ExpertMedium1 markMultiple Choice
CPA · Question 26 · Area III: Select Transactions
Under ASC 606, which of the following scenarios represents revenue recognized 'over time'?
Under ASC 606, which of the following scenarios represents revenue recognized 'over time'?
Answer options:
A.
A contractor building a customized warehouse on the customer's land.
B.
A furniture store selling a sofa delivered today.
C.
A software company selling a perpetual license delivered via download.
D.
A car dealership selling a vehicle with a 3-year warranty.
How to approach this question
Criteria for Over Time: 1. Customer receives benefits as performed (cleaning service). 2. Customer controls asset as created (construction on land). 3. No alternative use + enforceable right to payment (custom consulting).
Full Answer
A.A contractor building a customized warehouse on the customer's land.✓ Correct
Construction on the customer's land meets the criterion that the customer controls the asset as it is created or enhanced. Therefore, revenue is recognized over time (percentage of completion).
Common mistakes
Assuming all construction is over time (it usually is, but specifically because of the control/no alternative use criteria).
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