ACC 371 Week 5 Quiz 7

ACC 371 Week 5 Quiz 7 | Mercer University

Question 1

In order for a performance obligation to be considered a separate performance obligation under the revenue recognition standard, the obligation must be  

Economically beneficial to the customer.  

Identifiable from other promises within the contract.  

Material considering the seller’s total assets.  

A and B     

A, B, and C  

A or B  

Question 2

Which of the following is not a condition of a valid contract?  

Full collection on the contract is probable.                                          

Payment terms are identified.  

Contract has been approved.  

Rights and obligations are identified.  

Contract has commercial substance. 

Question 3

On December 1, 2020, Westin Co. enters into a two-year contract with a customer where outside attorney costs of $4,800 to establish the contract were incurred. The amount is due in 60 days. Westin Co. expects to recover the legal fees from the amounts billed on the contract. The contract does not have a renewal option.

How would Westin account for the contract cost in its year-end financial statements dated December 31, 2020, assuming that payment was not made to the attorneys by this date?  

Westin Co. would recognize an asset (Contract Cost) of  $4,600 and a liability (Accrued Legal Expense) of $4,800, on December 31, 2020, and expense (Contract Cost Expense) of $200 for the year 2020.  

Westin Co. would recognize an asset (Contract Cost) of  $4,400 and a liability (Accrued Legal Expense) of $4,800, on December 31, 2020, and expense (Contract Cost Expense) of $400 for the year 2020.  

Westin Co. would recognize an asset (Contract Cost) of  $4,800 and a liability (Accrued Legal Expense) of $4,800, on December 31, 2020.

Question 4

McElroy Inc., a marketing consulting firm, entered into the following three revenue contracts in the current month. 

1.            The contract with Customer A requires that McElroy Inc. provides 10 hours of consulting services at $300 per hour for the month.

2.            The contract with Customer B requires that McElroy Inc. develops an electronic promotion of the customer’s new product line. Payment for the services are equal to $6,000 plus 2% of the customer’s sales over the one-month promotion period. McElroy Inc. estimates that there is a 30% chance of sales totaling $100,000, a 50% chance of sales totaling $150,000, and a 20% chance of sales totaling $200,000.

3.            The contract with Customer C requires McElroy Inc. to create a promotional mailing for its product in exchange for consideration of $8,000. McElroy Inc. will receive a $500 bonus if the project is completed within 5 business days and $250 if the project is completed within 6 business days. Based on McElroy Inc.’s estimate of time to complete the project and status of other projects, McElroy estimates that the most likely amount of the bonus is $500.

Determine the total transaction price of the three revenue contracts and whether the transaction price is fixed, variable, or some combination of both.

Transaction Price          Fixed Consideration      Variable Consideration

$20,400                    $11,000          $9,400       

$20,400                    $17,000          $3,400  

$19,500                    $17,000          $2,500  

$20,000                    $17,500          $2,500  

$19,500                    $17,000          $2,500

Question 5

Jamestown Inc. enters into a $300,000 contract for the purchase of customized equipment with Bennington Inc. The construction of the equipment is expected to take two years. Jamestown Inc. owns the work in process during the two-year period but will not take possession of the equipment until completed. The contractor will bill Jamestown monthly for performance completed to date. After year-one, Bennington Inc. incurred costs of $120,000 and expects remaining costs to be $108,000. Bennington Inc. has billed Jamestown $150,000 in total for the year. Jamestown has paid $135,000 to Bennington Inc. 

Determine the amount of revenue and expenses that Bennington Inc. should recognize in the first year of the contract.

$  78,947                                 $120,000  

$150,000                                 $120,000     

$157,895                                 $120,000  

$150,000                                 $114,000  

$0                                             $0

Revenue                               Expenses

Question 6

Lawnclippers Inc. is offering a fall promotion to new customers signing a contract within the next two weeks. For a bundled price of $99, Lawnclippers will provide fall aeration, lawn overseeding and tree fertilization. The standalone selling price of each service sold separately is fall aeration $69, lawn overseeding, $20, and tree fertilization $29. 

Allocate the transaction price to the three separate performance obligations, rounding your final answers to the nearest whole dollar.  Allocated transaction prices are as follows:

$69                                                $20                                             $29  

$33                                                $33                                             $33  

$82                                                $24                                             $35    

$55                                            $18                                                $26  

$58                                              $17                                               $24

Question 7

A seller offers a promotion to customers which provides one free box of golf balls (valued at $20) if the customer purchases three boxes of golf balls at the regular price of $20 each. In order to receive the free box of golf balls, the customer must fill out a request form and mail it to the seller within three weeks of the date of purchase of the golf balls. The seller estimates that approximately 45% of customers will complete the request form necessary to take advantage of the promotion. In addition, the seller provides three free golf tees (valued at $.15) with every purchase. 

What amount of revenue would the seller record upon a cash sale of three boxes of golf balls (plus the three free golf tees) to a customer?

$45  

$52.17  

$50.70  

$52.19

Question 8

Three Amigos, Inc. sells merchandise with a cost of $25,000 during the year to customer for $55,000. It is Three Amigos’ policy to accept returns up to 60 days after the date of purchase. Three Amigos estimates that there is a 60% probability that returns will be 3% of sales and a 40% probability that returns will be 2.5% of sales. 

What is Three Amigos’ transaction price?  

$55,000 

$53,460 

$48,625  

$53,350  

$25,000

Question 9

A supply company enters into a contract to supply 1,000 pet crates to a national retailer at $40 per unit. The contract specifies that the pet crates will be delivered to a specific distribution center with date(s) of delivery to be supplied by the retailer. The retailer expects to have sufficient shelf space at the time of delivery. As of year-end, the supply company has inventory of 3,000 pet crates, including the 1,000 pet crates relating to the contract with the retailer. The 1,000 pet crates are stored with its other 2,000 pet crates, which are all interchangeable products.  However, the supply company put controls in place to assure that they will not deplete total inventory below 1,000 units. 

At the inception of the contract, how much revenue should the supply company recognize?  

$40,000  

$20,000  

$13,333  

$0 

Question 10

Mitchners Inc. provided 80 items of product to Weller Inc. for sale to its customers. Mitchners Inc. retains title to the products until they are scanned at the register of Weller Inc. upon sale to its customer. At that time, Weller Inc. is obligated to pay Mitchners Inc. for the cost of the product ($5 per unit). Any unsold products may be returned to Mitchners Inc. In addition, Mitchners Inc. may call back or transfer unsold products to another Weller. Assume that 80 units of product were transferred on March 1 to Weller Inc.; 10 units of product were sold for $9 each to Weller Inc.’s customers on March 3; and 8 units of product were sold to Weller Inc.’s customers for $9 each on March 4. On March 5, Weller Inc. electronically transferred payment to Mitchners Inc. for sales to date.

What dollar amount of revenue would Mitchners Inc. and Weller Inc. recognize on the following dates?

March 1                              March 3                              March 4                              March 5

March 1                              March 3                              March 4                              March 5

Mitchners Inc.   $0                          $0                          $0                          $90

               Weller Inc.          $0                          $90                       $72                       $72

March 1                              March 3                              March 4                              March 5

Mitchners Inc.   $0                          $0                          $0                          $90

               Weller Inc.          $0                          $90                       $72                       $0

March 1                              March 3                              March 4                              March 5

Mitchners Inc.   $0                          $50                       $40                       $0

               Weller Inc.          $0                          $90                       $72                       $0

March 1                              March 3                              March 4                              March 5

Mitchners Inc.   $400                     $0                          $0                          $0

               Weller Inc.          $0                          $90                       $72                       $0