1.2.14: How do maintenance service contracts affect revenue recognition? a) Recognize full amount at inception b) When customer pays c) Based on actual service calls d) Straight-line over service period

1.2.14: How do maintenance service contracts affect revenue recognition? a) Recognize full amount at inception b) When customer pays c) Based on actual service calls d) Straight-line over service period

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle

Section: Chapter Questions

Problem 3CYBK

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1.2.14: How do maintenance service contracts affect
revenue recognition?
a) Recognize full amount at inception
b) When customer pays
c) Based on actual service calls
d) Straight-line over service period

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Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services. That core principle is implemented by (1) identifying a contract with a customer, (2) identifying the performance obligations in thecontract, (3) determining the transaction price of the contract, (4) allocating that price to the performanceobligations, and (5) recognizing revenue when (or as) each performance obligation is satisfied
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