Question 1

According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is

Accepted Answer

A)  recognition. 
B)  realization. 
C)  allocation. 
D)  matching. 
A)  recognition. 
B)  realization. 
C)  allocation. 
D)  matching.

Question 2

For the year ended December 31, 2015, Cooper would recognize gross profit on the building of:

Accepted Answer

A)  $632,500 
B)  $690,000 
C)  $810,000 
D)  $0 
A)  $632,500 
B)  $690,000 
C)  $810,000 
D)  $0

Question 3

Piper Co. began operations on January 1, 2015 and appropriately uses the installment-sales method of accounting. The following information pertains to Piper's operations for 2015: $\begin{array}{lr}
\text { Installment sales } & 3,600,000 \
\text { Cost of installment sales } & 2,160,000 \
\text { General and administrative expenses } & 360,000 \
\text { Collections on installment sales } & 1,650,000
\end{array}$ The balance in the deferred gross profit account at December 31, 2015 should be

Accepted Answer

A)  $660,000. 
B)  $990,000. 
C)  $780,000. 
D)  $1,440,000. 
A)  $660,000. 
B)  $990,000. 
C)  $780,000. 
D)  $1,440,000.

Question 4

Dalton Construction Co. contracted to build a bridge for $8,000,000. Construction began in 2014 and was completed in 2015. Data relating to the construction are:   Dalton uses the percentage-of-completion method.
Instructions
(a) How much revenue should be reported for 2014? Show your computation.
(b) Make the entry to record progress billings of $3,300,000 during 2014.
(c) Make the entry to record the revenue and gross profit for 2014.(d) How much gross profit should be reported for 2015? Show your computation.

Accepted Answer

The answer of Dalton Construction Co. contracted to build a...

Question 5

The Construction in Process account includes only construction costs under the percentage-of-completion method.

Accepted Answer

A) True 
 B)False

Question 6

A sale should not be recognized as revenue by the seller at the time of sale if

Accepted Answer

A)  payment was made by check. 
B)  the selling price is less than the normal selling price. 
C)  the buyer has a right to return the product and the amount of future returns cannot be reasonably estimated. 
D)  None of these answers are correct. 
A)  payment was made by check. 
B)  the selling price is less than the normal selling price. 
C)  the buyer has a right to return the product and the amount of future returns cannot be reasonably estimated. 
D)  None of these answers are correct.

Question 7

Under the installment-sales method,

Accepted Answer

A)  revenue, costs, and gross profit are recognized proportionate to the cash that is received from the sale of the product. 
B)  gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale. 
C)  gross profit is not recognized until the amount of cash received exceeds the cost of the item sold. 
D)  revenues and costs are recognized proportionate to the cash received from the sale of the product, but gross profit is deferred until all cash is received. 
A)  revenue, costs, and gross profit are recognized proportionate to the cash that is received from the sale of the product. 
B)  gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale. 
C)  gross profit is not recognized until the amount of cash received exceeds the cost of the item sold. 
D)  revenues and costs are recognized proportionate to the cash received from the sale of the product, but gross profit is deferred until all cash is received.

Question 8

Belgium Co. is constructing a tunnel for $600 million. Construction began in 2013 and is estimated to be completed in 2018. At December 31, 2015, Belgium has incurred costs totaling $267 million with $64 million of that incurred in 2015, $107 million in 2014, and the remainder during 2013. Belgium believes that it completed 30% of the tunnel during 2015, although that may change based on future activity. Belgium Co. uses IFRS for its accounting and regards its cost numbers as very uncertain. What amount of revenue should Belgium Co. recognize for the year ended December 31, 2016?

Accepted Answer

A)  No revenue should be recognized until the contract is completed in 2018. 
B)  $267 million 
C)  $180 million 
D)  $64 million 
A)  No revenue should be recognized until the contract is completed in 2018. 
B)  $267 million 
C)  $180 million 
D)  $64 million

Question 9

Which of the following methods to account for sales is used when a high degree of uncertainty exists related to the collection of receivables?

Accepted Answer

A)  Cost-recovery method. 
B)  Percentage-of-completion method. 
C)  Deposit method. 
D)  Completed-contract method. 
A)  Cost-recovery method. 
B)  Percentage-of-completion method. 
C)  Deposit method. 
D)  Completed-contract method.

Question 10

Hartz Co., which began operations on January 1, 2015, appropriately uses the installment-sales method of accounting. The following information pertains to Hartz's operations for the year 2015: $\begin{array}{lr}
\text { Installment sales } & \$ 2,400,000 \
\text { Regular sales } & 960,000 \
\text { Cost of installment sales } & 1,440,000 \
\text { Cost of regular sales } & 576,000 \
\text { General and administrative expenses } & 192,000 \
\text { Collections on installment sales } & 576,000
\end{array}$ The deferred gross profit account in Hartz's December 31, 2015 balance sheet should be

Accepted Answer

A)  $230,400. 
B)  $384,000. 
C)  $729,600. 
D)  $960,000. 
A)  $230,400. 
B)  $384,000. 
C)  $729,600. 
D)  $960,000.

Question 11

Companies must recognize the entire expected loss on an unprofitable contract in the current period under the percentage-of-completion method but not the completed-contract method.

Accepted Answer

A) True 
 B)False

Question 12

On January 1, 2015, Shaw Co. sold land that cost $840,000 for $1,120,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of $450,380 starting on December 31, 2015. Because collection of the note is very uncertain, Shaw will use the cost-recovery method. How much revenue from this sale should Shaw recognize in 2015?

Accepted Answer

A)  $0 
B)  $84,000 
C)  $112,000 
D)  $280,000 
A)  $0 
B)  $84,000 
C)  $112,000 
D)  $280,000

Question 13

How should earned but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage-of-completion method of revenue recognition is used?

Accepted Answer

A)  As construction in process in the current asset section of the balance sheet. 
B)  As construction in process in the noncurrent asset section of the balance sheet. 
C)  As a receivable in the noncurrent asset section of the balance sheet. 
D)  In a note to the financial statements until the customer is formally billed for the portion of work completed. 
A)  As construction in process in the current asset section of the balance sheet. 
B)  As construction in process in the noncurrent asset section of the balance sheet. 
C)  As a receivable in the noncurrent asset section of the balance sheet. 
D)  In a note to the financial statements until the customer is formally billed for the portion of work completed.

Question 14

The process of formally recording or incorporating an item in the financial statements of an entity is

Accepted Answer

A)  allocation. 
B)  articulation. 
C)  realization. 
D)  recognition. 
A)  allocation. 
B)  articulation. 
C)  realization. 
D)  recognition.

Question 15

If a company sells its product but gives the buyer the right to return it, the company should not recognize revenue until the sale is collected.

Accepted Answer

A) True 
 B)False

Question 16

The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions?

Accepted Answer

A)  The amount of future returns can be reasonably estimated. 
B)  The seller's price is substantially fixed or determinable at time of sale. 
C)  The buyer's obligation to the seller would not be changed in the event of theft or damage of the product. 
D)  The buyer is obligated to pay the seller upon resale of the product. 
A)  The amount of future returns can be reasonably estimated. 
B)  The seller's price is substantially fixed or determinable at time of sale. 
C)  The buyer's obligation to the seller would not be changed in the event of theft or damage of the product. 
D)  The buyer is obligated to pay the seller upon resale of the product.

Question 17

Types of franchising arrangements include all of the following except

Accepted Answer

A)  service sponsor-retailer. 
B)  wholesaler-service sponsor. 
C)  manufacturer-wholesaler. 
D)  wholesaler-retailer. 
A)  service sponsor-retailer. 
B)  wholesaler-service sponsor. 
C)  manufacturer-wholesaler. 
D)  wholesaler-retailer.

Question 18

The board of directors of Ogle Construction Company is meeting to choose between the completed-contract method and the percentage-of-completion method of accounting for long-term contracts in the company's financial statements. You have been engaged to assist Ogle's controller in the preparation of a presentation to be given at the board meeting. The controller provides you with the following information:1. Ogle commenced doing business on January 1, 2015.2. Construction activities for the year ended December 31, 2015, were as follows:   3. Each contract is with a different customer."4. Any work remaining to be done on the contracts is expected to be completed in 2016.
Instructions
(a) Prepare a schedule by project, computing the amount of income (or loss) before selling, general, and administrative expenses for the year ended December 31, 2015, which would be reported under:(1) The completed-contract method.(2) The percentage-of-completion method (based on estimated costs).
(b) Prepare the general journal entry(ies) to record revenue and gross profit on project B (second project) for 2015, assuming that the percentage-of-completion method is used.
(c) Indicate the balances that would appear in the balance sheet at December 31, 2015 for the following accounts for Project D (fourth project), assuming that the percentage-of-completion method is used.Accounts ReceivableBillings on Construction in ProcessConstruction in Process(d) How would the balances in the accounts discussed in part (c) change (if at all) for Project D (fourth project), if the completed-contract method is used?"

Accepted Answer

(a) (1) and (2)
 @#IMG-DLM& The amount reported as

Question 19

Sutton Company sells plasma-screen televisions on an installment basis and appropriately uses the installment-sales method of accounting. A customer with an account balance of $2,400 refuses to make any more payments and the merchandise is repossessed. The gross profit rate on the original sale is 40%. Sutton estimates that the television can be sold as is for $750, or for $900 if $60 is spent to refurbish it. The loss on repossession is

Accepted Answer

A)  $1,650. 
B)  $960. 
C)  $ 690. 
D)  $ 600. 
A)  $1,650. 
B)  $960. 
C)  $ 690. 
D)  $ 600.

Question 20

When goods or services are exchanged for cash or claims to cash (receivables), 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.

According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is

For the year ended December 31, 2015, Cooper would recognize gross profit on the building of:

The Construction in Process account includes only construction costs under the percentage-of-completion method.

A sale should not be recognized as revenue by the seller at the time of sale if

Under the installment-sales method,

Which of the following methods to account for sales is used when a high degree of uncertainty exists related to the collection of receivables?

Companies must recognize the entire expected loss on an unprofitable contract in the current period under the percentage-of-completion method but not the completed-contract method.

How should earned but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage-of-completion method of revenue recognition is used?

The process of formally recording or incorporating an item in the financial statements of an entity is

If a company sells its product but gives the buyer the right to return it, the company should not recognize revenue until the sale is collected.

The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions?

Types of franchising arrangements include all of the following except

When goods or services are exchanged for cash or claims to cash (receivables), revenues are considered

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

According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is

For the year ended December 31, 2015, Cooper would recognize gross profit on the building of:

The Construction in Process account includes only construction costs under the percentage-of-completion method.

A sale should not be recognized as revenue by the seller at the time of sale if

Under the installment-sales method,

Which of the following methods to account for sales is used when a high degree of uncertainty exists related to the collection of receivables?

Companies must recognize the entire expected loss on an unprofitable contract in the current period under the percentage-of-completion method but not the completed-contract method.

How should earned but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage-of-completion method of revenue recognition is used?

The process of formally recording or incorporating an item in the financial statements of an entity is

If a company sells its product but gives the buyer the right to return it, the company should not recognize revenue until the sale is collected.

The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions?

Types of franchising arrangements include all of the following except

When goods or services are exchanged for cash or claims to cash (receivables), revenues are considered

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