{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter 10 - Chapter 10 Auditing the Revenue Process...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10 - Auditing the Revenue Process 10-1 CHAPTER 10 AUDITING THE REVENUE PROCESS Answers to Multiple-Choice Questions 10-12 c 10-18 b 10-13 d 10-19 a 10-14 c 10-20 c 10-15 b 10-21 a 10-16 a 10-22 a 10-17 d 10-23 b Solutions to Problems 10-24 1. The guidance provided by SAB No. 101 would preclude recognition of revenue on this transaction in the current period. Thompson’s business practice of requiring a written sales agreement for this class of customer, persuasive evidence of an arrangement would require properly authorized personnel of the customer have executed final agreement. Bayonne’s execution of the sales agreement after the end of the quarter causes the transaction to be considered a transaction of the subsequent period. 2. Provided that other criteria for revenue recognition are met, Best Products should recognize revenue from sales of its layaway program upon delivery of the merchandise to the customer. Until then, the amount of cash received should be recognized as a liability. Because Best Products retains the risk of ownership of the merchandise, receives only a deposit from the customer, and does not have an enforceable right to the remainder of the purchase price, SAB No. 101 would not allow recognition of the revenue. 3. It would not be appropriate for Dave’s to recognize the membership fees as earned revenue upon billing or receipt of initial fee with a corresponding accrual of estimated costs to provide the membership services. This conclusion is based on Dave’s remaining and unfulfilled contractual obligation to perform services throughout the remaining period. Therefore, the earnings process, irrespective of whether a cancellation clause exists, is not complete. Additionally, the ability of the member to receive full refund of the membership fee up to the last day of the membership term raises uncertainty as to whether the fee is fixed or determinable at any point before the end of the term.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon