Question 1

In accounting for sales on consignment,sales revenue and the related cost of goods sold should be recognized by the

Accepted Answer

A) consignor when the goods are shipped to the consignee. 
B) consignee when the goods are shipped to the third party. 
C) consignor when notification is received the consignee has sold the goods. 
D) consignee when cash is received from the customer. 
A) consignor when the goods are shipped to the consignee. 
B) consignee when the goods are shipped to the third party. 
C) consignor when notification is received the consignee has sold the goods. 
D) consignee when cash is received from the customer.

Question 2

When the percentage-of-completion method of accounting for long-term construction projects is used,why is Construction in Progress increased by the annual recognized gross profit on long-term construction contracts?

Accepted Answer

A) The cost of the contract has increased. 
B) The project's value has increased above cost. 
C) The economy experiences inflation over the construction period. 
D) Construction in Progress is not increased by the annual recognized profit. 
A) The cost of the contract has increased. 
B) The project's value has increased above cost. 
C) The economy experiences inflation over the construction period. 
D) Construction in Progress is not increased by the annual recognized profit.

Question 3

Astor Construction Company uses the percentage-of-completion method for long-term construction contracts.A specific job was begun in 2014 and completed in 2016.The contract price was $1,400,000 and cost information as of each year-end is given below:
 
Assuming Astor correctly recorded gross profit in 2014,how much gross profit should the company record in 2015?

Accepted Answer

A) $0 
B) $20,000 
C) $300,000 
D) $320,000 
A) $0 
B) $20,000 
C) $300,000 
D) $320,000

Question 4

Which of the following would be used in the calculation of the gross profit recognized in the third and final year of a construction contract that is accounted for using the percentage-of-completion method?

Accepted Answer

The answer of Which of the following would be used...

Question 5

The cost recovery method is

Accepted Answer

A) used only when circumstances surrounding a sale are so uncertain that earlier recognition is impossible. 
B) the most common method of accounting for real estate sales. 
C) similar to percentage-of-completion accounting. 
D) never acceptable under generally accepted accounting principles. 
A) used only when circumstances surrounding a sale are so uncertain that earlier recognition is impossible. 
B) the most common method of accounting for real estate sales. 
C) similar to percentage-of-completion accounting. 
D) never acceptable under generally accepted accounting principles.

Question 6

The collection of credit sales is usually predictable and reasonably assured as a result of credit approval,collections procedures,and historical evidence.In such cases,revenue is appropriately recognized at the point of sale.If a company makes credit sales to customers of relatively poor credit risk,however,recognition of revenue at the point of sale may be inappropriate.Although revenue may have been earned and is measurable,ultimate collection of the proceeds on the sale are highly uncertain.The creditor in such circumstances may defer the recognition of revenue until the amount due is collected.The installment sales method thus may be used.Under the installment sales method,both sales and cost of sales are recognized in the period of sale,but the related gross margin is deferred to those periods in which cash is collected.The gross margin rate for the installment sales is computed and multiplied times the cash collection to determine the portion of deferred gross margin to be recognized.
Required:
Evaluate the conceptual soundness of the installment sales method.

Accepted Answer

Revenue in most instances should be repo

Question 7

The installment method of recognizing revenue

Accepted Answer

A) should be used only in cases in which no reasonable basis exists for estimating the collectibility of receivables. 
B) is not a generally accepted accounting principle under any circumstances. 
C) should be used for book purposes only if it is used for tax purposes. 
D) is an acceptable alternative accounting principle for a firm that makes installment sales. 
A) should be used only in cases in which no reasonable basis exists for estimating the collectibility of receivables. 
B) is not a generally accepted accounting principle under any circumstances. 
C) should be used for book purposes only if it is used for tax purposes. 
D) is an acceptable alternative accounting principle for a firm that makes installment sales.

Question 8

Sailor Construction Company has consistently used the percentage-of- completion method.On January 10,2014,Sailor began work on a $3,000,000 construction contract.At the inception date,the estimated cost of construction was $2,250,000.The following data relate to the progress of the contract:
 
How much gross profit should Sailor recognize for the year ended December 31,2015?

Accepted Answer

A) $150,000 
B) $262,500 
C) $300,000 
D) $450,000 
A) $150,000 
B) $262,500 
C) $300,000 
D) $450,000

Question 9

Franchise fees are properly recognized as revenue

Accepted Answer

A) when received in cash. 
B) when a contractual agreement has been signed. 
C) after the franchise business has begun operations. 
D) after the franchiser has substantially performed its service. 
A) when received in cash. 
B) when a contractual agreement has been signed. 
C) after the franchise business has begun operations. 
D) after the franchiser has substantially performed its service.

Question 10

On May 1,2014,Lavender Construction Company entered into a fixed-price contract to construct an apartment building for $3,000,000.Lavender appropriately accounts for this contract under the percentage-of-completion method.Information relating to the contract is as follows:
 
What is the amount of contract costs incurred during the year ended December 31,2015?

Accepted Answer

A) $600,000 
B) $960,000 
C) $990,000 
D) $1,440,000 
A) $600,000 
B) $960,000 
C) $990,000 
D) $1,440,000

Question 11

Gunner Construction,Inc.has consistently used the percentage-of-completion method of recognizing revenue.During 2014,Gunner started work on a $2,500,000 fixed-price construction contract.The accounting records disclosed the following data for the year ended December 31,2014:
 
How much loss should Gunner have recognized in 2014?

Accepted Answer

A) $15,000 
B) $35,000 
C) $50,000 
D) $315,000 
A) $15,000 
B) $35,000 
C) $50,000 
D) $315,000

Question 12

When a contractor determines that a contract will result in an overall loss,when should that loss be recognized within the completed-contract and percentage-of-completion methods?

Accepted Answer

The answer of When a contractor determines that a contract...

Question 13

Samuels Company began operations on January 1,2014,and uses the installment sales method of accounting.The company has the following information available for 2014 and 2015:
 
The realized gross profit for 2015 would be

Accepted Answer

A) $1,680,000. 
B) $2,760,000. 
C) $3,120,000. 
D) $4,320,000. 
A) $1,680,000. 
B) $2,760,000. 
C) $3,120,000. 
D) $4,320,000.

Question 14

The completed-contract method (as opposed to the percentage-of-completion method)of accounting for revenue from long-term construction contracts should be used in which of the following circumstances?

Accepted Answer

A) The contractor has been in business for many years and has completed many contracts in the past. 
B) Reasonably accurate estimates of the degree of completion cannot be made due to the lack of experience with similar types of contracts. 
C) Reasonable accurate estimates of the degree of completion can be made based on past experience. 
D) The contracts are of a relatively long duration. 
A) The contractor has been in business for many years and has completed many contracts in the past. 
B) Reasonably accurate estimates of the degree of completion cannot be made due to the lack of experience with similar types of contracts. 
C) Reasonable accurate estimates of the degree of completion can be made based on past experience. 
D) The contracts are of a relatively long duration.

Question 15

A company uses the percentage-of-completion method to account for a four-year construction contract.Progress billings sent in the second year that were collected in the third year would

Accepted Answer

A) be included in the calculation of the income recognized in the second year. 
B) be included in the calculation of the income recognized in the third year. 
C) be included in the calculation of the income recognized in the fourth year. 
D) not be included in the calculation of the income recognized in any year. 
A) be included in the calculation of the income recognized in the second year. 
B) be included in the calculation of the income recognized in the third year. 
C) be included in the calculation of the income recognized in the fourth year. 
D) not be included in the calculation of the income recognized in any year.

Question 16

On January 3,2014,Continental Services,Inc.,signed an agreement authorizing Peen Company to operate as a franchisee over a 20-year period for an initial franchise fee of $200,000 received when the agreement was signed.Peen commenced operations on July 1,2014,at which date all of the initial services required of Continental had been performed.The agreement also provides that Peen must pay a continuing franchise fee equal to 6% of the revenue from the franchise annually to Continental.Peen's franchise revenue for 2014 was $900,000.For the year ended December 31,2014,how much should Continental record as revenue from franchise fees from the Peen franchise?

Accepted Answer

A) $100,000 
B) $106,000 
C) $254,000 
D) $266,000 
A) $100,000 
B) $106,000 
C) $254,000 
D) $266,000

Question 17

Tundra Electronics Company sends appliances to dealers on a consignment basis.The selling price per unit is $920 and the dealer earns a 30% commission.The manufacturing cost of the appliance to Tundra Electronics is $570.Assume that in 2014,800 units were sent on consignment to Farber Hardware.Four hundred of these units were sold for cash,and by December 31,2011,remittance had been made to Tundra Electronics for 380 units.
Prepare the required journal entries on the books of Tundra Electronics Company and Farber Hardware for the transactions in 2014.

Accepted Answer

The answer of Tundra Electronics Company sends appliances to dealers...

Question 18

Marshland,Inc.had the following consignment transactions during December:
 
No sales of consigned goods were made through December 31.Marshland's December 31 balance sheet should include consigned inventory at

Accepted Answer

A) $18,900. 
B) $18,000. 
C) $12,500. 
D) $12,000. 
A) $18,900. 
B) $18,000. 
C) $12,500. 
D) $12,000.

Question 19

Franklyn Publishing Company is marketing a new principles of accounting text.The new text is quite revolutionary in its approach.The use of the new approach raises some question as to the marketability of the text,however.
On July 31,2014,Franklyn sold 5,000 copies of the new text to college bookstores at a unit price of $60.The textbooks have a unit cost to Franklyn of $40.Franklyn uses a perpetual inventory system.The company's accounting period ends on December 31.
In view of the uncertainty regarding the marketability of the text,Franklyn sold the text with terms of net 30 days,but has allowed the bookstores until January 31,2015,to return any unsold texts for a cash refund.Franklyn has no means of estimating the number of texts that will be returned.
On September 12,2014,Franklyn collected $260,000 on the account receivable.On November 15,2014,350 texts were returned by the bookstore to Franklyn.
Required:
1.Prepare the appropriate journal entries for each of the dates given above.
2.Explain the appropriate treatment on the financial statements of any accounts unique to this sales transaction.
3.Provide authoritative support for the journal entries you made in part 1 above both for public and private companies.

Accepted Answer

1.The journal entries would be as follow

Question 20

In 2014,Charlotte Engineering entered into an agreement to construct an office building at a contract price of $5,100,000.Construction data were as follows:
   
Prepare the necessary entries for each year,assuming the firm uses the:
(1)completed-contract method
(2)percentage-of-completion method.

Accepted Answer

The answer of In 2014,Charlotte Engineering entered into an agreement...

In accounting for sales on consignment,sales revenue and the related cost of goods sold should be recognized by the

When the percentage-of-completion method of accounting for long-term construction projects is used,why is Construction in Progress increased by the annual recognized gross profit on long-term construction contracts?

Which of the following would be used in the calculation of the gross profit recognized in the third and final year of a construction contract that is accounted for using the percentage-of-completion method?

The cost recovery method is

The installment method of recognizing revenue

Franchise fees are properly recognized as revenue

When a contractor determines that a contract will result in an overall loss,when should that loss be recognized within the completed-contract and percentage-of-completion methods?

Samuels Company began operations on January 1,2014,and uses the installment sales method of accounting.The company has the following information available for 2014 and 2015: The realized gross profit for 2015 would be

The completed-contract method (as opposed to the percentage-of-completion method)of accounting for revenue from long-term construction contracts should be used in which of the following circumstances?

A company uses the percentage-of-completion method to account for a four-year construction contract.Progress billings sent in the second year that were collected in the third year would

Marshland,Inc.had the following consignment transactions during December: No sales of consigned goods were made through December 31.Marshland's December 31 balance sheet should include consigned inventory at

In 2014,Charlotte Engineering entered into an agreement to construct an office building at a contract price of $5,100,000.Construction data were as follows: Prepare the necessary entries for each year,assuming the firm uses the: (1)completed-contract method (2)percentage-of-completion method.

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll,pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

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Exam 8: Revenue Recognition

In accounting for sales on consignment,sales revenue and the related cost of goods sold should be recognized by the

When the percentage-of-completion method of accounting for long-term construction projects is used,why is Construction in Progress increased by the annual recognized gross profit on long-term construction contracts?

Which of the following would be used in the calculation of the gross profit recognized in the third and final year of a construction contract that is accounted for using the percentage-of-completion method?

The cost recovery method is

The installment method of recognizing revenue

Franchise fees are properly recognized as revenue

When a contractor determines that a contract will result in an overall loss,when should that loss be recognized within the completed-contract and percentage-of-completion methods?

Samuels Company began operations on January 1,2014,and uses the installment sales method of accounting.The company has the following information available for 2014 and 2015: The realized gross profit for 2015 would be

The completed-contract method (as opposed to the percentage-of-completion method)of accounting for revenue from long-term construction contracts should be used in which of the following circumstances?

A company uses the percentage-of-completion method to account for a four-year construction contract.Progress billings sent in the second year that were collected in the third year would

Marshland,Inc.had the following consignment transactions during December: No sales of consigned goods were made through December 31.Marshland's December 31 balance sheet should include consigned inventory at

In 2014,Charlotte Engineering entered into an agreement to construct an office building at a contract price of $5,100,000.Construction data were as follows: Prepare the necessary entries for each year,assuming the firm uses the: (1)completed-contract method (2)percentage-of-completion method.

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Debt Financing

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll,pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters