List the new revenue recognition steps in order.
The new revenue recognition guidance in ASC 606 will not replace most of the existing industry accounting guidance in US GAAP.
True
False
Identify the missing words:
The objective of the guidance in ASC 606-10-10-1 “is to establish ___________ that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing, and uncertainty of _________ and __________ arising from a contract with a customer.”
Regarding the effective date for ASC 606, Revenue Recognition – Revenue from Contracts with Customers, which of the following statements is not true for US companies:
For public companies, certain not-for profit entities, and certain employee benefit plans, the effective date is for reporting periods beginning after December 15, 2017.
For public companies, certain not-for profit entities, and certain employee benefit plans, early adoption is not permitted for annual periods beginning before December 15, 2017.
For all companies other than public companies, certain not-for profit entities, and certain employee benefit plans, the effective date is for annual reporting periods beginning after December 15, 2018.
For all companies other than public companies, certain not-for profit entities, and certain employee benefit plans, the earliest permitted adoption date is for annual reporting periods beginning after December 15, 2016.
Regarding IFRS 15, Revenue Recognition – Revenue from Contracts with Customers, which of the following statements is true for IFRS reporting companies:
For all companies, the effective date is for reporting periods beginning on or after January1, 2018.
Early adoption is permitted only for public companies.
For nonpublic companies, the effective date is for reporting periods beginning after December 15, 2017.
For nonpublic companies, the earliest permitted adoption date is for reporting periods beginning on or after January 1, 2018.
There are two methods for adopting the guidance in ASC 606 and IFRS 15 — the modified retrospective approach and the full retrospective approach. For each key consideration, identify which approach it relates to by placing an “X” in that column.
Key consideration Modified retrospective approach Full retrospective approach
Applies to the most current period
Applies to all periods presented
Reflects the cumulative effect of the change in the opening retained earnings in the most current period presented
Discloses the reason for the change and method of applying the change
Applies to any contracts existing as of the effective date
A contract is defined as an agreement between parties that creates enforceable obligations and rights. Which of the following statements is true regarding a contract:
A contract can be written.
A contract can be implied.
A contract can be oral.
D All of above.
For a contract defined by ASC 606, which of the following criteria is not a requirement that a contract must have:
The contract must have commercial substance.
Both the buyer and seller must approve the contract.
The delivery date must be specified.
The payment terms must be identified.
Company A enters into a contract to manufacture a drill press for $100,000. The contract includes installation services at a cost of $2,000 and a two-year service agreement at a cost of $12,000. The drill press cannot be operated without installation. Company A separately sells the equipment, installation services and service agreements. Other vendors could provide the fairly straightforward installation and service. What are Company A’s performance obligations in this contract? Explain your logic in making your determination.

Space Tools enters into a contract to build a solar-powered hand drill for the space station. Space Tools subcontracts out the work for developing the solar power source to Sun Spot, Inc. Space Tools will be responsible for integrating the solar power unit into its drill. What are Space Tools’ performance obligations in this contract? Explain your logic in making your determination.

Identify the missing words:
Per ASC 606, “the transaction price is the amount that the entity _________________________ as a result of transferring goods or services to the customer.”
Variable consideration includes all the following, except:
Time value of money
Discounts
Refunds
Incentives
When should a US entity not include an estimate of variable consideration in determining the transaction price?
Company X sells standard lawn mowers to Biggy Hardware (BH) for $100. BH is Company X’s largest customer. Company X offers BH the following discounts based on purchases in a calendar year:
1 to 999 lawn mowers: 0% discount
1,000 to 1,500 lawn mowers: 3% discount
More than 1,500 lawn mowers: 5% discount
BH’s purchasing pattern has been very consistent over its twenty year relationship history with Company X. Company X’s management has assigned a 10% probability to a 0% discount, a 70% probability to a 3% discount and a 20% probability to a 5% discount.
What is the estimated transaction price if the most likely amount is used?
What is the estimated transaction price if the expected value method is used?
Should any of the estimated variable consideration included in the transaction price be constrained?
World Soccer sells new goals to a customer for $1 million. The goals are delivered immediately, but payment isn’t due until two years from the purchase date. The typical credit rate for this customer because of its credit characteristics is 8%. What are the journal entries World Soccer will record over the two-year period?
ABC Corporation enters into a contract with a customer to sell items for $90,000. The contract includes two items of product A and one item of each product B and C. The standalone purchase price is $15,000 for product A, $25,000 for product B and $45,000 for product C.
How should ABC Corporation allocate the transaction price for this contract?
A company has a contract to deliver goods in nine months. The customer pays for the goods upon execution of the contract. The time value of money is significant in this contract. Can the company choose to ignore the financing component? Explain your answer.
If the fair value of the noncash consideration cannot be reliably measured, then the transaction price is measured as the standalone selling price of the goods or services promised to the customer in the contract.
True
False
Which of the following is not a criterion for satisfying a performance obligation over time:
The seller has received payment for performance completed to date.
The customer is receiving and consuming the benefits of the seller’s performance as the seller performs.
The asset created by the seller does not have an alternative use.
None of the above. The listed criteria in a., b. and c. all are criteria for satisfying a performance obligation over time.
An entity licenses customer relationship management software to a customer. In addition, the entity promises to provide consulting services to significantly customize the software to the customer’s information technology environment for total consideration of $600,000. Are the software and consulting services one performance obligation or two? Explain your answer
Romax Inc. enters into a contract to sell products A and B to a customer. The customer pays for these products at the date the contract is entered into. Product A is delivered in month one and product B is delivered in month two. Describe the timing of the revenue recognition for this contract.
ord for this performance obligation at the end of each year using the output method?
Which method should management utilize if it is focused on maximizing revenue in year one?

Leasing

1 To determine whether a contract conveys the right to control the use of an identified asset for a period, an entity evaluates whether, throughout the period of use, the customer has:
The right to obtain substantially all of the economic benefits from use of the identified asset
Made a guarantee to the lessor that the values of the underlying asset at the end of the lease term will be a certain amount
The right to direct the use of the identified asset
Both a. and c. above
All of the above

2 ASC 842 applies to leases of all assets except:
Leases of inventory, assets under construction, intangible assets and biological assets
Leases to explore for or use minerals, oil, natural gas, and similar non-regenerative resources
Service concession agreements within the scope of ASC 853
Both b. and c. above
All of the above

3. An evaluation of the lease contract at its commencement date by Lessee results in the following:
Initial direct costs paid by Lessee
The lease term is 7 years, representing a major part of the economic life of this brand new asset
It is probable that Lessor will collect the lease payments plus any amount necessary to satisfy the Lessee’s residual value guarantee
The contract contains variable lease payments that depend on an index
How should Lessee classify this lease?
An operating lease
B A finance lease
4 Lessor is evaluating the same lease as described in #3 above. How should Lessor classify this lease?
A A sales-type lease
B A direct financing lease
C An operating lease

5.There are two groups of criteria that are evaluated when classifying leases. Which of the following is not one of the criteria in Group 1?
A The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.
B The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
C The lease gives rise to a selling profit or loss.
D The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already included in the lease payments equals or exceeds substantially all of the fair value of the underlying asset.
6 A contract is a lease, or contains a lease, if it conveys the right to control the use of the identified property, plant or equipment for a period of time in exchange for consideration.
True
False

7 IFRS 16 is similar to ASC 842 in that the lessee accounting model distinguishes between finance leases and operating leases.
True
False
8 Lessor leases three boats to Lessee to be used in its parasailing business for five years. Lessee also agrees to maintain each piece of equipment throughout the lease term. The total consideration in the contract is $350,000 payable in $70,000 annual installments.
Lessee is able to establish observable standalone prices for the boats on the basis of the price the lessor, and other lessors, lease similar boats on a standalone basis. The standalone prices for the boats are as follows.

Boat 1 $180,000
Boat 2 120,000
Boat 3 85,000
Total $385,000

Determine the separate lease and non-lease components and explain why each the components qualify for separation.
Determine the amounts that should be allocated to each lease component (and non-lease component).
9 Lessee enters into a five-year lease of office space on January 1, and concludes that the agreement is an operating lease. Lessee pays initial direct costs of $5,000. The agreement provides the following:
Lease term Five years, with the first payment due at lease commencement and the remainder annually at the lease anniversary date thereafter
Annual payments, beginning at lease commencement and annually thereafter Commencement – $25,000
Year 2 – $26,000
Year 3 – $27,000
Year 4 — $28,000
Year 5 — $29,000
Discount rate 4.0%
Present value (PV) of lease payments $124,645
Prepare the journal entries for the Lessee at the commencement of the lease and at the end of year 1.

10 Lessee enters into a four-year lease of equipment and concludes that the agreement is a finance lease because the lease contains an option for Lessee to purchase the equipment at the end of the lease and the Lessee is reasonably certain to exercise that option. The arrangement provides the following:
Lease term Four years, with the first payment due at lease commencement and the remainder annually at the lease anniversary date thereafter
Annual payments, beginning at lease commencement and annually thereafter Commencement – $50,000
Year 2 – $53,000
Year 3 – $56,000
Year 4 — $60,000
Discount rate 4.5%
PV of lease payments $204,577

Prepare the journal entries at the time of the lease commencement and for Year 1 of the lease term.

11 Lessor enters into a 7-year lease for equipment with Lessee. Lessor sells and leases the equipment, which is not specialized in nature and is expected to have an alternative use for Lessor at the end of the lease term. Under the lease:
Lessor receives annual lease payments of $25,000, with the first one payable at the commencement of the lease and one payment annually at the lease anniversary date thereafter.
Lessor expects the residual value of the equipment to be $75,000 at the end of the lease term.
Lessee provides an RVG that protects Lessor for the first $35,000 of loss below the estimated residual value at the end of the lease term of $75,000.
The equipment has an estimated remaining economic life of 9 years, a carrying amount of $150,000 and a fair value of $160,000.
Lessor incurred costs of $3,000 for a broker’s commission as a result of obtaining the lease. These costs qualify as initial direct costs.
The lease does not transfer ownership of the underlying asset to Lessee at the end of the lease term or contain an option for Lessee to purchase the equipment.
At lease commencement, Lessor concludes that it is probable that it will collect the lease payments and any amount probable of being owed under the RVG provided by Lessee.
How should Lessor classify this lease?
Prepare the journal entries at the time of the lease commencement and for Years 1 and 2 of the lease term.
.
Lessor enters into a four-year lease of equipment with Lessee. Lessor sells and leases the equipment, which is not specialized in nature and is expected to have an alternative use to Lessor at the end of the four-year lease term. Under the lease:
Lessor receives annual lease payments of $30,000, payable at lease commencement and annually at the lease anniversary date thereafter.
Lessor expects the residual value of the equipment to be $100,000 at the end of the five-year lease term.
Lessee does not provide an RVG.
The equipment has an estimated remaining economic life of 12 years, a carrying amount of $160,000 and a fair value of $170,000.
Lessor incurred costs of $2,000 for a broker’s commission as a result of obtaining the lease. These costs qualify as initial direct costs and are capitalized when the lease is obtained.
The lease does not transfer ownership of the underlying asset to Lessee at the end of the lease term or contain an option for Lessee to purchase the equipment.
At lease commencement, Lessor concludes that it is probable that it will collect the lease payments.
How should Lessor classify this lease?
Prepare the journal entries at the time of the lease commencement

COVID Issues

The Covid crisis has brought up many possible accounting issues. One of the most prevalent is the possible impairment of Goodwill and Long-Lived assets. Using my slides and reading materials and any other source you would like to do. Please write a short explanation of how companies perform their goodwill impairment test and their test for long lived asset impairment – -indicators, when they need to test, the accounting requirements, effect on earnings etc etc

SEC
One page maximum is required – – ok if shorter if all important points are i SEC – please do not write more than a long paragraph to answer each question

1. What is the difference between Regulation S–K and Regulation S–X?

2. What is a SEC letter of comment – – what steps does the pubic company and its auditor
take upon its receipt

3. What is a preferability letter. When is it required to be filed by the public company. Please provide an example of when a preferability is required

4. What is a registration statement. What is its purpose

5. What is a prospectus. When is it required to be filed with the SEC

6. What is a prospectus – what is its purpose

7. When must Form 8-K be filed with the SEC? Provide examples of situations that require the public company to issue an 8-K

8. What is an accelerated file? What are the filing dates for the 10K and 10Q for an accelerated filer

9. What is a proxy – when does it have to be available for shareholders. – How is it related to what happens at a shareholder meeting

10. What is the SEC doing to improve SEC disclosure requirements?

Non-GAAP Measures

What are non-GAAP measures, why are they used and what is the SEC requirement. Under Reg GP

Please also go to a large public company and look at their Press Release and identify and provide examples of any non-GAAP measures used and provide an example of a reconciliation between GAAP and non-GAAP metrics.

Do you think non-GAAP measures is a form of earnings management

New revenue recognition, Leasing and accounting changes based on new Covid rules