Exam 18: Revenue Recognition

Fryman Furniture uses the installment-sales method. No further collections could be made on an account with a balance of $24,000. It was estimated that the repossessed furniture could be sold as is for $7,200, or for $8,400 if $400 were spent reconditioning it. The gross profit rate on the original sale was 40%. The loss on repossession was

Use the following information for questions 80 and 81. -If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2014 and 2015 would be

The revenue recognition principle provides that revenue is recognized when (1) it is realized or realizable and (2) it is earned. InstructionsExplain when revenues are (a) realized, (b) realizable, and (c) earned.

Which of the following is not a reason why revenue is recognized at the time of sale?

Under the installment-sales method, companies defer revenue and income recognition until the period of cash collection.

On January 1, 2015 Dairy Treats, Inc. entered into a franchise agreement with a company allowing the company to do business under Dairy Treats's name. Dairy Treats had performed substantially all required services by January 1, 2015, and the franchisee paid the initial franchise fee of $840,000 in full on that date. The franchise agreement specifies that the franchisee must pay a continuing franchise fee of $72,000 annually, of which 20% must be spent on advertising by Dairy Treats. What entry should Dairy Treats make on January 1, 2015 to record receipt of the initial franchise fee and the continuing franchise fee for 2015?

Use the following information for questions 73 and 74. In 2015, Fargo Corporation began construction work under a three-year contract. The contract price is $4,800,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2015, follow: -How much cash was collected in 2015 on this contract?

Crane, Inc. is a retailer of home appliances and offers a service contract on each appliance sold. Crane sells appliances on installment contracts, but all service contracts must be paid in full at the time of sale. Collections received for service contracts should be recorded as an increase in a

Use the following information for questions 80 and 81. -Horner Construction Co. uses the percentage-of-completion method. In 2014, Horner began work on a contract for $16,500,000; it was completed in 2015. The following cost data pertain to this contract: The amount of gross profit to be recognized on the income statement for the year ended December 31, 2015 is

Use the following information for questions 73 and 74. In 2015, Fargo Corporation began construction work under a three-year contract. The contract price is $4,800,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2015, follow: -What was the initial estimated total income before tax on this contract?

The provision for a loss on an unprofitable contract may be combined with the Construction in Process account balance under percentage-of-completion but not completed-contract.

The installment-sales method defers only the gross profit instead of both the sales price and cost of goods sold.

Once the separate units of accounting are determined under multiple-deliverable arrangement, the amount paid for the arrangement is allocated among the separate units based on cost of manufacturing the separate unit.

The principal advantage of the completed-contract method is that reported revenue reflects final results rather than estimates.

Under IFRS, the standard for revenue recognition states that the I.Revenue be realized or realizable. II.Economic benefits associated with the transaction will flow to the company selling the goods III.Costs must be capable of being reliably measured.

In certain cases, revenue is recognized at the completion of production even though no sale has been made. Which of the following statements is not true?

In accounting for long-term construction contracts (those taking longer than one year to complete), the two methods commonly followed are the percentage-of-completion and completed-contract methods. Instructions (a) Discuss how earnings on long-term construction contracts are recognized and computed under these two methods. (b) Under what circumstances should one method be used over the other? (c) How are job costs and interim billings reflected on the balance sheet under the percentage-of-completion method and the completed-contract method?

The principal advantage of the completed-contract method is that

Spicer Corporation has a normal gross profit on installment sales of 30%. A 2013 sale resulted in a default early in 2015. At the date of default, the balance of the installment receivable was $32,000, and the repossessed merchandise had a fair value of $18,000. Assuming the repossessed merchandise is to be recorded at fair value, the gain or loss on repossession should be

The method most commonly used to report defaults and repossessions is