An entity is developing a multi-unit residential complex. A customer enters into a binding sales contract with the entity for a specified unit that is under construction. Each unit has a similar floor plan and is of a similar size, but other attributes of the units are different (for example, the location of the unit within the complex). The customer pays a deposit upon entering into the contract and the deposit is refundable only if the entity fails to complete construction of the unit in accordance with the contract. The remainder of the contract price is payable on completion of the contract when the customer obtains physical possession of the unit. If the customer defaults on the contract before completion of the unit, the entity only has the right to retain the deposit. Which of the following statements is correct? The entity’s performance obligation is satisfied at a point in time because the entity does not have an enforceable right to payment for performance completed to date. The entity’s performance obligation is satisfied over time because the contract is a construction contract. The entity’s performance obligation is satisfied at a point in time because it takes a short period of time to construct just one unit in a multi-unit complex. The entity’s performance obligation is satisfied over time because it takes a long-period of time to develop all the units in the multi-unit residential complex.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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An entity is developing a multi-unit residential complex. A customer enters into a binding sales contract with the entity for a specified unit that is under construction. Each unit has a similar floor plan and is of a similar size, but other attributes of the units are different (for example, the location of the unit within the complex).

The customer pays a deposit upon entering into the contract and the deposit is refundable only if the entity fails to complete construction of the unit in accordance with the contract. The remainder of the contract price is payable on completion of the contract when the customer obtains physical possession of the unit. If the customer defaults on the contract before completion of the unit, the entity only has the right to retain the deposit. Which of the following statements is correct?

The entity’s performance obligation is satisfied at a point in time because the entity does not have an enforceable right to payment for performance completed to date.
The entity’s performance obligation is satisfied over time because the contract is a construction contract.
The entity’s performance obligation is satisfied at a point in time because it takes a short period of time to construct just one unit in a multi-unit complex.
The entity’s performance obligation is satisfied over time because it takes a long-period of time to develop all the units in the multi-unit residential complex.

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