Multiple Choice
The materials price variance is the difference between the actual price of materials and which of the following?
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3. Accrual Accounting Concepts
Revenue Recognition and Expense Recognition
Multiple Choice
Revenue is likely recognized over time for all the following arrangements except for:
A
A landscaping company maintains a property under a one-year contract.
B
A company sells inventory to a customer with delivery occurring at a later date.
C
A software company provides ongoing support services for a year.
D
A construction company builds a bridge over a two-year period.
Verified step by step guidance1
Step 1: Understand the concept of revenue recognition over time. Revenue is recognized over time when the performance obligation is satisfied progressively, rather than at a single point in time. This typically applies to contracts where services or goods are delivered continuously or in stages.
Step 2: Analyze each arrangement provided in the problem to determine whether revenue is recognized over time or at a point in time. For example, maintaining a property under a one-year contract involves ongoing services, which suggests revenue recognition over time.
Step 3: Consider the arrangement where inventory is sold to a customer with delivery occurring at a later date. In this case, the performance obligation is satisfied at the point of delivery, not progressively over time. Therefore, revenue is recognized at a single point in time.
Step 4: Evaluate the software company providing ongoing support services for a year. Since the support services are provided continuously over the contract period, revenue is likely recognized over time.
Step 5: Assess the construction company building a bridge over a two-year period. Construction projects often involve progressive satisfaction of performance obligations, making revenue recognition over time appropriate.
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