WGU D105 | COMPLETE ACTUAL EXAM |
| WITH 100% ACCURATE SOLUTIONS +
RATIONALES | (250 QUESTIONS AND
ANSWERS) | PASS GUARANTEED
Section 1: Revenue Recognition (Questions 1-30)
1. Under ASC 606, the five-step model for revenue recognition begins with:
• A) Identifying the performance obligations in the contract
• B) Determining the transaction price
• C) Identifying the contract with a customer
• D) Allocating the transaction price to performance obligations
Correct ,,,,,answer,,,,: C
Rationale: The five-step model under ASC 606 begins with Step 1: Identify the
contract with a customer. The steps are: (1) Identify the contract, (2) Identify
performance obligations, (3) Determine the transaction price, (4) Allocate the
transaction price, and (5) Recognize revenue when (or as) performance obligations
are satisfied.
2. A performance obligation under ASC 606 is defined as:
• A) A promise to transfer a distinct good or service to the customer
• B) Any service provided to a customer
, • C) The total consideration expected from a contract
• D) A contract that has been fully executed
Correct ,,,,,answer,,,,: A
Rationale: A performance obligation is a promise in a contract to transfer a
distinct good or service (or a bundle of goods or services that are distinct) to the
customer. It is the unit of account for revenue recognition.
3. Which of the following is NOT a criterion for a contract to exist under ASC
606?
• A) The contract has commercial substance
• B) The parties have approved the contract and are committed to perform
• C) The contract is in writing
• D) The entity can identify each party's rights regarding goods or services
Correct ,,,,,answer,,,,: C
Rationale: ASC 606 does not require a contract to be in writing. Contracts can be
oral, written, or implied by customary business practices. The other criteria—
approval, identifiable rights, commercial substance, and probable collection—are
required.
4. A customer pays $1,000 for a gift card. When should the entity recognize
revenue?
• A) Immediately upon receipt of cash
, • B) When the gift card is issued
• C) When the gift card is redeemed or expires
• D) At the end of the fiscal year
Correct ,,,,,answer,,,,: C
Rationale: Revenue from gift cards is recognized when the gift card is redeemed
(goods/services are provided) or when the likelihood of redemption becomes
remote (breakage). Until then, the amount is recorded as a contract liability
(deferred revenue).
5. Under ASC 606, the transaction price includes:
• A) Only fixed consideration
• B) Fixed consideration and variable consideration
• C) Only the amount invoiced to the customer
• D) The amount expected to be received, excluding discounts
Correct ,,,,,answer,,,,: B
Rationale: The transaction price is the amount of consideration to which an entity
expects to be entitled in exchange for transferring goods or services. It includes
both fixed and variable consideration (e.g., discounts, rebates, refunds, credits,
price concessions, incentives, performance bonuses, penalties, or other similar
items).
, 6. Variable consideration must be estimated using either the expected value
method or the most likely amount method. Which method is most appropriate
when there are a large number of contracts with similar characteristics?
• A) Expected value method
• B) Most likely amount method
• C) Either method is equally appropriate
• D) Neither method is appropriate
Correct ,,,,,answer,,,,: A
Rationale: The expected value method (probability-weighted average) is most
appropriate when there is a large number of contracts with similar characteristics,
as it provides a better estimate of the total consideration. The most likely amount
method is more appropriate when there are only two possible outcomes.
7. A company enters into a contract with a customer for $500,000 with a
performance bonus of $100,000 if the project is completed by a specific date.
The company estimates it is 60% likely to earn the bonus. How much
transaction price should be included?
• A) $500,000
• B) $600,000
• C) $560,000
• D) $100,000
Correct ,,,,,answer,,,,: C
Rationale: Under the expected value method, the transaction price includes the
fixed consideration ($500,000) plus the probability-weighted variable
consideration ($100,000 × 60% = $60,000). Total = **$560,000**. The amount
| WITH 100% ACCURATE SOLUTIONS +
RATIONALES | (250 QUESTIONS AND
ANSWERS) | PASS GUARANTEED
Section 1: Revenue Recognition (Questions 1-30)
1. Under ASC 606, the five-step model for revenue recognition begins with:
• A) Identifying the performance obligations in the contract
• B) Determining the transaction price
• C) Identifying the contract with a customer
• D) Allocating the transaction price to performance obligations
Correct ,,,,,answer,,,,: C
Rationale: The five-step model under ASC 606 begins with Step 1: Identify the
contract with a customer. The steps are: (1) Identify the contract, (2) Identify
performance obligations, (3) Determine the transaction price, (4) Allocate the
transaction price, and (5) Recognize revenue when (or as) performance obligations
are satisfied.
2. A performance obligation under ASC 606 is defined as:
• A) A promise to transfer a distinct good or service to the customer
• B) Any service provided to a customer
, • C) The total consideration expected from a contract
• D) A contract that has been fully executed
Correct ,,,,,answer,,,,: A
Rationale: A performance obligation is a promise in a contract to transfer a
distinct good or service (or a bundle of goods or services that are distinct) to the
customer. It is the unit of account for revenue recognition.
3. Which of the following is NOT a criterion for a contract to exist under ASC
606?
• A) The contract has commercial substance
• B) The parties have approved the contract and are committed to perform
• C) The contract is in writing
• D) The entity can identify each party's rights regarding goods or services
Correct ,,,,,answer,,,,: C
Rationale: ASC 606 does not require a contract to be in writing. Contracts can be
oral, written, or implied by customary business practices. The other criteria—
approval, identifiable rights, commercial substance, and probable collection—are
required.
4. A customer pays $1,000 for a gift card. When should the entity recognize
revenue?
• A) Immediately upon receipt of cash
, • B) When the gift card is issued
• C) When the gift card is redeemed or expires
• D) At the end of the fiscal year
Correct ,,,,,answer,,,,: C
Rationale: Revenue from gift cards is recognized when the gift card is redeemed
(goods/services are provided) or when the likelihood of redemption becomes
remote (breakage). Until then, the amount is recorded as a contract liability
(deferred revenue).
5. Under ASC 606, the transaction price includes:
• A) Only fixed consideration
• B) Fixed consideration and variable consideration
• C) Only the amount invoiced to the customer
• D) The amount expected to be received, excluding discounts
Correct ,,,,,answer,,,,: B
Rationale: The transaction price is the amount of consideration to which an entity
expects to be entitled in exchange for transferring goods or services. It includes
both fixed and variable consideration (e.g., discounts, rebates, refunds, credits,
price concessions, incentives, performance bonuses, penalties, or other similar
items).
, 6. Variable consideration must be estimated using either the expected value
method or the most likely amount method. Which method is most appropriate
when there are a large number of contracts with similar characteristics?
• A) Expected value method
• B) Most likely amount method
• C) Either method is equally appropriate
• D) Neither method is appropriate
Correct ,,,,,answer,,,,: A
Rationale: The expected value method (probability-weighted average) is most
appropriate when there is a large number of contracts with similar characteristics,
as it provides a better estimate of the total consideration. The most likely amount
method is more appropriate when there are only two possible outcomes.
7. A company enters into a contract with a customer for $500,000 with a
performance bonus of $100,000 if the project is completed by a specific date.
The company estimates it is 60% likely to earn the bonus. How much
transaction price should be included?
• A) $500,000
• B) $600,000
• C) $560,000
• D) $100,000
Correct ,,,,,answer,,,,: C
Rationale: Under the expected value method, the transaction price includes the
fixed consideration ($500,000) plus the probability-weighted variable
consideration ($100,000 × 60% = $60,000). Total = **$560,000**. The amount
