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1. All of the following are el

1. All of the following are elements of a contract except:

a. The contract has commercial substance.

b. The vendor can identify payment terms for the goods or services.

c. It is not approved by both parties to the agreement.

d. The vendor can identify each party’s rights.

2. A performance obligation is:

a. An enforceable promise in a contract with a customer to transfer a good or service to the customer.

b. An offer to transfer a good or service to the customer.

c. An expectation of a customer for the receipt of a good or service by a vendor.

d. A promise in a contract with a customer to transfer a good or service to the customer.

3. Telecom Co. enters into a two-year contract with a customer to provide wireless service (voice and data) for $40 per month. To induce customers, Telecom Co. provides a free phone. Telecom Co. normally sells the phone on a stand-alone basis for $200. Telecom Co. also charges the customer a one-time activation fee of $35. Which of the following is true?

a. The free phone constitutes a marketing expense.

b. The activation fee is a separate performance obligation.

c. There are two distinct performance obligations: the wireless service and the phone.

d. There are two distinct performance obligations: the voice service and the data service.

4. The transaction price must reflect the time value of money

a. The vendor expects the period between customer payment and delivery of goods or services will be less than two years.

b. The contract has a financing component that is significant to the contract.

c. The interest rate in the contract is higher than 13%.

d. Consideration would not differ if paid in cash or under normal credit terms.

5. Items that may cause variable consideration include:

a. Discounts.

b. An hourly rate for services.

c. A fixed fee.

d. A retainer.

6. When allocating the transaction price to separate performance obligations, one must determine the standalone selling price of the goods or services. Which of the following is not an estimation method for determining the standalone selling price?

a. Adjusted market assessment.

b. Expected cost plus a margin.

c. Residual approach.

d. Observable prices when goods or services are sold separately.

7. Which of the following indicators is not considered when determining whether performance obligations are satisfied at a point in time?

a. The vendor has a present right to payment for the asset.

b. The customer is likely to reject delivery of the asset.

c. The customer has the significant risks and rewards of ownership of the asset.

d. The customer has legal title to the asset.

8. Disclosures for annual periods of public companies must include all but which of the following with respect to contracts with customers?

a. Identification of the top five largest customers.

b. Disaggregation of reported revenues.

c. Explanations of changes in balances.

d. Information about performance obligations.

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