Question 1

How is income and expense recognized for biological assets under IFRS?

Accepted Answer

A) Changes in fair value. 
B) Percentage of completion method. 
C) Completed contract method. 
D) Cash basis. 
A) Changes in fair value. 
B) Percentage of completion method. 
C) Completed contract method. 
D) Cash basis.

Question 2

In September, Fast-Foods Inc. (FF)sells a franchise for an initial fee of $150,000 and ongoing fees based on 3% of gross profit. FF estimates that 20% of the initial fee relates to initial training, store design and opening activities; the remaining 80% relate to activities to be performed over 3 years. How much revenue should be recorded in September?

Accepted Answer

A) $4,500 
B) $30,000 
C) $120,000 
D) $150,000 
A) $4,500 
B) $30,000 
C) $120,000 
D) $150,000

Question 3

Community Apartments Inc. (CA 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. CA 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. Compute the amount of gross profit to be recognized in Year 1, Year 2, and Year 3. Show computations in tabular form provided below:
   b. Determine the performance that would be reported under the cash basis and accrual basis of accounting for Year 1 of this company. Explain how revenues are matched with expenses when the percentage of completion basis is used.
c. Complete the PARTIAL Balance Sheet for Year 1
Current assets
   Current Liabilities

Accepted Answer

a. ( in $ thousands)
 @#IMG-DLM&_TB2820_00 b.
Unde

Question 4

On September 1, 2012, Electric Depot sold 100 laptop computers at $750 each with a 120-day unconditional right of return. Customers have 90 days to pay. Based on past experience, Electric Depot estimates that approximately 1% will be returned. Which of the following is true regarding Electric Depot's December 31, 2012 financial statements?

Accepted Answer

A) Sales of $75,000 should only be recognized after 120 days when the return privilege expires. 
B) Sales of $75,000 should be recognized in September with a reserve for returns of $750. 
C) Sales of $75,000 should be recognized in September 2012. 
D) Sales should only be recognized as the related cash is collected. 
A) Sales of $75,000 should only be recognized after 120 days when the return privilege expires. 
B) Sales of $75,000 should be recognized in September with a reserve for returns of $750. 
C) Sales of $75,000 should be recognized in September 2012. 
D) Sales should only be recognized as the related cash is collected.

Question 5

What accounting issue arises for recognizing non-monetary transactions?

Accepted Answer

A) Determining when the risks and rewards are transferred. 
B) Determining the stage of completion. 
C) Determining the costs incurred or still to be incurred. 
D) Determining the amount at which to record the transaction. 
A) Determining when the risks and rewards are transferred. 
B) Determining the stage of completion. 
C) Determining the costs incurred or still to be incurred. 
D) Determining the amount at which to record the transaction.

Question 6

Ying 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:   Ying uses the percentage of completion method. What amount would appear as accounts receivable on Ying's December 31, 2012 balance sheet?

Accepted Answer

A) $100,000 
B) $140,000 
C) $1,000,000 
D) $1,400,000 
A) $100,000 
B) $140,000 
C) $1,000,000 
D) $1,400,000

Question 7

An apartment owner receives a deposit of $1200 equal to one month's rent. Identify which revenue recognition criteria is not met at the point of sale, preventing the recognition of revenue at that time.

Accepted Answer

A) The entity has transferred to the buyer the significant risks and rewards of ownership of the goods. 
B) It is probable that the economic benefits associated with the transaction will flow to the entity. 
C) Stage of completion - either the coverage period has not yet begun or the period has not elapsed. 
D) The amount of revenue can be measured reliably. 
A) The entity has transferred to the buyer the significant risks and rewards of ownership of the goods. 
B) It is probable that the economic benefits associated with the transaction will flow to the entity. 
C) Stage of completion - either the coverage period has not yet begun or the period has not elapsed. 
D) The amount of revenue can be measured reliably.

Question 8

How is revenue recognized on a cost plus 7% contract?

Accepted Answer

A) Revenue is recognized only after the contract is completed. 
B) Revenue and expenses are recognized in proportion to the degree of progress. 
C) Record an amount of revenue equal to the costs that are expected to be recovered on the contract. 
D) Revenue equal to the cost plus 7% profit will be recorded each year. 
A) Revenue is recognized only after the contract is completed. 
B) Revenue and expenses are recognized in proportion to the degree of progress. 
C) Record an amount of revenue equal to the costs that are expected to be recovered on the contract. 
D) Revenue equal to the cost plus 7% profit will be recorded each year.

Question 9

Which condition is not necessary to recognize revenue from the sale of goods?

Accepted Answer

A) When the entity has transferred ownership to the buyer. 
B) When the amount of revenue can be measured reliably. 
C) When it is probable that the economic benefits will be flow to the entity. 
D) When the entity retains no managerial control over the assets. 
A) When the entity has transferred ownership to the buyer. 
B) When the amount of revenue can be measured reliably. 
C) When it is probable that the economic benefits will be flow to the entity. 
D) When the entity retains no managerial control over the assets.

Question 10

Which statement about the percentage of completion method is correct?

Accepted Answer

A) This method recognizes revenue on a straight-line basis. 
B) This method can only be used if there are no uncertainties about how much the contract will cost or how long it will take to complete. 
C) This method allocates revenue, not construction costs. 
D) This method allocates construction costs, not revenue. 
A) This method recognizes revenue on a straight-line basis. 
B) This method can only be used if there are no uncertainties about how much the contract will cost or how long it will take to complete. 
C) This method allocates revenue, not construction costs. 
D) This method allocates construction costs, not revenue.

How is income and expense recognized for biological assets under IFRS?

What accounting issue arises for recognizing non-monetary transactions?

An apartment owner receives a deposit of $1200 equal to one month's rent. Identify which revenue recognition criteria is not met at the point of sale, preventing the recognition of revenue at that time.

How is revenue recognized on a cost plus 7% contract?

Which condition is not necessary to recognize revenue from the sale of goods?

Which statement about the percentage of completion method is correct?

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

How is income and expense recognized for biological assets under IFRS?

What accounting issue arises for recognizing non-monetary transactions?

An apartment owner receives a deposit of $1200 equal to one month's rent. Identify which revenue recognition criteria is not met at the point of sale, preventing the recognition of revenue at that time.

How is revenue recognized on a cost plus 7% contract?

Which condition is not necessary to recognize revenue from the sale of goods?

Which statement about the percentage of completion method is correct?

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