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The following information is available about a signed agreement between two entities: The entities have agreed to specific performance obligations.

The following information is available about a signed agreement between two entities:

• The entities have agreed to specific performance obligations.

• The entities have agreed on a price related to the performance obligations.

• No work has begun on the performance obligations and the contract is cancelable without payment of penalty or other consideration.

• It is probable that the company completing the work will collect the agreed upon consideration.


Does a contract exist between the entities to which the revenue recognition criteria may be applied?






A contract to which the revenue recognition criteria applies exists because it identifies specific performance obligations and collectibility of the consideration is probable.

A contract to which the revenue recognition criteria applies does not exist because it is cancelable without penalty and no work on the performance obligations has begun.

A contract to which the revenue recognition criteria applies exists because the contract includes important terms such as the agreed upon price and specific performance obligations.

A contract to which the revenue recognition criteria applies does not exist because the transaction price has not yet been allocated to the specific performance obligations.

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