Area II: Technical Accounting — CPA Practice Question 04

How to approach this question

Look for one of the three criteria: 1) Customer receives/consumes benefits simultaneously, 2) Creates/enhances asset customer controls, 3) No alternative use + right to payment.

Full Answer

C.A construction company builds an office building on land owned by the customer.✓ Correct

ASC 606-10-25-27 states a performance obligation is satisfied over time if one of three criteria is met. Criterion B is: 'The entity's performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced.' Building on customer-owned land meets this criterion.

Common mistakes

Confusing service delivery (point in time) with service duration; assuming all warranties are separate performance obligations.

Under ASC 606, which of the following scenarios BEST describes a performance obligation that is satisfied over time?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 5

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