Test 5

Question 1

Revenue recognition criteria for MEAs by the SEC

Answer 1

1) Persuasive evidence of an arrangement exists
2) Delivery has occurred or services have been rendered
3) Seller’s price to the buyer is fixed or determinable
4) Collectibility is reasonably assured

Question 2

VIE identification. A company has a VIE if that company has…

Answer 2

BOTH

1) the power to direct significant financial activities of a VIE
2) the obligation to absorb losses or benefits of the VIE entity that could potentially be significant to the VIE

Question 3

VIE entities are entities that have or lack…

Answer 3

any of these:
-entities that lack sufficient risk, and need financial support from others-----"Insufficient equity at risk"===> the equity investments that participate significantly in profits or losses are less than 10% of total assets
1- lack power to direct activities
2- lack obligation to absorb losses
3- lack the right to receive returns

Question 4

GAAP’s definition of an “entity”

Answer 4

Any legal structure used to conduct activities or to hold assets.

Question 5

“insufficient equity at risk” means

Answer 5

equity at risk of less than 10% of total assets are assumed insufficient

Question 6

“equity at risk” means

Answer 6

equity investments that participate significantly in profits/losses

Question 7

Primary beneficiary is…

Answer 7

the company that absorbs majority of losses/gains.
if one company gets G’s and another gets L’s, then the Co that gets the L’s is the primary
primary B consolidates VIE
there may be no primary b

Question 8

variable interests definition

Answer 8

assets liabilities contracts and equity that absorb variability are variable interests
VI’s change in value with changes in fair value of NA exclusive of VI
Payments to VI not part of expected losses/returns

Question 9

MEAs:

Answer 9

presume multiple contracts entered at the same time are a single arrangement
are there separable units of accounting?
consideration allocation?
timing?

Question 10

MEAs scope limitations

Answer 10

• future discounts for continued service
• a rebate or refund of a determinable amount
• award credits for loyalty program operators

Question 11

separate unit of accounting criteria

Answer 11

both:

• value on standalone basis
• general right of return for delivered items. delivery and performance of undelivered items is probable and substantially in the control of the vendor

Question 12

conderations for MEAs must be…

Answer 12

fixed and determinable

Question 13

consideration allocation

Answer 13

relative selling prices. Price the separate accounting items would sell at individually.
evidence in hierarchy:
1)vendor specific objective evidence
2)third party evidence
3)estimated selling price

Question 14

software MEAs extra considerations

Answer 14

• third criteria of separate units exists: objective and reliable evidence exists of the FV of undelivered items.
• Only VSOE can be used

Question 15

Operating segment criteria/requirements:

Answer 15

• activities that earn revenues and incur expenses
• Operating results reviewed by chief operating decision maker
• Discrete financial information available

Question 16

Operating segment aggregation criteria

Answer 16

• consistent with objectives and principles of GAAP
• similar economic characteristics
• similar:
  - nature of products and services
  - nature of production processes
  - type or class of customer
  - distribution methods
  - regulatory environment (if applicable)