LSU - ACCT 3222 - Chapter 10- questions with complete solutions

Revenue Recognition correct answer: - FASB Definition: inflows or other enahancements of assets of an entity or settlements of its liabilities from delivery or producing goods, rendering services or other activities that consistute the entity's major or central operations. - FASB Statement of Financial Accounting Concepts No. 5, "Recongition and Measurement in Financial Statements of Business Enterprises": requires that before revenue is recognized (recorded), it must be (1) realized or realizable and (2) earned. - Revenue is realized when a product or service is exchanged for cash, a promise to pay cash, or other assets that can be converted into cash. - Revenue is earned when an entity has substantially completed the earnings process, which generally means a product has been delivered or a service has been provided. - SEC provides following criteria for rev recognition: 1) Persuasive evidence of an arrangement exists. 2) Delivery has occurred or services have been rendered. 3) The seller's price to the buyer is fixed or determinable. 4) Collectivility is reasonably assured. - Revenue recognition poses a significant audit risk; auditor should presume that there is a RMM due to fraud relating to revenue recognition. Auditor Should be Alert to Following Activities that are Fraud Risks to Revenue Recognition correct answer: - Side agreements are arrangements