BoTeck Is a Full-Service Technology Company

question 97

Multiple Choice

BoTeck is a full-service technology company. It provides equipment, installation services, and training services. For a recent major group sale, the transaction price had a variable component contingent upon a threshold being reached. Revenue allocated to equipment and installation services was recognized in fiscal year 2015; revenue allocated to training services is being recognized over the next two years through the end of 2017. Now, in February 2016, the contingent outcome previously expected has proven to be false and the transaction price has changed such that additional revenue should be recognized for these performance obligations. What is the proper accounting for this change in transaction price for equipment and installation services?

• A) prior period adjustment to increase 2015 revenue for the full amount of change
• B) increase 2016 and 2017 revenue by allocating adjustment equally to each year for the proportional amount of change
• C) increase 2016 revenue by allocating adjustment to January and February equally to each month for the proportional amount of change
• D) increase 2016 revenue by adjusting February for the full amount of change

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Definitions:

Security

A document or other thing that stands as evidence of title to or interest in the capital, assets, property, profits, earnings, or royalties of any person or company, including any document commonly known as a security.

Chattel Mortgage

A legal arrangement where personal property is used as security for a loan, without the borrower surrendering possession of the property.

Secured Creditor

A lender who is given a specific asset as collateral for a loan, providing them with the right to claim said asset if the borrower defaults.

Sale Proceedings

The process and actions taken to complete the sale of assets, including the distribution of the proceeds from the sale.