6 aldman Associates received a written, approved contract to deliver economic co

Question

6 aldman Associates received a written, approved contract to deliver economic consulting ser vices, with service and payment commencing in one month. The cont specifies the services that Waldman is to perform, and the payment terms. Waldman th e customer both can cancel the contract without penalty prior to commencing Does W aldman have a contract for purposes of revenue recognition on the day the contract received? A) Yes, because Waldman has a written approved contract. 3) No, because Waldman and the customer can cancel without penalty and neither has performed an obligation under the contract. O) Maybe, depending on whether Waldman can estimate collectability of the receivable. D) There is insufficient data on which to base an answer. 7. Which of the following considered a performance obligation? A) Up-front registration fees for a gym membership B) Extended warranties on electronic products C) Quality-assurance guarantees on electronic products D) A processing fee to obtain a bank loan 8. Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty purchased at the time the oPhone purchased. The warranty normally has a price of $150, but Orange offers it for $120 when purchased along with an oPhone. Orange anticipates a 75% chance that a customer will purchase the extended warranty along with the °Phone. Assume Orange sells to 1,000 oPhones with the extended warranty discount offer. What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts? A) $O B) $22,500 C) $30,000 D) $120,000

Explanation / Answer

6. B. No, because Waldman and the customer can cancel without penalty and neither has performed an obligation under the contract.

7. B. Extended warranties on electronic products.

8. B. $ 22,500.

( Amount of discount per warranty = $ 150 - $ 120 = $ 30. Stand alone selling price for extended warranty discount option for allocating revenue = $ 30 x 75 % x 1,000 = $ 22,500 )

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