Question 1

Metro Corp. enters into a contract to sell equipment to a customer for $500,000. The contract includes a 2-year service agreement valued at $80,000 if sold separately. Metro delivers the equipment on January 1, Year 1, and will provide services over the next 2 years.

Under ASC 606, how much revenue should Metro recognize on January 1, Year 1?

Accepted Answer

Apply ASC 606 five-step model: identify performance obligations (equipment and service), determine standalone selling prices, allocate transaction price based on relative standalone selling prices, recognize revenue when performance obligations are satisfied.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Recognizing full contract price for equipment, not identifying separate performance obligations, or using incorrect allocation methods

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 2

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