Exam 2- ACG 4101 Questions with
Solutions
Chapter 5 - answer Time Value of Money
Identify calculations related to present (future) value of $1, present (future) value of
ordinary annuity, present (future) value of annuity due - answerFV of a single amount=
PV * FV OF $1
PV of a single amount= FV * PV OF $1
FV of equal cash flows= PV * FVA OR FVAD
PV of equal cash flows= FV * PVA OR PVAD
Ordinary annuity= end of period/year
Annuity due= beg of period/year
Identify the interest rate or time period involved - answerYears*amt compounded
Interest/amt compounded
ex: 5 years, semiannually, 8% interest rate; n=10, i=4%
Calculate bond price - answerInterest * PVAD OR PVA
+
Bond price * PV of $1
Understand the impact of compounding frequencies on the time value calculations -
answer-the more frequently interest is compounded, the more an investment grows or a
debt increases
-annuity due>ordinary annuity
Chapter 6- Part A - answerRevenue Recognition and Profitability Analysis
Specify the core revenue principle - answerCompanies recognize revenue when g/s are
transferred to customers for the amount the companies expected to be entitled to
receive in exchange for those g/s
Identify when revenues are recognized at the point of time, including indicators of when
the control of a good is transferred - answerWe consider transfer of goods or services to
have occurred when the customer has CONTROL of the goods or services.
Control: customer has direct influence over the use of the good or service and obtains
its benefits.
The key indicators for the transfer of control are that the customer has:
, •an obligation to pay the seller
•legal title to the asset
•physical possession of the asset
•the risks and rewards of ownership
•has accepted the asset.
Identify when revenues are recognized over a period of time, including the criteria for
over-time recognition - answer(1) the customer consumes the benefit of the seller's
work as it is performed (when a company provides cleaning services to a customer for a
period of time)
OR
(2) the customer controls the asset as it is created (when a contractor builds an
extension onto a customer's existing building)
OR
(3) the seller is creating an asset that has no alternative use to the seller, and the seller
has the legal right to receive payment for progress to date (when a company
manufactures fighter jets for the U.S. Air Force).
Identify the five steps for revenue recognition - answer1. Identify the contract
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transcation price to each PO
5. Recognize revenue when (or as) each PO is satisfied
Allocate the transaction price to multiple performance obligations - answer1. Adjusted
market assessment approach: The seller considers the price it would receive if the
product or services were sold in the market in which it normally conducts business. The
seller often references prices charged by competitors.
2. Expected cost plus margin approach: The seller estimates the costs of satisfying a
performance obligation and then adds an appropriate profit margin.
3. Residual approach: The seller estimates an unknown stand-alone selling price by
subtracting the sum of the known or estimated stand-alone selling prices of other goods
and services in the contract from the total transaction price of the contract.
Calculate the stand-alone selling price of an "option" - answer1/(1+2) = % of transcation
price allocated
2/(1+2)= % of transaction price allocated
multiply % of t.p.a by bundle price to figure out the stand-alone
Calculate the expected transaction price with variable consideration using the expected
value method and mostly likely method - answerExpected value method
possible amount * % of chance it occurs= expected amount
Solutions
Chapter 5 - answer Time Value of Money
Identify calculations related to present (future) value of $1, present (future) value of
ordinary annuity, present (future) value of annuity due - answerFV of a single amount=
PV * FV OF $1
PV of a single amount= FV * PV OF $1
FV of equal cash flows= PV * FVA OR FVAD
PV of equal cash flows= FV * PVA OR PVAD
Ordinary annuity= end of period/year
Annuity due= beg of period/year
Identify the interest rate or time period involved - answerYears*amt compounded
Interest/amt compounded
ex: 5 years, semiannually, 8% interest rate; n=10, i=4%
Calculate bond price - answerInterest * PVAD OR PVA
+
Bond price * PV of $1
Understand the impact of compounding frequencies on the time value calculations -
answer-the more frequently interest is compounded, the more an investment grows or a
debt increases
-annuity due>ordinary annuity
Chapter 6- Part A - answerRevenue Recognition and Profitability Analysis
Specify the core revenue principle - answerCompanies recognize revenue when g/s are
transferred to customers for the amount the companies expected to be entitled to
receive in exchange for those g/s
Identify when revenues are recognized at the point of time, including indicators of when
the control of a good is transferred - answerWe consider transfer of goods or services to
have occurred when the customer has CONTROL of the goods or services.
Control: customer has direct influence over the use of the good or service and obtains
its benefits.
The key indicators for the transfer of control are that the customer has:
, •an obligation to pay the seller
•legal title to the asset
•physical possession of the asset
•the risks and rewards of ownership
•has accepted the asset.
Identify when revenues are recognized over a period of time, including the criteria for
over-time recognition - answer(1) the customer consumes the benefit of the seller's
work as it is performed (when a company provides cleaning services to a customer for a
period of time)
OR
(2) the customer controls the asset as it is created (when a contractor builds an
extension onto a customer's existing building)
OR
(3) the seller is creating an asset that has no alternative use to the seller, and the seller
has the legal right to receive payment for progress to date (when a company
manufactures fighter jets for the U.S. Air Force).
Identify the five steps for revenue recognition - answer1. Identify the contract
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transcation price to each PO
5. Recognize revenue when (or as) each PO is satisfied
Allocate the transaction price to multiple performance obligations - answer1. Adjusted
market assessment approach: The seller considers the price it would receive if the
product or services were sold in the market in which it normally conducts business. The
seller often references prices charged by competitors.
2. Expected cost plus margin approach: The seller estimates the costs of satisfying a
performance obligation and then adds an appropriate profit margin.
3. Residual approach: The seller estimates an unknown stand-alone selling price by
subtracting the sum of the known or estimated stand-alone selling prices of other goods
and services in the contract from the total transaction price of the contract.
Calculate the stand-alone selling price of an "option" - answer1/(1+2) = % of transcation
price allocated
2/(1+2)= % of transaction price allocated
multiply % of t.p.a by bundle price to figure out the stand-alone
Calculate the expected transaction price with variable consideration using the expected
value method and mostly likely method - answerExpected value method
possible amount * % of chance it occurs= expected amount
