ExpertHard1 markMultiple Choice
CPA · Question 28 · Area 2: Select Accounts
On Jan 1, Year 1, a company sold a subscription for $120 covering 12 months. On March 31, the customer upgraded, adding features for the remaining 9 months for an extra $45 (total). The new features are NOT distinct from the original service. How is this modification accounted for?
On Jan 1, Year 1, a company sold a subscription for $120 covering 12 months. On March 31, the customer upgraded, adding features for the remaining 9 months for an extra $45 (total). The new features are NOT distinct from the original service. How is this modification accounted for?
Answer options:
A.
Separate Contract.
B.
Cumulative Catch-up Adjustment.
C.
Prospective Treatment.
D.
No change until Year 2.
How to approach this question
Modification Rule: Not Distinct -> Cumulative Catch-up. Distinct + Standalone Price -> Separate Contract. Distinct + Negotiated Price -> Prospective.
Full Answer
B.Cumulative Catch-up Adjustment.✓ Correct
B
Because the remaining services are not distinct from the services already provided (it's a single performance obligation), the modification is accounted for as a cumulative catch-up adjustment to revenue.
Common mistakes
Using prospective treatment (which applies when remaining goods are distinct).
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