Question 1

Which revenue recognition criterion is not satisfied when goods are sold on consignment?

Accepted Answer

A) The stage of completion can be reliably measured. 
B) The transfer of risks and rewards of ownership. 
C) Costs incurred can be reliably measured. 
D) Managerial control over the goods sold. 
A) The stage of completion can be reliably measured. 
B) The transfer of risks and rewards of ownership. 
C) Costs incurred can be reliably measured. 
D) Managerial control over the goods sold.

Question 2

Destiny Apartments Inc. (DA Inc.)is building a luxury condominium for a contract price of $68,000,000. This is estimated to be a three-year project with an estimated cost of $54,000,000. DA Inc. uses the percentage of completion method of revenue recognition, using the cost-to-cost method of estimating the percentage complete. The following is the best available information at the end of each year:
   Required:
a. Explain how the percentage completion method reduced information asymmetry and guards against moral hazard.
b. Compute the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below:
   c. Complete the PARTIAL Balance Sheet for Year 2
Current assets
   Current Liabilities

Accepted Answer

a. Using the percentage of completion me

Question 3

Coral Corporation builds large cruise ships on a contract basis. The company uses the percentage of completion method of revenue recognition. The following information pertains to the construction contracts it had in place as of its December 31, 2012 year-end.
   Required:
a. Calculate the revenue to be recognized in 2011 and in 2012.
b. While examining the Coral financial statements, the auditors noted that there was an error in the estimate of costs to complete the contracts in 2011. The cost to complete should have been $600 million instead of $800 million. Explain how this would be accounted for in the financial statements.
c. In light of the evidence noted in (b), how much revenue should be recognized in 2012?

Accepted Answer

a.
2011: $400 million
(Percent complete

Question 4

In July, Telly-Rental sells a home theatre for $1,000 on an installment basis. The system costs Telly-Rental $400. Telly-Rental generally earns a gross profit of 15%. How much revenue is recorded by Telly-Rental in July?

Accepted Answer

A) $0 
B) $150 
C) $400 
D) $1,000 
A) $0 
B) $150 
C) $400 
D) $1,000

Question 5

Which statement best explains the cost recovery 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 contract costs as incurred and 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 contract costs as incurred and 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 6

What are some exceptions to the use of the percentage of completion method for construction contracts?

Accepted Answer

•When the enterprise expects a loss on a

Question 7

Explain how the timing of revenue recognition is affected by multiple deliverables in the arrangement. Explain how revenue is ultimately recognized in a multiple deliverable sales transaction.

Accepted Answer

Clearly, it is inappropriate to record a

Question 8

Which of the following best explains what recognition means in financial reporting?

Accepted Answer

A) Recognition is the process of reporting an item that is due within 12 months in the current section of the balance sheet. 
B) Recognition is the process of reporting an item in the notes to the financial statements. 
C) Recognition is the process of presenting an item in the financial statements. 
D) Recognition refers to the choice between using fair value and historical cost in the financial statements. 
A) Recognition is the process of reporting an item that is due within 12 months in the current section of the balance sheet. 
B) Recognition is the process of reporting an item in the notes to the financial statements. 
C) Recognition is the process of presenting an item in the financial statements. 
D) Recognition refers to the choice between using fair value and historical cost in the financial statements.

Question 9

Here are some financial records for Accounting Plus Magazine which started operations in October 2012. Sales for its first month were as follows:   What would be the subscription revenue to be recognized for the month of Oct 2012? (Round to the nearest dollar).

Accepted Answer

A) $68,333 
B) $107,667 
C) $774,333 
D) $882,000 
A) $68,333 
B) $107,667 
C) $774,333 
D) $882,000

Question 10

In the chart below, identify the revenue recognition method that you feel is most appropriate and also explain why.

Accepted Answer

The answer of In the chart below, identify the revenue...

Question 11

Which statement best explains the completed contract method?

Accepted Answer

A) An accounting method that defers revenue and expense recognition until the date when the contractor completes the project. 
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 defers revenue and expense recognition until the date when the contractor completes the project. 
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 12

Tyco Ltd entered into a contract to build a sports arena for $1,800,000. Construction commenced on August 1, 2011, with a planned completion date of December 31, 2013. A summary of the related accounting information is provided below:   How much would the balance in accounts receivable be on the balance sheet of Tyco at the end of 2011 if Tyco uses the percentage of completion method?

Accepted Answer

A) $110,000 
B) $60,000 
C) $500,000 
D) $660,000 
A) $110,000 
B) $60,000 
C) $500,000 
D) $660,000

Question 13

Hedley Corporation sold hardware and software for $70,000. In addition, the company will provide support on the software for 1 year and maintenance on the hardware for 3 years. The normal selling prices are as follows:
   a. Determine how revenue should be allocated to the various components in this transaction.
b. Apply the appropriate revenue recognition criteria to determine when revenue should be recognized to the components in this transaction.

Accepted Answer

a. The residual value method is appropri

Question 14

Explain why a company should allocate revenue to multiple deliverables in a sales transaction even if the company delivers all of the products or services in the same accounting period.

Accepted Answer

Proper allocation of revenue to the vari

Question 15

Here are some financial records for Accounting Plus Magazine which started operations in October 2012. Sales for its first month were as follows:   What would be the deferred revenue at Oct 31, 2012? (Round to the nearest dollar).

Accepted Answer

A) $107,667 
B) $341,667 
C) $774,333 
D) $882,000 
A) $107,667 
B) $341,667 
C) $774,333 
D) $882,000

Question 16

The publisher of Accounting Digest received the following 12-month subscriptions during 2012. Each subscription is $100. The company has a December 31 year end. Each subscription becomes effective in the calendar month after the company receives the subscription. What amount of revenue will the company record in 2012 for the subscriptions received between January-March? (Round your response to the nearest dollar).

Accepted Answer

A) $315,000 
B) $779,167 
C) $1,051,667 
D) $1,260,000 
A) $315,000 
B) $779,167 
C) $1,051,667 
D) $1,260,000

Question 17

Which statement about the cost recovery method is correct?

Accepted Answer

A) The method recognizes contract revenues on a cash basis. 
B) The method recognizes revenue and expenses in proportion to the degree of progress. 
C) This method recognizes defers any profit until the contract is completed. 
D) This method is the preferred method for recognizing revenue. 
A) The method recognizes contract revenues on a cash basis. 
B) The method recognizes revenue and expenses in proportion to the degree of progress. 
C) This method recognizes defers any profit until the contract is completed. 
D) This method is the preferred method for recognizing revenue.

Question 18

Yang Construction Company entered into a contract to build a new airport terminal for $2,500,000. Construction commenced on August 1, 2011, with a planned completion date of December 31, 2013. A summary of the costs, billings, and collections is provided below:   Yang uses the percentage of completion method. How much gross profit would Yang recognize in 2012?

Accepted Answer

A) $100,000 loss 
B) $75,000 loss 
C) $50,000 profit 
D) $100,000 profit 
A) $100,000 loss 
B) $75,000 loss 
C) $50,000 profit 
D) $100,000 profit

Question 19

Why is there risk of earnings overstatement in accounting for construction contracts?

Accepted Answer

A) The long term nature of such contracts makes them a low risk area. 
B) Allocation of revenue and expenses between two or more periods simplifies the accounting. 
C) Significant professional judgment is required to make estimates used in the calculations. 
D) Percentage of completion method reduces the potential for earnings management, manipulation and errors. 
A) The long term nature of such contracts makes them a low risk area. 
B) Allocation of revenue and expenses between two or more periods simplifies the accounting. 
C) Significant professional judgment is required to make estimates used in the calculations. 
D) Percentage of completion method reduces the potential for earnings management, manipulation and errors.

Question 20

On July 1, 2011, Cusak Construction Company Inc. contracted to build an office building for Candy Lane Corp. for a total contract price of $2,150,000. On July 1, Cusak estimated that it would take between two and three years to complete the building. In October 2013, the building was deemed substantially completed. Following are accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Candy Lane in 2011, 2012, and 2013.
   Required:
Using the percentage of completion method, calculate the revenue and profit or loss to be recognized as a result of this contract for the years ended December 31, 2011, 2012, and 2013. The company used the cost-to-cost method to estimate the percentage complete.

Accepted Answer

The answer of On July 1, 2011, Cusak Construction Company...

Which revenue recognition criterion is not satisfied when goods are sold on consignment?

In July, Telly-Rental sells a home theatre for $1,000 on an installment basis. The system costs Telly-Rental $400. Telly-Rental generally earns a gross profit of 15%. How much revenue is recorded by Telly-Rental in July?

Which statement best explains the cost recovery method?

What are some exceptions to the use of the percentage of completion method for construction contracts?

Explain how the timing of revenue recognition is affected by multiple deliverables in the arrangement. Explain how revenue is ultimately recognized in a multiple deliverable sales transaction.

Which of the following best explains what recognition means in financial reporting?

Here are some financial records for Accounting Plus Magazine which started operations in October 2012. Sales for its first month were as follows: What would be the subscription revenue to be recognized for the month of Oct 2012? (Round to the nearest dollar).

In the chart below, identify the revenue recognition method that you feel is most appropriate and also explain why.

Which statement best explains the completed contract method?

Explain why a company should allocate revenue to multiple deliverables in a sales transaction even if the company delivers all of the products or services in the same accounting period.

Here are some financial records for Accounting Plus Magazine which started operations in October 2012. Sales for its first month were as follows: What would be the deferred revenue at Oct 31, 2012? (Round to the nearest dollar).

Which statement about the cost recovery method is correct?

Why is there risk of earnings overstatement in accounting for construction contracts?

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

Exam 4: Revenue Recognition

Which revenue recognition criterion is not satisfied when goods are sold on consignment?

In July, Telly-Rental sells a home theatre for $1,000 on an installment basis. The system costs Telly-Rental $400. Telly-Rental generally earns a gross profit of 15%. How much revenue is recorded by Telly-Rental in July?

Which statement best explains the cost recovery method?

What are some exceptions to the use of the percentage of completion method for construction contracts?

Explain how the timing of revenue recognition is affected by multiple deliverables in the arrangement. Explain how revenue is ultimately recognized in a multiple deliverable sales transaction.

Which of the following best explains what recognition means in financial reporting?

Here are some financial records for Accounting Plus Magazine which started operations in October 2012. Sales for its first month were as follows: What would be the subscription revenue to be recognized for the month of Oct 2012? (Round to the nearest dollar).

In the chart below, identify the revenue recognition method that you feel is most appropriate and also explain why.

Which statement best explains the completed contract method?

Explain why a company should allocate revenue to multiple deliverables in a sales transaction even if the company delivers all of the products or services in the same accounting period.

Here are some financial records for Accounting Plus Magazine which started operations in October 2012. Sales for its first month were as follows: What would be the deferred revenue at Oct 31, 2012? (Round to the nearest dollar).

Which statement about the cost recovery method is correct?

Why is there risk of earnings overstatement in accounting for construction contracts?

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