Question 1

IFRS for revenue recognition

Accepted Answer

A)  is enforced by an international enforcement body, the IASB, which is comparable to the U.S. SEC. 
B)  bases revenue recognition on the concepts of "earned" and "realized or realizable." 
C)  permits use of the completed-contract method when costs are difficult to estimate. 
D)  contains limited industry-specific guidance. 
A)  is enforced by an international enforcement body, the IASB, which is comparable to the U.S. SEC. 
B)  bases revenue recognition on the concepts of "earned" and "realized or realizable." 
C)  permits use of the completed-contract method when costs are difficult to estimate. 
D)  contains limited industry-specific guidance.

Question 2

Use the following information for questions 76 and 77.
Gomez, Inc. began work in 2014 on contract #3814, which provided for a contract price of $14,400,000. Other details follow:  
-Assume that Gomez uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2014 is

Accepted Answer

A)  $900,000. 
B)  $1,200,000. 
C)  $3,600,000. 
D)  $4,800,000. 
A)  $900,000. 
B)  $1,200,000. 
C)  $3,600,000. 
D)  $4,800,000.

Question 3

IFRS bases revenue recognition on the concepts of "earned" and "realized or realizable."

Accepted Answer

A) True 
 B)False

Question 4

Wynne Inc. charges an initial franchise fee of $1,840,000, with $400,000 paid when the agreement is signed and the balance in five annual payments. The present value of the future payments, discounted at 10%, is $1,091,744. The franchisee has the option to purchase $240,000 of equipment for $192,000. Wynne has substantially provided all initial services required and collectibility of the payments is reasonably assured. The amount of revenue from franchise fees is

Accepted Answer

A)  $ 400,000. 
B)  $1,443,744. 
C)  $1,491,744. 
D)  $1,840,000. 
A)  $ 400,000. 
B)  $1,443,744. 
C)  $1,491,744. 
D)  $1,840,000.

Question 5

Portugal, Inc. has the following amounts related to its activities for the year ended December 31, 2015: $$\begin{array} { l l } 
\text { Sales to customers } & \$ 6,250,000 \
\text { Gain on sale of equipment } & \$ 450,000 \
\text { Gain on sale of investments } & \$ 950,000 \
\text { Loss on sale of land } & \$ 300,000
\end{array}$$ Portugal, Inc. uses IFRS for its external financial reporting. How much revenue should Portugal, Inc. report on its income statement for the year ended December 31, 2015?

Accepted Answer

A)  $6,250,000 
B)  $7,200,000 
C)  $7,650,000 
D)  $7,350,000 
A)  $6,250,000 
B)  $7,200,000 
C)  $7,650,000 
D)  $7,350,000

Question 6

Use the following information for questions 78 and 79.
Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows:  
-If Kiner uses the completed-contract method, the gross profit to be recognized in 2015 is

Accepted Answer

A)  $2,720,000. 
B)  $5,600,000. 
C)  $2,800,000. 
D)  $11,200,000. 
A)  $2,720,000. 
B)  $5,600,000. 
C)  $2,800,000. 
D)  $11,200,000.

Question 7

Use the following information for questions 86 through 88.
Gorman Construction Co. began operations in 2015. Construction activity for 2015 is shown below. Gorman uses the completed-contract method.  
-Which of the following should be shown on the balance sheet at December 31, 2015 related to Contract 3?

Accepted Answer

A)  Inventory, $200,000 
B)  Inventory, $350,000 
C)  Inventory, $2,100,000 
D)  Inventory, $2,250,000 
A)  Inventory, $200,000 
B)  Inventory, $350,000 
C)  Inventory, $2,100,000 
D)  Inventory, $2,250,000

Question 8

One of the more popular input measures used to determine the progress toward completion in the percentage-of-completion method is the

Accepted Answer

A)  revenue-percentage basis. 
B)  cost-percentage basis. 
C)  progress completion basis. 
D)  cost-to-cost basis. 
A)  revenue-percentage basis. 
B)  cost-percentage basis. 
C)  progress completion basis. 
D)  cost-to-cost basis.

Question 9

A loss in the current period on a profitable contract must be recognized under both the percentage-of-completion and completed-contract method.

Accepted Answer

A) True 
 B)False

Question 10

A seller is using the cost-recovery method for a sale. Interest will be earned on the future payments. Which of the following statements is not correct?

Accepted Answer

A)  After all costs have been recovered, any additional cash collections are included in income. 
B)  Interest revenue may be recognized before all costs have been recovered. 
C)  The deferred gross profit is offset against the related receivable on the balance sheet. 
D)  Subsequent income statements report the gross profit as a separate item of revenue when it is recognized as earned. 
A)  After all costs have been recovered, any additional cash collections are included in income. 
B)  Interest revenue may be recognized before all costs have been recovered. 
C)  The deferred gross profit is offset against the related receivable on the balance sheet. 
D)  Subsequent income statements report the gross profit as a separate item of revenue when it is recognized as earned.

Question 11

Use the following information for questions 78 and 79.
Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows:  
-If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2014 is

Accepted Answer

A)  $2,880,000. 
B)  $3,200,000. 
C)  $4,320,000. 
D)  $4,800,000. 
A)  $2,880,000. 
B)  $3,200,000. 
C)  $4,320,000. 
D)  $4,800,000.

Question 12

The deposit method of revenue recognition is used when

Accepted Answer

A)  the product can be marketed at quoted prices and units are interchangeable. 
B)  cash is received before the sales transaction is complete. 
C)  the contract is short-term or the percentage-of-completion method can't be used. 
D)  there are no significant costs of distribution. 
A)  the product can be marketed at quoted prices and units are interchangeable. 
B)  cash is received before the sales transaction is complete. 
C)  the contract is short-term or the percentage-of-completion method can't be used. 
D)  there are no significant costs of distribution.

Question 13

Use the following information for questions 65-68:
Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014.
-At December 31, 2015, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $14,400,000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2015 for Seasons as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit?

Accepted Answer

The answer of Use the following information for questions 65-68:
Seasons...

Question 14

Bruner Constructors, Inc. has consistently used the percentage-of-completion method of recognizing income. In 2014, Bruner started work on a $42,000,000 construction contract that was completed in 2015. The following information was taken from Bruner's 2014 accounting records: $$\begin{array} { l r } 
\text { Progress billings } & \$ 13,200,000 \
\text { Costs incurred } & 12,600,000 \
\text { Collections } & 8,400,000 \
\text { Estimated costs to complete } & 25,200,000
\end{array}$$ What amount of gross profit should Bruner have recognized in 2014 on this contract?

Accepted Answer

A)  $4,200,000 
B)  $2,800,000 
C)  $2,100,000 
D)  $1,400,000 
A)  $4,200,000 
B)  $2,800,000 
C)  $2,100,000 
D)  $1,400,000

Question 15

When the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, revenues are considered

Accepted Answer

A)  earned. 
B)  realized. 
C)  recognized. 
D)  All of these answers are correct. 
A)  earned. 
B)  realized. 
C)  recognized. 
D)  All of these answers are correct.

Question 16

Oliver Co. uses the installment-sales method to record the sale of dining room sets. When an account had a balance of $14,000, no further collections could be made and the dining room set was repossessed. At that time, it was estimated that the dining room set could be sold for $4,000 as repossessed, or for $5,000 if the company spent $500 reconditioning it. The gross profit rate on this sale was 70%. The gain or loss on repossession was a

Accepted Answer

A)  $9,800 loss. 
B)  $10,000 loss. 
C)  $1,000 gain. 
D)  $300 gain. 
A)  $9,800 loss. 
B)  $10,000 loss. 
C)  $1,000 gain. 
D)  $300 gain.

Question 17

Occasionally a franchise agreement grants the franchisee the right to make future bargain purchases of equipment or supplies. When recording the initial franchise fee, the franchisor should

Accepted Answer

A)  increase revenue recognized from the initial franchise fee by the amount of the expected future purchases. 
B)  record a portion of the initial franchise fee as unearned revenue which will increase the selling price when the franchisee subsequently makes the bargain purchases. 
C)  defer recognition of any revenue from the initial franchise fee until the bargain purchases are made. 
D)  None of these. 
A)  increase revenue recognized from the initial franchise fee by the amount of the expected future purchases. 
B)  record a portion of the initial franchise fee as unearned revenue which will increase the selling price when the franchisee subsequently makes the bargain purchases. 
C)  defer recognition of any revenue from the initial franchise fee until the bargain purchases are made. 
D)  None of these.

Question 18

Sawyer Furniture Company concluded its first year of operations in which it made sales of $900,000, all on installment. Collections during the year from down payments and installments totaled $300,000. Purchases for the year totaled $710,000; the cost of merchandise on hand at the end of the year was $80,000.
InstructionsUsing the installment-sales method, make summary entries to record:
(a) the installment sales and cash collections;(b) the cost of installment sales;(c) the unrealized gross profit;(d) the realized gross profit.

Accepted Answer

The answer of Sawyer Furniture Company concluded its first year...

Question 19

At December 31, 2015 Cooper would report Construction in Process in the amount of:

Accepted Answer

A)  $690,000 
B)  $7,590,000 
C)  $8,280,000 
D)  $7,080,000 
A)  $690,000 
B)  $7,590,000 
C)  $8,280,000 
D)  $7,080,000

Question 20

The joint project of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) related to revenue recognition includes
I.Evaluating a "customer-consideration" model
II.Eliminating inconsistencies in the existing conceptual guidance
III.Establishing a single, comprehensive standard

Accepted Answer

A)  II and III only. 
B)  I and II only. 
C)  I, II, and III. 
D)  Neither I, II, nor III are currently included in the joint project of the FASB and IASB. 
A)  II and III only. 
B)  I and II only. 
C)  I, II, and III. 
D)  Neither I, II, nor III are currently included in the joint project of the FASB and IASB.

IFRS for revenue recognition

IFRS bases revenue recognition on the concepts of "earned" and "realized or realizable."

Use the following information for questions 78 and 79. Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: -If Kiner uses the completed-contract method, the gross profit to be recognized in 2015 is

One of the more popular input measures used to determine the progress toward completion in the percentage-of-completion method is the

A loss in the current period on a profitable contract must be recognized under both the percentage-of-completion and completed-contract method.

A seller is using the cost-recovery method for a sale. Interest will be earned on the future payments. Which of the following statements is not correct?

Use the following information for questions 78 and 79. Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: -If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2014 is

The deposit method of revenue recognition is used when

When the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, revenues are considered

Occasionally a franchise agreement grants the franchisee the right to make future bargain purchases of equipment or supplies. When recording the initial franchise fee, the franchisor should

At December 31, 2015 Cooper would report Construction in Process in the amount of:

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters

Exam 18: Revenue Recognition

IFRS for revenue recognition

IFRS bases revenue recognition on the concepts of "earned" and "realized or realizable."

Use the following information for questions 78 and 79. Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: -If Kiner uses the completed-contract method, the gross profit to be recognized in 2015 is

One of the more popular input measures used to determine the progress toward completion in the percentage-of-completion method is the

A loss in the current period on a profitable contract must be recognized under both the percentage-of-completion and completed-contract method.

A seller is using the cost-recovery method for a sale. Interest will be earned on the future payments. Which of the following statements is not correct?

Use the following information for questions 78 and 79. Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: -If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2014 is

The deposit method of revenue recognition is used when

When the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, revenues are considered

Occasionally a franchise agreement grants the franchisee the right to make future bargain purchases of equipment or supplies. When recording the initial franchise fee, the franchisor should

At December 31, 2015 Cooper would report Construction in Process in the amount of:

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Long-Term Liabilities

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters