Question 1

Sellers recognize revenue for gift cards at the point in time control of the gift card is transferred to the customer.

Accepted Answer

A) True 
 B)False

Question 2

What is the objective of disclosures about revenue recognition? Indicate at least two common types of important revenue recognition disclosures.

Accepted Answer

The objective of revenue recognition dis

Question 3

The probability that the customer will pay the seller does not affect whether a contract exists for purposes of revenue recognition.

Accepted Answer

A) True 
 B)False

Question 4

Assume that a customer enrolls in AAA's Premier Membership, which provides 12 months of roadside assistance for $120. On August 1, 2018, a customer purchases a contract that runs from that date through July 31, 2019. Given that roadside assistance requests occur equally throughout the contract period, AAA uses "proportion of time" as its measure of progress toward completion.
Required:
1) Prepare the journal entries that AAA would record on August 1 and on December 31, 2018, with respect to this transaction.
2) State the amounts included in relevant accounts in AAA's 2018 income statement and balance sheet.

Accepted Answer

@#IMG-DLM& 
2) $50 is included as revenu

Question 5

Companies recognize revenue only when:

Accepted Answer

A)  A contract is reasonably likely to exist. 
B)  A performance obligation is designated in a written contract. 
C)  A written contract is in place and payment is variable. 
D)  Control over goods or services has been transferred from the seller to the customer. 
A)  A contract is reasonably likely to exist. 
B)  A performance obligation is designated in a written contract. 
C)  A written contract is in place and payment is variable. 
D)  Control over goods or services has been transferred from the seller to the customer.

Question 6

The Racquet Store (RS) sells franchise agreements in which it charges an up-front fee of $50,000 for assistance in setting up a store, and then a monthly fee of $1,000 for national advertising and administrative assistance. Steffi Hingis signs a franchise agreement with RS. 
-Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS has no experience estimating uncollectible accounts associated with these sorts of notes. RS can recognize:

Accepted Answer

A)  $50,000 of revenue when Steffi signs the agreement. 
B)  $50,000 of revenue as soon as it has assisted Steffi in setting up the store. 
C)  Revenue under the installment sales method, starting when Steffi signs the agreement. 
D)  Revenue under the installment sales method, as soon as it has assisted Steffi in setting up the store. 
A)  $50,000 of revenue when Steffi signs the agreement. 
B)  $50,000 of revenue as soon as it has assisted Steffi in setting up the store. 
C)  Revenue under the installment sales method, starting when Steffi signs the agreement. 
D)  Revenue under the installment sales method, as soon as it has assisted Steffi in setting up the store.

Question 7

When the expected collection of accounts receivable is difficult to estimate, companies must use the cost recovery method.

Accepted Answer

A) True 
 B)False

Question 8

If the seller is an agent, the seller typically is vulnerable to risk associated with delivering the product or service.

Accepted Answer

A) True 
 B)False

Question 9

Goods or services are distinct if they are either capable of being distinct or are separately identifiable.

Accepted Answer

A) True 
 B)False

Question 10

Brunetti Co. designed and installed customized signs for Di Antonio CPA, Inc. Brunetti's contract specifies that it will receive a flat fee of $15,000 for providing the customized signs, and an additional $1,000 if 30% of Di Antonio's new customers indicate they first learned of Di Antonio because of the signs. Based on historical experience, Brunetti estimates that there is a 90% chance it will achieve the threshold to receive a bonus.
-Assume Brunetti uses the "expected value" approach, but is very uncertain of that estimate due to a lack of experience with similar arrangements. What would be the appropriate transaction price?

Accepted Answer

Because the seller is very uncertain of

Question 11

Which of the following is an example of a variable consideration?

Accepted Answer

A)  John is expected to receive $100 for his tutoring services provided that he keeps track of his hours. 
B)  Melody's Piano will get paid for the 50 pianos sold provided that the pianos are non-defective after the customer takes control. 
C)  Cantankerous Computers gets paid a base amount for every repair plus an additional hourly fee of $10. 
D)  Excellent Electronics has a 10% mail-in rebate program for the Model X-001 speaker system. The company sold $10,000 worth of systems and believes there is a 50% chance that rebates will be redeemed. 
A)  John is expected to receive $100 for his tutoring services provided that he keeps track of his hours. 
B)  Melody's Piano will get paid for the 50 pianos sold provided that the pianos are non-defective after the customer takes control. 
C)  Cantankerous Computers gets paid a base amount for every repair plus an additional hourly fee of $10. 
D)  Excellent Electronics has a 10% mail-in rebate program for the Model X-001 speaker system. The company sold $10,000 worth of systems and believes there is a 50% chance that rebates will be redeemed.

Question 12

Which of the following is most true regarding consignment arrangements?

Accepted Answer

A)  Revenue is recognized at the point in time when the consignment arrangement is made. 
B)  Revenue is recognized when goods are transferred to the consignee. 
C)  Revenue is recognized upon sale by the consignee to an end customer. 
D)  Revenue is never recognized because GAAP does not allow such arrangements. 
A)  Revenue is recognized at the point in time when the consignment arrangement is made. 
B)  Revenue is recognized when goods are transferred to the consignee. 
C)  Revenue is recognized upon sale by the consignee to an end customer. 
D)  Revenue is never recognized because GAAP does not allow such arrangements.

Question 13

Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay one-third of the sales price of a jet ski when they initially purchase the ski, and then pay another one-third each year for the next two years. Because Lake has little information about the ability to collect these receivables, it uses the installment sales method for revenue recognition. In 2017, Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2017, $300,000 in 2018, and $300,000 in 2019 associated with those sales. In 2018, Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2018, $400,000 in 2019, and $400,000 in 2020 associated with those sales. In 2020, Lake also repossessed $200,000 of jet skis that were sold in 2018. Those jet skis had a fair value of $75,000 at the time they were repossessed.
-  In 2019, Lake would recognize realized gross profit of:

Accepted Answer

A)  $0. 
B)  $300,000. 
C)  $310,000. 
D)  $700,000. 
A)  $0. 
B)  $300,000. 
C)  $310,000. 
D)  $700,000.

Question 14

Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured, and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise is in condition to be re-sold. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2017. Collections on this sale were $20,000 in 2017, $15,000 in 2018, and $20,000 in 2019
-. In its 2018 year-end balance sheet, Reliable would report installment receivables (net) of:

Accepted Answer

A)  $0. 
B)  $20,000. 
C)  $4,000. 
D)  $15,000. 
A)  $0. 
B)  $20,000. 
C)  $4,000. 
D)  $15,000.

Question 15

The Rink offers annual $200 memberships that entitle members to unlimited use of ice-skating facilities and locker rooms. Each new membership also entitles the member to receive ten "20% off a $5 meal" coupons that are redeemable at the Rink's snack bar. The Rink estimates that approximately 80% of the coupons will be redeemed, and that, if the coupons weren't redeemed, $5 meals still would be discounted by 5% because of ongoing promotions.
-Prepare the journal entry to recognize the sale of a new membership. Clearly identify revenue or deferred revenue associated with each performance obligation.

Accepted Answer

Since the discount coupon would be a per

Question 16

Mary signed up and paid $1200 for a 6 month ceramics course on June 1st with Choplet Ceramics. As of August 1st, Choplet's accounting records would indicate:

Accepted Answer

A)  $400 of revenue, $800 of accounts receivable 
B)  $400 of revenue, $800 of deferred revenue 
C)  $1,200 of revenue, $1,200 of cash 
D)  $800 of revenue, $400 of accounts receivable 
A)  $400 of revenue, $800 of accounts receivable 
B)  $400 of revenue, $800 of deferred revenue 
C)  $1,200 of revenue, $1,200 of cash 
D)  $800 of revenue, $400 of accounts receivable

Question 17

FlexMotors, Inc. manufactures a variety of electronic drills and grass cutters. Recently, it introduced a new line of handheld drills that generates much less noise and consumes much less energy, but carries a much higher price tag. The company is currently considering whether it should record $1.2 million of revenue upon shipment. Under the contract, FlexMotors is obligated to accept any products from the distributors if they are not sold within 6 months. The company is confident that the new model will sell, but is unable to accurately estimate returns, because it has never sold anything quite like it.
Required:
How much revenue should FlexMotors recognize upon shipment to distributors?

Accepted Answer

The seller should recognize $0 of revenu

Question 18

In 2018, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC recognizes revenue over time according to percentage of completion for this contract, and provides the following information (dollars in millions):   
-How much cash remains to be collected by CCC on the project?

Accepted Answer

A)  $70 million. 
B)  $202.5 million. 
C)  $240 million. 
D)  Cannot be determined from the given information. 
A)  $70 million. 
B)  $202.5 million. 
C)  $240 million. 
D)  Cannot be determined from the given information.

Question 19

On December 28, 2018, Omega Steel, Inc. sold $100,000 of steel sheets to a car manufacturer. Due to holidays, Omega was unable to find a truck driver to deliver the product. Delivery was finally made on January 5, 2019.
Required:
How much revenue should Omega recognize in 2018 for the sale to the car manufacturer? Explain your answer.

Accepted Answer

$0. In a bill-and-hold arrangement, the

Question 20

Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay one-third of the sales price of a jet ski when they initially purchase the ski, and then pay another one-third each year for the next two years. Because Lake has little information about the ability to collect these receivables, it uses the installment sales method for revenue recognition. In 2017, Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2017, $300,000 in 2018, and $300,000 in 2019 associated with those sales. In 2018, Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2018, $400,000 in 2019, and $400,000 in 2020 associated with those sales. In 2020, Lake also repossessed $200,000 of jet skis that were sold in 2018. Those jet skis had a fair value of $75,000 at the time they were repossessed.
-  In its December 31, 2018, balance sheet, Lake would report:

Accepted Answer

A)  Deferred gross profit of $700,000. 
B)  Deferred gross profit of $600,000. 
C)  Installment receivables (net) of $700,000. 
D)  Installment receivables (net) of $400,000. 
A)  Deferred gross profit of $700,000. 
B)  Deferred gross profit of $600,000. 
C)  Installment receivables (net) of $700,000. 
D)  Installment receivables (net) of $400,000.

Sellers recognize revenue for gift cards at the point in time control of the gift card is transferred to the customer.

What is the objective of disclosures about revenue recognition? Indicate at least two common types of important revenue recognition disclosures.

The probability that the customer will pay the seller does not affect whether a contract exists for purposes of revenue recognition.

Companies recognize revenue only when:

When the expected collection of accounts receivable is difficult to estimate, companies must use the cost recovery method.

If the seller is an agent, the seller typically is vulnerable to risk associated with delivering the product or service.

Goods or services are distinct if they are either capable of being distinct or are separately identifiable.

Which of the following is an example of a variable consideration?

Which of the following is most true regarding consignment arrangements?

Mary signed up and paid $1200 for a 6 month ceramics course on June 1^st with Choplet Ceramics. As of August 1^st, Choplet's accounting records would indicate:

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters

Exam 5: Revenue Recognition

Sellers recognize revenue for gift cards at the point in time control of the gift card is transferred to the customer.

What is the objective of disclosures about revenue recognition? Indicate at least two common types of important revenue recognition disclosures.

The probability that the customer will pay the seller does not affect whether a contract exists for purposes of revenue recognition.

Companies recognize revenue only when:

When the expected collection of accounts receivable is difficult to estimate, companies must use the cost recovery method.

If the seller is an agent, the seller typically is vulnerable to risk associated with delivering the product or service.

Goods or services are distinct if they are either capable of being distinct or are separately identifiable.

Which of the following is an example of a variable consideration?

Which of the following is most true regarding consignment arrangements?

Mary signed up and paid $1200 for a 6 month ceramics course on June 1st with Choplet Ceramics. As of August 1st, Choplet's accounting records would indicate:

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, Comprehensive Income, and the Statement of Cash Flows

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, Plant, and Equipment and Intangible Assets: Acquisition

Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition

Investments

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes and Error Corrections

The Statement of Cash Flows Revisited

Filters

Mary signed up and paid $1200 for a 6 month ceramics course on June 1^st with Choplet Ceramics. As of August 1^st, Choplet's accounting records would indicate: