Under ASC 606, which of the following scenarios results in revenue recognition over time?

Answer options:

A customer purchases a finished product from a retail shelf.

A contractor builds a customized satellite for the government that has no alternative use, and the contractor has an enforceable right to payment for performance completed to date.

A software company delivers a license key for functional IP.

A car dealership sells a car with a 3-year warranty.

How to approach this question

Criteria for Over Time: 1. Customer receives benefits as performed (cleaning service). 2. Customer controls asset as created (building on customer land). 3. No alternative use + Right to payment (custom satellite).

Full Answer

B.A contractor builds a customized satellite for the government that has no alternative use, and the contractor has an enforceable right to payment for performance completed to date.✓ Correct

The customized satellite has no alternative use, and the right to payment exists. This meets the criteria for recognizing revenue over time (input or output method).

Common mistakes

Assuming all construction is over time without checking criteria.

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