Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN: 9781337619455
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: Cengage Learning
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Chapter 9, Problem 7CYBK
To determine
Introduction: Revenue Recognition is a generally accepted accounting principle that identifies the specific conditions in which revenue is recognized and determines how to account for it. The objective of FABS’s guidance on revenue recognition is to establish principles to report useful information to users of financial statement.
The criteria that must be met in order for the contract to exist as per the FASB’s guidance on revenue recognition.
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The FASB has established a Five-Step process to recognize revenue. Which of the following is not one of those steps?
A.
Ability to identify the contract with the customer.
B.
Determination thatcollection of the entitled contractual consideration from the customer is probable.
C.
Properly identify all of the performance obligations within the contract.
D.
Ability to determine the transaction price.
E.
Properly identify all of the deliverables and allocate the transaction price to each.
(Fundamentals of Revenue Recognition) Respond to the questions related to the following statements.1. A wholly unperformed contract is one in which the company has neither transferred the promised goods or services to the customer nor received, or become entitled to receive, any consideration. Why are these contracts not recorded in the accounts?2. Performance obligations are the unit of account for purposes of applying the revenue recognition standard and therefore determine when and how revenue is recognized. Is this statement correct?3. Elaina Company contracts with a customer and provides the customer with an option to purchase additional goods for free or at a discount. Should Elaina Company account for this option?4. The transaction price is generally not adjusted to reflect the customer’s credit risk, meaning the risk that the customer will not pay the amount to which the entity is entitled to under the contract. Comment on this statement.
Which of the following statements is true regarding contracts in ASC Topic 606 guidance for revenue recognition?
Contracts need to be legally enforceable to be considered under ASC Topic 606.
Contracts need to be in written form to be considered under ASC Topic 606.
No consideration can be received before a contract exists.
No price concessions can be made to an existing contract.
Chapter 9 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
Ch. 9 - In the revenue cycle, the most significant...Ch. 9 - Which of the following statements is true...Ch. 9 - Prob. 4CYBKCh. 9 - Prob. 7CYBKCh. 9 - Prob. 8CYBKCh. 9 - Prob. 9CYBKCh. 9 - Prob. 10CYBKCh. 9 - Prob. 11CYBKCh. 9 - Prob. 12CYBKCh. 9 - Prob. 13CYBK
Ch. 9 - Prob. 14CYBKCh. 9 - Prob. 15CYBKCh. 9 - Prob. 16CYBKCh. 9 - Prob. 17CYBKCh. 9 - Prob. 18CYBKCh. 9 - Which of the following statements is false...Ch. 9 - Prob. 20CYBKCh. 9 - Prob. 22CYBKCh. 9 - Prob. 23CYBKCh. 9 - Prob. 24CYBKCh. 9 - Prob. 25CYBKCh. 9 - Prob. 26CYBKCh. 9 - Prob. 27CYBKCh. 9 - Prob. 28CYBKCh. 9 - Prob. 29CYBKCh. 9 - Prob. 30CYBKCh. 9 - Prob. 31CYBKCh. 9 - Prob. 32CYBKCh. 9 - Refer to Exhibit 9.1. Which accounts are relevant...Ch. 9 - Prob. 2RQSCCh. 9 - Prob. 3RQSCCh. 9 - An important task ¡n the audit of the revenue...Ch. 9 - Prob. 5RQSCCh. 9 - Prob. 6RQSCCh. 9 - Prob. 7RQSCCh. 9 - Prob. 8RQSCCh. 9 - Prob. 9RQSCCh. 9 - Prob. 10RQSCCh. 9 - Prob. 11RQSCCh. 9 - Prob. 12RQSCCh. 9 - Prob. 13RQSCCh. 9 - Prob. 14RQSCCh. 9 - Prob. 15RQSCCh. 9 - Stainless Steel Specialties (SSS) is a...Ch. 9 - Prob. 17RQSCCh. 9 - Prob. 18RQSCCh. 9 - Prob. 19RQSCCh. 9 - Prob. 20RQSCCh. 9 - Prob. 21RQSCCh. 9 - Prob. 22RQSCCh. 9 - Prob. 23RQSCCh. 9 - Prob. 24RQSCCh. 9 - Prob. 25RQSCCh. 9 - Prob. 26RQSCCh. 9 - Prob. 27RQSCCh. 9 - Prob. 28RQSCCh. 9 - Prob. 29RQSCCh. 9 - Prob. 30RQSCCh. 9 - Prob. 31RQSCCh. 9 - Prob. 32RQSCCh. 9 - Prob. 33RQSCCh. 9 - Prob. 34RQSCCh. 9 - Prob. 35RQSCCh. 9 - Prob. 36RQSCCh. 9 - Prob. 37RQSCCh. 9 - Prob. 38RQSCCh. 9 - Prob. 39RQSCCh. 9 - Read the following scenario about Strang...Ch. 9 - Prob. 41RQSCCh. 9 - Prob. 42RQSCCh. 9 - ZYNGA (LO Z 3, 4, 5, 6, 8) Refer to the Why It...Ch. 9 - UTSTARCOM, INC. (LO 2, 3, 4, 5, 6, 8) UTStarcom is...Ch. 9 - Prob. 47FFCh. 9 - Prob. 48FFCh. 9 - Prob. 55DAUA
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- Discuss and outline the requirements for "revenue recognition principles". What do you think the standard is designed to achieve? In your opinion is there any gap that the standard setter has not fully addressedarrow_forwardIn accordance with AASB 9, the recognition of a financial asset or financial liability will be influenced by considerations as to whether there is a contractual right to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable, or potentially unfavourable, to the entity. Explain what this requirement means.arrow_forwardTrue or false: FASB ASC 606 states that an entity must separately disclose revenue from contracts with customers. O True Falsearrow_forward
- For a liability to be recognised within the financial statements, it needs to be reasonably apparent that an obligation to an ____________exists. Select one alternative: legal obligation external party another party counter partyarrow_forwardDuring the review of loan contracts and agreements, the auditor would most likely figure out the following, except: A. The existence of loans. B. The completeness of loans. C. Related disclosures pertaining to assets pledged as collateral. D. The accuracy of interest expense recorded by the entity.arrow_forwardWhich statement is incorrect in the measurement of a provision? *a. The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provisionb. Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditure expected to settle the obligationc. Future events that may affect the amount required to settle the obligation shall be reflected in the amount of the provision where there is sufficient objective evidence that the future events will occurd. Gains from expected disposal of assets shall be taken into account in measuring a provisionarrow_forward
- Under ASC Topic 606 for revenue recognition, which of the following factors is not an indicator of the principal/agent determination? A. Inventory risk. B. Credit risk. C. Shipping terms.arrow_forwardWhere would an auditor find the proper authorization that indicates it is okay to pay a vendor?arrow_forwardWith respect to the concept of materiality, which of the following statements is correct?a. Materiality depends only on the dollar amount of an item relative to other items in the financial statements.b. Materiality depends on the nature of a transaction rather than the dollar amount of the transaction.c. Materiality is determined by reference to AICPA guidelines.d. Materiality is a matter of professional judgment.arrow_forward
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