accounting Standards). b. Scenarios Scenario Key Issues Additional Information Revenue Recognition and Criteria 1. AOL AOL proposes to recognize 30% of the fees up front rather than from monthly Pattern of payments, % of customers failing to meet contract terms. Recognize revenue on a monthly basis as the provision of the service is the primary service being
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Scenario Key Issues Additional Information Revenue Recognition and Criteria service. performed. AOL wants to recognize the marketing of the product as a primary service, but marketing is a precursor to the actual service performed. 2. Modis Manufacturing Bill and Hold Machinery is completed. Request is by customer to hold the machinery because factory is not finished. Contract – right of refusal. Whether the customer has inspected the goods. Expected delivery date. Credit rating of customer and validity of customer. If all the evidence gathered verifies the client story and the customer is a valid customer, an argument can be made for current recognition. 3. Standish Stoneware Determine adequate allowance for returns. New product. The client must be able to reasonably estimate the amount of goods that will be returned. Affects both sales and
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Homework 8th edition Chapter 10 - Multiple Choice...

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