A finished ACC-370 Topic 2 receivables and revenue recognition problem example, walking one bundled sale through the five steps and deciding when the right to payment becomes a receivable. Searches like "acc 370 topic 2 assignment example", "acc370 topic 2 sample" and "acc-370 topic 2 example" land here.
What a finished ACC-370 Topic 2 receivables and revenue recognition problem looks like
The finished problem begins with the contract: $108,000 for a machine, installation that other vendors could perform, and twelve months of maintenance, all figures illustrative. Step two tests each promise against the two criteria for a distinct performance obligation and finds three. Standalone selling prices of $90,000, $12,000 and $18,000 allocate the price as $81,000, $10,800 and $16,200. The machine transfers control on delivery in December, so $81,000 is recognized then. The invoice, however, is issued only when installation is finished in January, which makes the year-end right to payment conditional on something other than time. The example therefore records a contract asset, not a receivable, and reclassifies it when the invoice goes out. The second half measures the company's receivables with an aging schedule, applies expected loss rates to each band and adjusts the allowance to the result.
How an ACC-370 Topic 2 example is structured
The problem follows the sequence ASC 606 prescribes, then turns to the receivables work. It opens by identifying the contract and confirming that it meets the criteria for one, including commercial substance and probable collection. The second part examines each promise and applies the two distinct tests, capable of being distinct and distinct within the context of the contract, to installation in particular. The transaction price comes third, with a note that nothing in these facts makes it variable. The fourth part allocates by relative standalone selling price, showing the arithmetic. A fifth part decides when each obligation is satisfied and records the December entry, explaining why the debit is a contract asset. The last part turns to the receivables balance, presents the aging schedule and expected loss rates, and records the allowance adjustment and the related expense.
Three promises tested for distinctness
Installation is judged distinct because other vendors could perform it and it does not modify the machine, so it carries its own share of the price.
Allocation by standalone selling price
The $108,000 price is spread across the machine, installation and maintenance in proportion to what each would sell for alone, with the arithmetic shown in full.
Control on delivery, not on invoice
Revenue for the machine is recognized in December when the customer obtains control, even though no invoice has been issued and none will be until January.
Contract asset versus receivable decided
Because payment still depends on finishing installation, the year-end right is conditional, and the example records a contract asset instead of a receivable for that reason.
Allowance built from an aging schedule
Each age band of receivables carries its own expected loss rate, and the allowance is adjusted to the total rather than set as a flat percentage of sales.
Where marks go in ACC-370 Topic 2
This problem can be marked wrong at several exact points. Recognizing all $108,000 on delivery treats three performance obligations as one, and the error carries into every later period of maintenance revenue. Allocating the price in equal thirds, or by the amounts the contract happens to bill, ignores standalone selling price and produces figures a marker can check against the facts. Recording a receivable at year end, when the right to payment still depends on installation, applies the familiar entry without walking the criterion that decides it. Treating installation as distinct, or as not distinct, without saying why leaves the central judgment unexplained and often costs as much as a wrong answer would. On the receivables side, an allowance computed from sales when the instructions call for an aging schedule loses credit even when the balance looks reasonable.
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Send the ACC-370 Topic 2 instructions, the rubric and the contract or receivables data your section supplied. We write a custom example to them, with every step of the revenue model walked against the facts, the price allocated, the receivable or contract asset decision explained and the allowance measured, in 24 to 48 hours. The first one is free.
ACC-370 Topic 2 questions, answered
How does a receivable differ from a contract asset?
Both record a right to payment for work already performed. A receivable is unconditional apart from the passage of time: the company has done what it must and only needs to wait. A contract asset is conditional on something else, such as finishing another obligation in the same contract. The two are presented separately because a contract asset still carries performance risk as well as credit risk.
How do I know whether installation is a separate performance obligation?
Apply both criteria to the facts. Installation is capable of being distinct if the customer could benefit from it with resources readily available, such as another installer. It is distinct within the context of the contract if it does not significantly modify the machine or combine with it into a different output. Where installation is complex and customized, the answer can change.
Why use an aging schedule rather than a percentage of sales?
Because the allowance measures how much of the balance is not expected to be collected at the reporting date, and older balances usually carry more risk than newer ones. An aging schedule applies a higher expected loss rate to each older band and sums the result. A percentage of sales produces an expense figure first and lets the allowance follow, which some sections accept and plenty of rubrics here do not.