When Allocating the Transaction Price for a Contract with a Customer

question 1

Multiple Choice

When allocating the transaction price for a contract with a customer, the 'expected cost plus a margin approach' requires the entity to:

• A) evaluate the market in which it purchases goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.
• B) forecast its expected costs of satisfying a performance obligation and then add an appropriate margin for that good or service.
• C) allocate the price for the goods or services on an 'in-combination' basis.
• D) evaluate the market in which it sells goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.

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Definitions:

Depositary Bank

A financial institution that holds and manages the securities of a depositor, facilitating the exchange of securities and related transactions.

Payor Bank

A bank that is responsible for paying a check or draft on behalf of its client.

UCC

Short for Uniform Commercial Code, a set of laws that provide legal rules and regulations governing commercial or business dealings and transactions in the United States.

Cashier's Check

A cashier's check, which is underwritten and signed by the bank itself, utilizing its own finances.