ExpertHard1 markMultiple Choice
CPA · Question 46 · Area III: Select Transactions
Coastal Corp. enters into a contract to deliver 1,000 widgets over 12 months. The contract price is $50,000. At the end of Month 3, Coastal has delivered 300 widgets and incurred costs of $12,000. The estimated total costs to fulfill the contract are $40,000.<br/><br/>Using the output method, how much revenue should Coastal recognize through Month 3?
Coastal Corp. enters into a contract to deliver 1,000 widgets over 12 months. The contract price is $50,000. At the end of Month 3, Coastal has delivered 300 widgets and incurred costs of $12,000. The estimated total costs to fulfill the contract are $40,000.<br/><br/>Using the output method, how much revenue should Coastal recognize through Month 3?
Answer options:
A.
$12,500
B.
$15,000
C.
$12,000
D.
$37,500
How to approach this question
Under the output method, measure progress based on units delivered to the customer. Calculate the percentage of total units delivered and apply this percentage to the total contract price.
Full Answer
B.$15,000✓ Correct
$15,000
Under ASC 606, the output method measures progress toward complete satisfaction of a performance obligation based on direct measurements of value transferred to the customer. Progress = 300 widgets delivered ÷ 1,000 total widgets = 30%. Revenue = $50,000 × 30% = $15,000.
Common mistakes
Using input method (costs incurred), using time-based progression, or applying wrong percentages to contract price
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