Dot Point, Inc. is a retailer of washers and dryers and offers a three-year service contract
on each appliance sold. Although Dot Point sells the appliances on an installment basis,
all service contracts are cash sales at the time of purchase by the buyer. Collections
received for service contracts should be recorded as
deferred service revenue.
a reduction in installment accounts receivable.
a direct addition to retained earnings.
Which of the following is
a reason why revenue is recognized at time of sale?
Realization has occurred.
The sale is the critical event.
Title legally passes from seller to buyer.
All of these are reasons to recognize revenue at time of sale.
An alternative available when the seller is exposed to continued risks of ownership
through return of the product is
recording the sale, and accounting for returns as they occur in future periods.
not recording a sale until all return privileges have expired.
recording the sale, but reducing sales by an estimate of future returns.
all of these.
A sale should
be recognized as revenue by the seller at the time of sale if
payment was made by check.
the selling price is less than the normal selling price.
the buyer has a right to return the product and the amount of future returns cannot
be reasonably estimated.
none of these.
The FASB concluded that if a company sells its product but gives the buyer the right to
return the product, revenue from the sales transaction shall be recognized at the time of sale
of six conditions have been met. Which of the following is
one of these six
The amount of future returns can be reasonably estimated.
The seller's price is substantially fixed or determinable at time of sale.
The buyer's obligation to the seller would not be changed in the event of theft or
damage of the product.
The buyer is obligated to pay the seller upon resale of the product.
In selecting an accounting method for a newly contracted long-term construction project,
the principal factor to be considered should be
the terms of payment in the contract.
the degree to which a reliable estimate of the costs to complete and extent of
progress toward completion is practicable.
the method commonly used by the contractor to account for other long-term
the inherent nature of the contractor's technical facilities used in construction.