Question 1

Which of the following is not an element identified by the AICPA as being necessary in order to use percentage-of-completion accounting?

Accepted Answer

A)  The construction period can be reasonably estimated. 
B)  The buyer can be expected to satisfy obligations under the contract. 
C)  Dependable estimates can be made of the extent of progress toward completion. 
D)  Dependable estimates can be made of contract costs. 
A)  The construction period can be reasonably estimated. 
B)  The buyer can be expected to satisfy obligations under the contract. 
C)  Dependable estimates can be made of the extent of progress toward completion. 
D)  Dependable estimates can be made of contract costs.

Question 2

Marvel System Services provides its customers with computer-based services over an extended period. Customers are required to prepay the entire fee for the extended service. Marvel performs initial setup activities to enter a customer into its system. The initial setup allows the customer to receive automated services from Marvel from that point forward in the service agreement.
The management of Marvel plans to recognize the revenue over the life of the service contract, but plans to recognize a disproportionate amount of revenue at the beginning of the contract as a result of the completion of the setup activities and the cost incurred in connection with the completion of the setup activities.
Required:
Do you agree with the proposal by the management of Marvel regarding revenue recognition related to the setup activities? How should revenue be recognized for an agreement such as this?

Accepted Answer

EITF No. 00-21, "Revenue Arrangements wi

Question 3

Tappan Industrial sells machinery on the installment plan. On September 1, 2011, Tappan entered into an installment sale contract with Western Productions for a six-year period. Equal annual payments under the installment sale are $187,500 and are due on August 31 of each year beginning in 2012.
Additional information:
   
Compute the income or loss before taxes that Tappan should record for the year ended December 31, 2011, as a result of the above transaction, assuming that circumstances are such that the collection of the installments due under the contract

Accepted Answer

(1)Accrual basis: full gross p

Question 4

Revenue is measured in terms of the value of the products or services exchanged in an "arms-length" transaction. This value represents either the net cash equivalent or the present discounted value of the money received or to be received in exchange for the products or services that an enterprise transfers to its customer.
Required:
Explain how this concept of the measurement of revenue might be used to determine the proper treatment of sales discounts and bad debt losses.

Accepted Answer

This concept of the measurement of reven

Question 5

Which of the following best describes the condition(s) that must be present for the recognition of revenue?

Accepted Answer

A)  The revenue must be earned, measurable, and collected. 
B)  The revenue must be earned, measurable, and collectible. 
C)  The revenue must be earned and collectible. 
D)  The revenue must be measurable and collectible. 
A)  The revenue must be earned, measurable, and collected. 
B)  The revenue must be earned, measurable, and collectible. 
C)  The revenue must be earned and collectible. 
D)  The revenue must be measurable and collectible.

Question 6

C & J Construction, Inc. has consistently used the percentage-of-completion method of recognizing income. Last year C & J started work on a $4,500,000 construction contract, which was completed this year. The accounting records disclosed the following data for last year:
 
How much income should C & J have recognized on this contract last year?

Accepted Answer

A)  $105,000 
B)  $150,000 
C)  $300,000 
D)  $350,000 
A)  $105,000 
B)  $150,000 
C)  $300,000 
D)  $350,000

Question 7

Assume the percentage-of-completion method of revenue recognition is used on a long-term construction contract. Under this method, revenues that are earned but unbilled at the balance sheet date should be disclosed

Accepted Answer

A)  as a long-term receivable in the noncurrent assets section of the balance sheet. 
B)  only as a footnote disclosure until the customer is billed for the percentage of work completed. 
C)  as construction in progress in the current assets section of the balance sheet. 
D)  as construction in progress in the noncurrent assets section of the balance sheet. 
A)  as a long-term receivable in the noncurrent assets section of the balance sheet. 
B)  only as a footnote disclosure until the customer is billed for the percentage of work completed. 
C)  as construction in progress in the current assets section of the balance sheet. 
D)  as construction in progress in the noncurrent assets section of the balance sheet.

Question 8

The cost recovery method is

Accepted Answer

A)  used only when circumstances surrounding a sale are so uncertain that earlier recognition is impossible. 
B)  the most common method of accounting for real estate sales. 
C)  similar to percentage-of-completion accounting. 
D)  never acceptable under generally accepted accounting principles. 
A)  used only when circumstances surrounding a sale are so uncertain that earlier recognition is impossible. 
B)  the most common method of accounting for real estate sales. 
C)  similar to percentage-of-completion accounting. 
D)  never acceptable under generally accepted accounting principles.

Question 9

The installment method of recognizing revenue

Accepted Answer

A)  should be used only in cases in which no reasonable basis exists for estimating the collectibility of receivables. 
B)  is not a generally accepted accounting principle under any circumstances. 
C)  should be used for book purposes only if it is used for tax purposes. 
D)  is an acceptable alternative accounting principle for a firm that makes installment sales. 
A)  should be used only in cases in which no reasonable basis exists for estimating the collectibility of receivables. 
B)  is not a generally accepted accounting principle under any circumstances. 
C)  should be used for book purposes only if it is used for tax purposes. 
D)  is an acceptable alternative accounting principle for a firm that makes installment sales.

Question 10

When using the installment sales method,

Accepted Answer

A)  gross profit is deferred until all cash is received, but revenues and costs are recognized in proportion to the cash collected from the sale. 
B)  gross profit is recognized only after the amount of cash collected exceeds the cost of the item sold. 
C)  revenue, costs, and gross profit are recognized proportionally as the cash is received from the sale of product. 
D)  total revenues and costs are recognized at the point of sale, but gross profit is deferred in proportion to the cash that is uncollected from the sale. 
A)  gross profit is deferred until all cash is received, but revenues and costs are recognized in proportion to the cash collected from the sale. 
B)  gross profit is recognized only after the amount of cash collected exceeds the cost of the item sold. 
C)  revenue, costs, and gross profit are recognized proportionally as the cash is received from the sale of product. 
D)  total revenues and costs are recognized at the point of sale, but gross profit is deferred in proportion to the cash that is uncollected from the sale.

Question 11

The importance of revenue to a business enterprise has caused much discussion among accountants as to how the term "revenue" should be defined. The FASB in Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements," defines revenue as "inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations."
Evaluate the soundness of the definition of the term "revenue" provided by the FASB in Statement of Financial Accounting Concepts No. 6.

Accepted Answer

Critics of the FASB's definition have su

Question 12

Which of the following is not a difference between the percentage-of completion and completed-contract methods of accounting for long-term construction contracts?

Accepted Answer

A)  They report different amounts for inventory during the construction period. 
B)  They report different amounts for progress billings during the construction period. 
C)  They cause a different cash inflow during the construction period. 
D)  They report different amounts for accounts receivable during the construction period. 
A)  They report different amounts for inventory during the construction period. 
B)  They report different amounts for progress billings during the construction period. 
C)  They cause a different cash inflow during the construction period. 
D)  They report different amounts for accounts receivable during the construction period.

Question 13

Knudsen Company sold $300,000 to customers on account during 2011, and collected $187,500 during the year. The company properly uses the installment sales method of revenue recognition due to the uncertainty of collection of these installment receivables. The company has determined that cost of sales for the $300,000 of sales was $240,000.
What is the correct balance of the company's Deferred Gross Profit account at the end of 2011, after the recognition of revenue for that year?

Accepted Answer

A)  $22,500 
B)  $0 
C)  $60,000 
D)  $112,000 
A)  $22,500 
B)  $0 
C)  $60,000 
D)  $112,000

Question 14

Under which of the following circumstances is the installment sales method appropriate for the recognition of revenue in the income statement?

Accepted Answer

A)  For any sales where collection is spread over a reasonable long period of time. 
B)  In any situation where management wishes to delay the recognition of revenue in order to smooth its income. 
C)  For sales where collection is spread over a reasonable long period of time and significant doubt exists about the ultimate collection of the receivables. 
D)  For sales where collection is spread over a reasonable long period of time and no significant doubt exists concerning ultimate collection of the receivables. 
A)  For any sales where collection is spread over a reasonable long period of time. 
B)  In any situation where management wishes to delay the recognition of revenue in order to smooth its income. 
C)  For sales where collection is spread over a reasonable long period of time and significant doubt exists about the ultimate collection of the receivables. 
D)  For sales where collection is spread over a reasonable long period of time and no significant doubt exists concerning ultimate collection of the receivables.

Which of the following is not an element identified by the AICPA as being necessary in order to use percentage-of-completion accounting?

Which of the following best describes the condition(s) that must be present for the recognition of revenue?

Assume the percentage-of-completion method of revenue recognition is used on a long-term construction contract. Under this method, revenues that are earned but unbilled at the balance sheet date should be disclosed

The cost recovery method is

The installment method of recognizing revenue

When using the installment sales method,

Which of the following is not a difference between the percentage-of completion and completed-contract methods of accounting for long-term construction contracts?

Under which of the following circumstances is the installment sales method appropriate for the recognition of revenue in the income statement?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, Pensions, Other Comp Issues

Earnings Per Share

Derivatives, Contingencies, Business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters

Exam 8: Revenue Recognition

Which of the following is not an element identified by the AICPA as being necessary in order to use percentage-of-completion accounting?

Which of the following best describes the condition(s) that must be present for the recognition of revenue?

Assume the percentage-of-completion method of revenue recognition is used on a long-term construction contract. Under this method, revenues that are earned but unbilled at the balance sheet date should be disclosed

The cost recovery method is

The installment method of recognizing revenue

When using the installment sales method,

Which of the following is not a difference between the percentage-of completion and completed-contract methods of accounting for long-term construction contracts?

Under which of the following circumstances is the installment sales method appropriate for the recognition of revenue in the income statement?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, Pensions, Other Comp Issues

Earnings Per Share

Derivatives, Contingencies, Business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters