Question 1

Two methods used to account for revenue recognition for long term contracts are the percentage-of-completion method and the ________.

Accepted Answer

A)  installment sales method 
B)  cost recovery method 
C)  completed-contract method 
D)  sales method 
A)  installment sales method 
B)  cost recovery method 
C)  completed-contract method 
D)  sales method

Question 2

Gleason Construction enters into a long-term fixed price contract to build an office building for $27,000,000. In the first year of the contract Gleason incurs $5,000,000 of cost and the engineers determined that the remaining costs to complete the project are $24,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the percentage-of-completion method?

Accepted Answer

A)  $2,000,000 profit 
B)  $2,000,000 loss 
C)  $0 
D)  $344,828 loss 
A)  $2,000,000 profit 
B)  $2,000,000 loss 
C)  $0 
D)  $344,828 loss

Question 3

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $300 each. On January 1, Pemco sold 2,000 memberships and received cash. How should Pemco record the receipt of cash on January 1?

Accepted Answer

A)  liability of $600,000 
B)  revenue of $600,000 
C)  liability of $0 
D)  revenue of $50,000 
A)  liability of $600,000 
B)  revenue of $600,000 
C)  liability of $0 
D)  revenue of $50,000

Question 4

Hopner Products enters into a contract with Tulles to sell three different products. The total transaction price is $350,000. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the allocated transaction price of product Z using the adjusted market assessment approach? (Round intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest whole number.) $$\begin{array} { | c | c | c | } 
\hline \text { Product } & \text { Standalone Price } & \text { Market Price } \
\hline \mathrm { X } & \$ 130,000 & \$ 110,000 \
\hline \mathrm { Y } & \$ 120,000 & \$ 150,000 \
\hline \mathrm { Z } & \text { Not Available } & \$ 110,000 \
\hline
\end{array}$$

Accepted Answer

A)  $104,055 
B)  $116,286 
C)  $116,667 
D)  $90,000 
A)  $104,055 
B)  $116,286 
C)  $116,667 
D)  $90,000

Question 5

Gordo Yachts
At the beginning of 2019 Gordo Yachts enters into a contract to build a luxury yacht for a customer that is expected to take three years to complete. The contract price is $4,000,000. Completion is scheduled for the end of 2021. Gordo's year end is December 31. The following is a year by year summary of construction costs incurred and the estimated costs to complete the projects at the end of each year.
 $$\begin{array} { | l | c | c | c | } 
\hline & \underline { 2019 } & \underline { 2020 } & \underline { 2021 } \
\hline \begin{array} { l } 
\text { Actual costs incurred } \
\text { Eurrent year }
\end{array} & \$ 750,000 & \$ 2,250,000 & \$ 775,000 \
\hline \begin{array} { l } 
\text { actual costs incurred } \
\text { prior years }
\end{array} & \underline { - 0 - } & \underline { 750,000 } & \underline { 3,000,000 } \
\hline \begin{array} { l } 
\text { Cumulative actual costs } \
\text { incurred to date }
\end{array} & 750,000 & 3,000,000 & 3,775,000 \
\hline \begin{array} { l } 
\text { Estimated costs to } \
\text { complete end of year }
\end{array} & 2,250,000 & \underline { 750,000 } & \underline { - 0 - } \
\hline \text { Total Costs } & \$ 3,000,000 & \$ 3,750,000 & \$ 3,775,000 \
\hline \text { Billings } & \$ 700,000 & \$ 2,600,000 & \$ 700,000 \
\hline \text { Cash Collections } & 500,000 & 2,000,000 & 1,500,000 \
\hline
\end{array}$$
-Refer to Gordo Yachts. Prepare all necessary entries for 2019 assuming the use of the percentage-of-completion method.

Accepted Answer

None

Question 6

Macro Tech enters a contract on January 1, 2019 to produce software for a customer for $5,000,000. Macro Tech receives $2,000,000 from the customer upon contract signing and the balance at the completion of the contract. According to the contract, the customer controls the system during the creation of the program. Macro Tech estimates that it will take two years to complete the project and uses the number of labor hours to estimate the rate of completion. Macro Tech spends 30,000 hours in the first year of the contract and another 20,000 hours the second year.
Required:
Prepare the entries recorded by Macro Tech over the life of this contract. Assume that all payments are complete by the end of 2020.

Accepted Answer

None

Question 7

Aztec Company contracted with the Kirk Company to review their revenue recognition policies for recording sales. The contract will pay Aztec $600,000 in the form of a fixed fee. Aztec will also receive $150,000 additionally if Kirk achieves $200,000 in additional revenues. Aztec estimates a 65% chance that Kirk Company will achieve $200,000 in additional revenues. Refer to Aztec Company. Assume that Aztec estimates that the transaction price is the most likely value. The transaction price is ________.

Accepted Answer

A)  $600,000 
B)  $697,500 
C)  $390,000 
D)  $750,000 
A)  $600,000 
B)  $697,500 
C)  $390,000 
D)  $750,000

Question 8

Able sells and delivers a piece of equipment to Smythe for $2,000 on August 1 and the equipment cost $1,300. The sale is a credit sale. How is this transaction accounted for under a periodic system of inventory?

Accepted Answer

A)  $$\begin{array} { | c | r | r | } 
\hline \text { Sales Revenue } & 1,300 & \
\hline \text { Accounts Receivable } & & 1,300 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | l | l | } 
\hline \text { Accounts Receivable } & 2,000 & \
\hline \text { Sales Revenue } & & 2,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Sales Revenue } & 2,000 & \
\hline \text { Accounts Receivable } & & 2,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Receivable } & 1,300 & \
\hline \text { Sales Revenue } & & 1,300 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | c | r | r | } 
\hline \text { Sales Revenue } & 1,300 & \
\hline \text { Accounts Receivable } & & 1,300 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | c | l | l | } 
\hline \text { Accounts Receivable } & 2,000 & \
\hline \text { Sales Revenue } & & 2,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | r | r | } 
\hline \text { Sales Revenue } & 2,000 & \
\hline \text { Accounts Receivable } & & 2,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Accounts Receivable } & 1,300 & \
\hline \text { Sales Revenue } & & 1,300 \
\hline
\end{array}$$

Question 9

The Construction in Progress account is what type of account?

Accepted Answer

A)  liability 
B)  revenue 
C)  asset 
D)  expense 
A)  liability 
B)  revenue 
C)  asset 
D)  expense

Question 10

Gleason Construction enters into a long-term fixed price contract to build an office building for $30,000,000. In the first year of the contract Gleason incurs $8,000,000 of cost and the engineers determined that the remaining costs to complete are $18,000,000. How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the completed-contract method?

Accepted Answer

A)  $4,000,000 loss 
B)  $2,000,000 profit 
C)  $0 profit 
D)  $266,667 loss 
A)  $4,000,000 loss 
B)  $2,000,000 profit 
C)  $0 profit 
D)  $266,667 loss

Question 11

If a seller does not sell the same goods or services separately, the standalone selling prices should be estimated using prices that maximize observable inputs. What are the three suggested approaches to accomplish this?

Accepted Answer

1. The adjusted market assessm

Question 12

Brutus Construction started work on a new high rise building on January 1, 2019. The project completion date is December 2021. The contract price is $54,000,000. The following are the actual costs incurred and estimates of costs to complete the project.
 $$\begin{array} { c c c } 
\text { Years } & \text { Actual costs incurred } & \text { Estimated costs to complete } \
2019 & \$ 15,000,000 & \$ 30,000,000 \
2020 & 22,500,000 & 22,500,000 \
2021 & 17,500,000 & - 0 -
\end{array}$$ 
Calculate gross profit or loss for each year using the completed-contract method.

Accepted Answer

None

Question 13

Agee Corporation
Agee enters into a contract with Pipkin Video to add their programs to Agee's network. Pipkin will pay Agee an upfront fee of $250,000 for 12 months of access, and will also pay a $100,000 bonus if Agee's users access Pipkin Video for at least 10,000 hours during the 12-month period. Agee estimates that it has a 55% chance of earning the $100,000 bonus.
-Refer to Agee Corporation. Using the most-likely-amount approach, determine the transaction price.

Accepted Answer

$250,000; Variable considerati

Question 14

The two methods for recognizing revenue from long-term contracts are the percentage-of-completion method and the point-of-sale method.

Accepted Answer

A) True 
 B)False

Question 15

Penn sells cameras. On August 1, a customer purchases a camera for $5,700 cash. The camera cost Penn $2,500. Penn uses the perpetual inventory method.
Required: Prepare the necessary entries to record the sale.

Accepted Answer

\[\begin{array} { | l | l | r | r | } 
\

Question 16

Which one of the following is not an indicator of the transfer of control to the buyer?

Accepted Answer

A)  Seller has present right to payment for the asset. 
B)  Seller has legal title to the asset. 
C)  Seller has transferred physical possession of property. 
D)  Customer has accepted the asset. 
A)  Seller has present right to payment for the asset. 
B)  Seller has legal title to the asset. 
C)  Seller has transferred physical possession of property. 
D)  Customer has accepted the asset.

Question 17

Shady Equipment sells a truck to Fred for $160,000 on January 1, 2016. Payment of $160,000 is received is received on January 1, 2016, and interest is incurred over two years. The truck is delivered two years later. The market rate of interest is 9%. Refer to Shady Equipment. How much interest expense will Shady report over the term of the contract? (Do not round intermediary calculations, and round your final answer to the nearest whole number.)

Accepted Answer

A)  $30,096 
B)  $14,400 
C)  $160,000 
D)  $47,205 
A)  $30,096 
B)  $14,400 
C)  $160,000 
D)  $47,205

Question 18

The major difference between the percentage-of-completion method and the completed-contract method is the timing of ________.

Accepted Answer

A)  revenue and cost recognition 
B)  revenue and billing recognition 
C)  revenue and gross profit recognition 
D)  revenue and net profit recognition 
A)  revenue and cost recognition 
B)  revenue and billing recognition 
C)  revenue and gross profit recognition 
D)  revenue and net profit recognition

Question 19

Goods and services may be transferred to a customer over time or at a point in time.

Accepted Answer

A) True 
 B)False

Question 20

If a contract includes noncash consideration, how should the transaction be measured?

Accepted Answer

Noncash consideration requires

Two methods used to account for revenue recognition for long term contracts are the percentage-of-completion method and the ________.

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $300 each. On January 1, Pemco sold 2,000 memberships and received cash. How should Pemco record the receipt of cash on January 1?

Able sells and delivers a piece of equipment to Smythe for $2,000 on August 1 and the equipment cost $1,300. The sale is a credit sale. How is this transaction accounted for under a periodic system of inventory?

The Construction in Progress account is what type of account?

If a seller does not sell the same goods or services separately, the standalone selling prices should be estimated using prices that maximize observable inputs. What are the three suggested approaches to accomplish this?

The two methods for recognizing revenue from long-term contracts are the percentage-of-completion method and the point-of-sale method.

Penn sells cameras. On August 1, a customer purchases a camera for $5,700 cash. The camera cost Penn $2,500. Penn uses the perpetual inventory method. Required: Prepare the necessary entries to record the sale.

Which one of the following is not an indicator of the transfer of control to the buyer?

The major difference between the percentage-of-completion method and the completed-contract method is the timing of ________.

Goods and services may be transferred to a customer over time or at a point in time.

If a contract includes noncash consideration, how should the transaction be measured?

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters

Exam 8: Revenue Recognition

Two methods used to account for revenue recognition for long term contracts are the percentage-of-completion method and the ________.

Pemco Enterprises sells annual memberships to its shooting lodge. The memberships cost $300 each. On January 1, Pemco sold 2,000 memberships and received cash. How should Pemco record the receipt of cash on January 1?

Able sells and delivers a piece of equipment to Smythe for $2,000 on August 1 and the equipment cost $1,300. The sale is a credit sale. How is this transaction accounted for under a periodic system of inventory?

The Construction in Progress account is what type of account?

If a seller does not sell the same goods or services separately, the standalone selling prices should be estimated using prices that maximize observable inputs. What are the three suggested approaches to accomplish this?

The two methods for recognizing revenue from long-term contracts are the percentage-of-completion method and the point-of-sale method.

Penn sells cameras. On August 1, a customer purchases a camera for $5,700 cash. The camera cost Penn $2,500. Penn uses the perpetual inventory method. Required: Prepare the necessary entries to record the sale.

Which one of the following is not an indicator of the transfer of control to the buyer?

The major difference between the percentage-of-completion method and the completed-contract method is the timing of ________.

Goods and services may be transferred to a customer over time or at a point in time.

If a contract includes noncash consideration, how should the transaction be measured?

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters