Which of the following statements is not true regarding the treatment of warranties under the new revenue recognition guidance in ASC Topic 606? A warranty that assures the product is free of defects is not a distinct performance obligation. Warranties that provide services beyond assuring the product is defect-free at the time of sale are separate performance obligations. A warranty that covers services that are normally considered routine maintenance is an assurance warranty. The length of the warranty period should be considered.

Which of the following statements is not true regarding the treatment of warranties under the new revenue recognition guidance in ASC Topic 606? A warranty that assures the product is free of defects is not a distinct performance obligation. Warranties that provide services beyond assuring the product is defect-free at the time of sale are separate performance obligations. A warranty that covers services that are normally considered routine maintenance is an assurance warranty. The length of the warranty period should be considered.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle.

Section: Chapter Questions

Problem 7CYBK

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Statement 1: Under an assurance-type warranty, companies charge warranty costs only to the period in which they comply with the warranty. Statement 2: For purposes of recognizing a provision, “probable” is defined as more likely than not. a. Only statement 1 is correct b. Only statement 2 is correct c. Both statements are correct d. Both statements are incorrect.
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The new revenue recognition standard does not apply to Leases. Insurance contracts. Financial instruments. All of these choices.
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A contract does not qualify for revenue recognition if Either party can unilaterally cancel the contract before performance without compensating the other party. The contract is wholly unperformed. Contract terms allow cancellation without penalty by either party at any time prior to delivery of the goods. Any one of these choices apply.
How can you tell if a warranty should be treated as a quality-assurance warranty or an extended warranty?
18. Accounting for product warranty costs under an assurance-type warranty * a. is required for income tax purposes. b. is frequently justified on the basis of expediency when warranty costs are immaterial. c. charges an expense account when the seller performs in compliance with the warranty. d. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.
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