Question 1

Which revenue recognition criterion is not satisfied when goods are sold on an installment basis?

Accepted Answer

A) Transfer of risks and rewards of ownership. 
B) Transfer of control over the goods sold. 
C) Costs incurred or to be incurred can be reliably measured. 
D) Probability that economic benefits will flow to the entity. 
A) Transfer of risks and rewards of ownership. 
B) Transfer of control over the goods sold. 
C) Costs incurred or to be incurred can be reliably measured. 
D) Probability that economic benefits will flow to the entity. D

Question 2

Assume the following facts for a construction contract that was completed over four years. The contract price is $5.1 million.
   Required:
a. Using the percentage of completion method, calculate the gross profit or loss to be recognized as a result of this contract for each of the four years. The company used the cost-to-cost method to estimate the percentage complete.
b. If this company were permitted to use guidance in the CICA Handbook, and the company chose to apply the completed contract method, what would be the gross profit or loss in each of the four years?

Accepted Answer

a. The question only asks for the gross profit or loss, so we can simply apply the normal formulas. Note: Normal circumstances (2011, 2013, 2014)and expected loss on the contract (2012).
   b. For the completed contract method, no profit is recognized until the end of the contract. However, any expected losses are recognized in their entirety in the year anticipated. The gross profits (losses)for the four years are shown in the following table. It is important to note that the loss is not reversed in 2013 when the project becomes profitable again-all profits are deferred to the date of contract completion.

Question 3

What disclosures are required under IFRS for construction contracts?

Accepted Answer

A) Method used to determine the percentage complete in the period. 
B) Contract revenue recognized in the period. 
C) Method of revenue recognition. 
D) All of the above are required. 
A) Method used to determine the percentage complete in the period. 
B) Contract revenue recognized in the period. 
C) Method of revenue recognition. 
D) All of the above are required. D

Question 4

In July, Telly-Rental sells a home theatre for $1,000 on an installment basis. The cost of goods sold is $400. How much deferred gross profit is recorded by Telly-Rental in July?

Accepted Answer

A) $0 
B) $400 
C) $600 
D) $1,000 
A) $0 
B) $400 
C) $600 
D) $1,000

Question 5

Which statement is correct about unintentional errors on construction contracts?

Accepted Answer

A) Unintentional underestimates or overestimates may not be errors. 
B) Errors are misstatements that should not have been made based on the information available at the time. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Unintentional underestimates or overestimates may not be errors. 
B) Errors are misstatements that should not have been made based on the information available at the time. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 6

Which statement best explains the percentage of completion method?

Accepted Answer

A) An accounting method that recognizes revenue and expenses on a contract only after it is completed. 
B) An accounting method that recognizes revenue and expenses on a contract in proportion to the degree of progress. 
C) An accounting method that recognizes an amount of revenue equal to the costs that are expected to be recovered on the contract. 
D) An accounting method that recognizes revenue and expenses based on the fair value of the contract. 
A) An accounting method that recognizes revenue and expenses on a contract only after it is completed. 
B) An accounting method that recognizes revenue and expenses on a contract in proportion to the degree of progress. 
C) An accounting method that recognizes an amount of revenue equal to the costs that are expected to be recovered on the contract. 
D) An accounting method that recognizes revenue and expenses based on the fair value of the contract.

Question 7

Soorya Manufacturing makes educational toys that are sold to retailers on the following terms: Each type of toy has a fixed wholesale price, is shipped f.o.b. shipping point, and payment is due 45 days after the shipment. The retailer may return a maximum of 45% of an order at the retailer's expense up to 6 months after delivery. Sales are made only to retailers that have a good credit rating. In Soorya's 11 years of existence, the company has experienced a return rate of approximately 15%, a bad debt expense of 5% of sales and an average collection period of 90 days. Soorya provides a bonus to its senior managers based on annual revenues, net of returns.
Required:
a. What revenue recognition criteria should Soorya use to determine when revenue should be recorded?
b. Discuss the pros and cons for recording revenue when the goods are manufactured by Soorya. Remember to support your reasoning with case facts.
c. Discuss the pros and cons for recording revenue when the goods are shipped to the retailer. Remember to support your reasoning with case facts.
d. Discuss the pros and cons for recording revenue 45 after shipment when payment is due. Remember to support your reasoning with case facts.
e. Recommend the recognition point that Soorya should use in its financial statements.

Accepted Answer

a)Paragraph 14 of IAS 18 provides the fo

Question 8

Pool Contractors (PC)entered into a contract to build a solar heated swimming complex for $1,800,000. Construction commenced on July 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:   How much gross profit would be recognized in fiscal 2012 if PC uses the percentage of completion method?

Accepted Answer

A) $50,000 
B) $100,000 
C) $130,000 
D) $180,000 
A) $50,000 
B) $100,000 
C) $130,000 
D) $180,000

Question 9

Buildings Ltd. is constructing a residential building in downtown Vancouver for a contract price of $15,000,000. Costs for this contract were initially estimated to be $12,000,000. The company uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following information is available:
   Required:
a. Calculate the amount of gross profit to be recognized in each year. Show computations in good form.
b. Calculate the amount of revenue to be recognized in Year 2.
c. Prepare all the journal entries required in Year 2.
d. Prepare the journal entry required in Year 3 to acknowledge completion and acceptance of the project.

Accepted Answer

a. Gross profit (loss)
 @#IMG-DLM&_TB2820_00 b. Re

Question 10

Briefly explain the following terms:
a)Non-monetary exchange transaction
b)Consignment transaction
c)Franchise
d)Installment sale

Accepted Answer

a)Non-monetary exchange transactions: Th

Question 11

Which formula explains how gross profit is recognized when an overall loss is expected on the contract under the percentage completion method?

Accepted Answer

A) Cost incurred / Estimated total cost. 
B) (Cost incurred / Estimated total cost)× Contract revenue - Revenue previously recognized. 
C) (Cost incurred / Estimated total cost)× Estimated total cost - Cost of sales previously recognized. 
D) 100% × (Estimated gross loss)- (Gross profit/loss previously recognized). 
A) Cost incurred / Estimated total cost. 
B) (Cost incurred / Estimated total cost)× Contract revenue - Revenue previously recognized. 
C) (Cost incurred / Estimated total cost)× Estimated total cost - Cost of sales previously recognized. 
D) 100% × (Estimated gross loss)- (Gross profit/loss previously recognized).

Question 12

Which of the following statements about the revenue recognition criteria is not correct?

Accepted Answer

A) Ownership and control are applicable for the provision of services. 
B) Revenue recognition criteria are the same for both sale of goods and provision of services. 
C) Stage of completion should be reliably estimable in order to use the percentage of completion method. 
D) Percentage of completion is an acceptable method of revenue recognition. 
A) Ownership and control are applicable for the provision of services. 
B) Revenue recognition criteria are the same for both sale of goods and provision of services. 
C) Stage of completion should be reliably estimable in order to use the percentage of completion method. 
D) Percentage of completion is an acceptable method of revenue recognition.

Question 13

Here are the general definition and recognition criteria for assets. For each criterion, provide the related revenue recognition criteria.
a. The entity gives up the future benefits embodied in the asset.
b. The entity gives up control of the resource and therefore removes the item as an asset.
c. The future inflows of resources (e.g., from accounts receivable)are reasonably measurable.
d. The future inflows of resources (e.g., from accounts receivable)are probable.

Accepted Answer

Revenue recognition criteria associated

Question 14

Lagory Co. started a contract in June 2011 to build a bridge at a fixed price of $14 million. The bridge was to be completed by October 2013. Total cumulative costs incurred by the end of December 2011 and 2012 were $2 million and $6 million, respectively. Lagory Co. is unable to estimate the total costs of the project prior to completion. Final costs at the end of the project totalled $11 million. How much revenue will Lagory Co. report in 2012?

Accepted Answer

A) $2,000,000 
B) $3,000,000 
C) $4,000,000 
D) $14,000,000 
A) $2,000,000 
B) $3,000,000 
C) $4,000,000 
D) $14,000,000

Question 15

Which statement is correct about the "winner's curse"?

Accepted Answer

A) Misstatements from the winner's curse are unintentional under-estimates or over-estimates. 
B) Misstatements from the winner's curse result from the unavailability of correct information. 
C) The winner's curse means a contract is usually awarded to the highest bidder. 
D) The winner's curse means that a contract will tend to be awarded to the contractor who underestimates costs the most. 
A) Misstatements from the winner's curse are unintentional under-estimates or over-estimates. 
B) Misstatements from the winner's curse result from the unavailability of correct information. 
C) The winner's curse means a contract is usually awarded to the highest bidder. 
D) The winner's curse means that a contract will tend to be awarded to the contractor who underestimates costs the most.

Question 16

Which of the following is correct about the value creation process?

Accepted Answer

A) The value creation process is the same for all entities. 
B) The value creation process is the same for all industries. 
C) Any point on the value creation process is acceptable for revenue recognition. 
D) The value creation process is specific to each entity. 
A) The value creation process is the same for all entities. 
B) The value creation process is the same for all industries. 
C) Any point on the value creation process is acceptable for revenue recognition. 
D) The value creation process is specific to each entity.

Question 17

On June 1, Electronics Distribution ships 100 TVs to TV World on consignment. The cost of each unit is $600 and the unit selling price is $750. At the end of June, TV World sold 50 units. How much cost of sales should be recorded by Electronics Distribution for the month of June?

Accepted Answer

A) $37,500 
B) $30,000 
C) $60,000 
D) $75,000 
A) $37,500 
B) $30,000 
C) $60,000 
D) $75,000

Question 18

Jones Contractors Inc. agreed to construct a building for $500,000. Construction commenced in 2011 and was completed in 2013.
   Required:
For each of the three years, determine the following amounts relating to the above contract: revenue, expenses, gross profit, accounts receivable balance, and construction-in-process inventory balance.

Accepted Answer

@#IMG-DLM&_TB2820_00

Question 19

On June 1, Electronics Distribution ships 100 TVs to TV World on consignment. The cost of each unit is $500 and the unit selling price is $800. At the end of June, TV World sold 50 units. How much revenue should be recorded by Electronics Distribution for the month of June?

Accepted Answer

A) $80,000 
B) $50,000 
C) $40,000 
D) $25,000 
A) $80,000 
B) $50,000 
C) $40,000 
D) $25,000

Question 20

The publisher of TV Weekly received the following 52-week subscriptions during the first quarter of fiscal 2012. Each subscription is $110, which is a 47% discount off the newsstand price of $4 per issue. Each subscription becomes effective in the calendar month after the company receives the subscription. The company has a December 31 fiscal year. What amount of revenue will the company record in 2012 for the subscriptions received in January? (Round your response to the nearest dollar).

Accepted Answer

A) $247,142 
B) $250,690 
C) $433,583 
D) $1,279,500 
A) $247,142 
B) $250,690 
C) $433,583 
D) $1,279,500

Which revenue recognition criterion is not satisfied when goods are sold on an installment basis?

What disclosures are required under IFRS for construction contracts?

In July, Telly-Rental sells a home theatre for $1,000 on an installment basis. The cost of goods sold is $400. How much deferred gross profit is recorded by Telly-Rental in July?

Which statement is correct about unintentional errors on construction contracts?

Which statement best explains the percentage of completion method?

Briefly explain the following terms: a)Non-monetary exchange transaction b)Consignment transaction c)Franchise d)Installment sale

Which formula explains how gross profit is recognized when an overall loss is expected on the contract under the percentage completion method?

Which of the following statements about the revenue recognition criteria is not correct?

Which statement is correct about the "winner's curse"?

Which of the following is correct about the value creation process?

On June 1, Electronics Distribution ships 100 TVs to TV World on consignment. The cost of each unit is $600 and the unit selling price is $750. At the end of June, TV World sold 50 units. How much cost of sales should be recorded by Electronics Distribution for the month of June?

On June 1, Electronics Distribution ships 100 TVs to TV World on consignment. The cost of each unit is $500 and the unit selling price is $800. At the end of June, TV World sold 50 units. How much revenue should be recorded by Electronics Distribution for the month of June?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Cash and Receivables

Inventories

Financial Assets

Property, Plant, and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

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Exam 4: Revenue Recognition

Which revenue recognition criterion is not satisfied when goods are sold on an installment basis?

What disclosures are required under IFRS for construction contracts?

In July, Telly-Rental sells a home theatre for $1,000 on an installment basis. The cost of goods sold is $400. How much deferred gross profit is recorded by Telly-Rental in July?

Which statement is correct about unintentional errors on construction contracts?

Which statement best explains the percentage of completion method?

Briefly explain the following terms: a)Non-monetary exchange transaction b)Consignment transaction c)Franchise d)Installment sale

Which formula explains how gross profit is recognized when an overall loss is expected on the contract under the percentage completion method?

Which of the following statements about the revenue recognition criteria is not correct?

Which statement is correct about the "winner's curse"?

Which of the following is correct about the value creation process?

On June 1, Electronics Distribution ships 100 TVs to TV World on consignment. The cost of each unit is $600 and the unit selling price is $750. At the end of June, TV World sold 50 units. How much cost of sales should be recorded by Electronics Distribution for the month of June?

On June 1, Electronics Distribution ships 100 TVs to TV World on consignment. The cost of each unit is $500 and the unit selling price is $800. At the end of June, TV World sold 50 units. How much revenue should be recorded by Electronics Distribution for the month of June?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Cash and Receivables

Inventories

Financial Assets

Property, Plant, and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters