Question

Part I-True or False: Write your answer on the answer sheet provided at the end. (2.5 Points) 1. Under contract modification, if the new products are not priced at the proper standalone selling price or if they are not distinct. In this situation, companies generally account for the modification using a prospective approach (Cumulative catch up adjustment). 2. Revenue from a contract with a customer cannot be recognized until a contract exists. 3. One of the enhancing (secondary) qualitative characteristics of accounting information completeness. 4. Conceptual framework is useful for consistent pronouncements over time. 5. Change in accounting principles and methods are treated prospectively while Changes in accounting estimates are accounted for retrospective.

Answer 1

The question addresses college-level business concepts around accounting and finance, particularly in the areas of revenue recognition, contract modifications, and qualities of accounting information. The true or false statements are addressed individually with explanations for each.

Step-by-step explanation:

The subject of this question is Business, specifically accounting and finance concepts as they relate to revenue recognition, contract modifications, and the qualitative characteristics of accounting information. The grade level is College.

True or False Answers:

1. False. If the new products under a contract modification are not priced at the proper standalone selling price or are not distinct, companies usually account for the modification as if it is part of the existing contract using a cumulative catch-up adjustment. The prospective approach is not typically used in this scenario.
2. True. Revenue from a contract with a customer cannot be recognized until the terms of the contract are agreed upon and the contract is deemed to exist.
3. True. Completeness is indeed one of the enhancing qualitative characteristics of accounting information, which requires that all necessary information is provided to users.
4. True. The conceptual framework is instrumental in ensuring that accounting standards are developed with consistency over time.
5. False. Changes in accounting principles and methods are generally treated retrospectively, which means adjusting past financial statements as if the new principle had always been used. Changes in accounting estimates are treated prospectively, affecting the current and future financial periods.

Understanding a firm's cost structure from a long-run perspective is crucial for making decisions on the profit-maximizing quantity to produce and the price to set, which also requires an analysis of sales and revenue, with consideration of the market structure in which the firm operates.