Question 1

Which of the following is not required for the recognition of revenue?

Accepted Answer

A)  Receipt of cash by the seller at the time of sale. 
B)  Seller must receive an item ultimately realizable in cash, noncash resources, or claims to cash. 
C)  The earnings process must be essentially complete. 
D)  The transaction must create a measurable financial statement element which fulfills the definition of a revenue. 
A)  Receipt of cash by the seller at the time of sale. 
B)  Seller must receive an item ultimately realizable in cash, noncash resources, or claims to cash. 
C)  The earnings process must be essentially complete. 
D)  The transaction must create a measurable financial statement element which fulfills the definition of a revenue. A

Question 2

Which of the following is not a difference between the percentage-of- completion and completed contract methods of accounting for long-term construction contracts?

Accepted Answer

A)  One requires estimates of completion during the construction period and the other does not. 
B)  One records income (loss) each period during the construction period and the other does not. 
C)  They report different inventory amounts during the construction period. 
D)  They cause different cash inflows during the construction period. 
A)  One requires estimates of completion during the construction period and the other does not. 
B)  One records income (loss) each period during the construction period and the other does not. 
C)  They report different inventory amounts during the construction period. 
D)  They cause different cash inflows during the construction period. D

Question 3

Grocery stores recognize most of their revenue based on the:

Accepted Answer

A)  Cost recovery method. 
B)  Specific performance method. 
C)  Proportional performance method. 
D)  Instalment method. 
E)  Sales method. 
A)  Cost recovery method. 
B)  Specific performance method. 
C)  Proportional performance method. 
D)  Instalment method. 
E)  Sales method. E

Question 4

"Billings on contracts" is a contra account to "Accounts Receivable."

Accepted Answer

A) True 
 B)False

Question 5

When progress billings are sent on a long-term contract, what type of account should be credited under the completed contract method and percentage-of-completion method? $\begin{array}{|l|l|l|}
\hline &\text { Completed contract } & \text { Percentage-of-completion } \
\hline 1&\text { Contra asset } & \text { Revenue } \
\hline 2&\text { Contra asset } & \text { Contra asset } \
\hline 3&\text { Revenue } & \text { Revenue } \
\hline 4&\text { Revenue } & \text { Contra asset } \
\hline
\end{array}$

Accepted Answer

A)  Choice 1 
B)  Choice 2 
C)  Choice 3 
D)  Choice 4 
A)  Choice 1 
B)  Choice 2 
C)  Choice 3 
D)  Choice 4

Question 6

The transaction price when non-monetary assets are involved in a sale is the value of the non-cash consideration received.

Accepted Answer

A) True 
 B)False

Question 7

A furniture manufacturer receives a purchase order from a client for a customized wooden cabinet. The cabinet will be delivered and paid for upon completion which is estimated to be in three months from now. This event would trigger a journal entry on the manufacturer's books if the earnings approach were used, but not if the contract approach were used.

Accepted Answer

A) True 
 B)False

Question 8

When work to be done and costs to be incurred on a long-term contract cannot be reliably estimated, which of the following methods of revenue recognition is preferable?

Accepted Answer

A)  Percentage-of-completion method 
B)  Completed contract method 
C)  Sales method 
D)  Instalment method 
A)  Percentage-of-completion method 
B)  Completed contract method 
C)  Sales method 
D)  Instalment method

Question 9

The contract price must be known with certainty in order for the contract based approach to be applied.

Accepted Answer

A) True 
 B)False

Question 10

The records of a construction company provided the following data on along-term construction contract (3 years), which was just completed.
Construction contract price. $1,425,000
Estimated total cost (at start). $1,200,000 $\begin{array} { | l | l | l | l | } 
\hline & \text { At end of 2001 } & \text { At end of 2002 } & \text { At end of 2003 } \
\hline \text { Costs incurred to date: } & & & \
\hline \text { (cumulative) } & \$ 300,000 & \$ 480,000 & \$ 1,245,000 \
\hline \text { Estimated cost to complete } & 900,000 & 750,000 & \text { Completed } \
\hline \text { Progress billings to date: } & & & \
\hline \text { (cumulative) } & 240,000 & 465,000 & 1,425,000 \
\hline \text { Progress collections to date: } & & & \
\hline \text { (cumulative) } & 210,000 & 450,000 & 1,425,000 \
\hline
\end{array}$ Complete the following partial financial statements for each year (assume percentage-of-completion is based on costs incurred to total costs) (Hint: complete CC for all years, then complete PC)*:

Accepted Answer

*CC = Completed contract; PC = Percentag

Question 11

ABC Inc. uses the percentage of completion method to account for one of its long-term construction projects. ABC reported a loss on this contract for its most recent fiscal year, but the contract is expected to be profitable. This is an onerous contract.

Accepted Answer

A) True 
 B)False

Question 12

If sales are made on "FOB destination" terms, the revenue earning process is completed when the products are removed from the seller's place of business by the common carrier.

Accepted Answer

A) True 
 B)False

Question 13

Given the following data, what is profit in 2007 under the percentage-of-completion method for a project begun in 2006 with a contract price of $1,000?$\begin{array}{|l|l|l|}
\hline & 2006 & 2007 \
\hline \text { Costs incurred this year } & \$ 100 & \$ 200 \
\hline \text { Total estimated costs remaining at end of year } & 700 & 400 \
\hline
\end{array}$

Accepted Answer

A)  $104 
B)  $129 
C)  $86 
D)  $61 
A)  $104 
B)  $129 
C)  $86 
D)  $61

Question 14

The completed-contract method of revenue recognition recognizes revenue on a long-term project as work progresses so that timely information is provided.

Accepted Answer

A) True 
 B)False

Question 15

Once biological assets become ready for sale, they effectively become inventory. Deemed cost in this case is fair value of the items less their selling costs. Subsequently they are valued at their fair value less costs to sell with gains and losses flowing to income.

Accepted Answer

A) True 
 B)False

Question 16

The revenue principle states that revenue should be recognized only when a(n):

Accepted Answer

A)  Exchange transaction involving goods and services has occurred and a cash down payment has been received. 
B)  Exchange transaction involving goods or services has occurred and the earnings process is essentially completed. 
C)  Sale or service transaction has occurred. 
D)  Completed earnings process can be projected. 
A)  Exchange transaction involving goods and services has occurred and a cash down payment has been received. 
B)  Exchange transaction involving goods or services has occurred and the earnings process is essentially completed. 
C)  Sale or service transaction has occurred. 
D)  Completed earnings process can be projected.

Question 17

A corporation, which began business on January 1, 2006, appropriately uses the instalment sales method of reporting for accounting purposes. The following data were available for the years 2006 and 2007:$\begin{array}{|l|l|l|}
\hline & \mathbf{2 0 0 6} & \mathbf{2 0 0 7} \
\hline \text { Instalment sales } & \$ 1,050 & \$ 1,260 \
\hline \text { Cost of instalment sales } & 840 & 945 \\hline \text { General and administrative expenses } & 105 & 126 \
\hline \text { Cash collected on } 2006 \text { instalment sales } &450 & 375 \
\hline \text { Cash collected on } 2007 \text { instalment sales } & & 600 \
\hline
\end{array}$ The balance in the deferred gross profit control account on December 2007 should be:

Accepted Answer

A)  $159 
B)  $210 
C)  $315 
D)  $525 
A)  $159 
B)  $210 
C)  $315 
D)  $525

Question 18

Choose the correct statement concerning the percentage-of-completion method of accounting for a firm with only one current long-term construction contract in process (assume no loss is projected):

Accepted Answer

A)  The net current asset account (net of construction- in- process, and billings) exceeds that same account under the completed contract method. 
B)  If the construction- in- process account exceeds the billings account, total costs to date must exceed total billings to date. 
C)  If the construction- in- process account exceeds the billings account, total costs to date must exceed total cash received on the contract to date. 
D)  It is possible to have both a net current asset account and a net current liability account in this situation. 
A)  The net current asset account (net of construction- in- process, and billings) exceeds that same account under the completed contract method. 
B)  If the construction- in- process account exceeds the billings account, total costs to date must exceed total billings to date. 
C)  If the construction- in- process account exceeds the billings account, total costs to date must exceed total cash received on the contract to date. 
D)  It is possible to have both a net current asset account and a net current liability account in this situation.

Question 19

Revenue is recognized prior to the time of sale under the:

Accepted Answer

A)  Specific performance method. 
B)  Completed contract method. 
C)  Instalment sales method. 
D)  Production method. 
A)  Specific performance method. 
B)  Completed contract method. 
C)  Instalment sales method. 
D)  Production method.

Question 20

The following data relates to a firm, which grants a liberal right of return to its customers: $\begin{array} { | l | l | } 
\hline \text { Total credit sales for the year } & \$ 100,000 \
\hline \text { Gross profit percentage } & 40 \% \
\hline \text { Collections on account } & \$ 60,000 \
\hline \text { Actual returns during the year } & \$ 20,000 \
\hline \text { Accounts receivable for which the return privilege has yet to expire as of the year-end } &\$ 15,000 \
\hline
\end{array}$ The firm anticipates a 30% total sales return rate and all other criteria are met.
Required:
(a) The summary entries to account for sales-related transactions during the year, and any adjusting entries (assume a perpetual inventory system).
(b) The relevant ending balance sheet accounts, and the income statement.
(c) The entry during the following year assuming that $10,000 of goods is returned before the return privilege expired.
(d) The entry during the following year assuming that only $8,000 of goods are returned before the return privilege expired.

Accepted Answer

(a) Entries during the year:@#IMG-DLM&Adjusting jo

Which of the following is not required for the recognition of revenue?

Which of the following is not a difference between the percentage-of- completion and completed contract methods of accounting for long-term construction contracts?

Grocery stores recognize most of their revenue based on the:

"Billings on contracts" is a contra account to "Accounts Receivable."

The transaction price when non-monetary assets are involved in a sale is the value of the non-cash consideration received.

When work to be done and costs to be incurred on a long-term contract cannot be reliably estimated, which of the following methods of revenue recognition is preferable?

The contract price must be known with certainty in order for the contract based approach to be applied.

ABC Inc. uses the percentage of completion method to account for one of its long-term construction projects. ABC reported a loss on this contract for its most recent fiscal year, but the contract is expected to be profitable. This is an onerous contract.

If sales are made on "FOB destination" terms, the revenue earning process is completed when the products are removed from the seller's place of business by the common carrier.

Given the following data, what is profit in 2007 under the percentage-of-completion method for a project begun in 2006 with a contract price of $1,000? 2006 2007 Costs incurred this year \ 100 \ 200 Total estimated costs remaining at end of year 700 400

The completed-contract method of revenue recognition recognizes revenue on a long-term project as work progresses so that timely information is provided.

Once biological assets become ready for sale, they effectively become inventory. Deemed cost in this case is fair value of the items less their selling costs. Subsequently they are valued at their fair value less costs to sell with gains and losses flowing to income.

The revenue principle states that revenue should be recognized only when a(n):

Choose the correct statement concerning the percentage-of-completion method of accounting for a firm with only one current long-term construction contract in process (assume no loss is projected):

Revenue is recognized prior to the time of sale under the:

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

Filters

Exam 6: Revenue Recognition

Which of the following is not required for the recognition of revenue?

Which of the following is not a difference between the percentage-of- completion and completed contract methods of accounting for long-term construction contracts?

Grocery stores recognize most of their revenue based on the:

"Billings on contracts" is a contra account to "Accounts Receivable."

The transaction price when non-monetary assets are involved in a sale is the value of the non-cash consideration received.

When work to be done and costs to be incurred on a long-term contract cannot be reliably estimated, which of the following methods of revenue recognition is preferable?

The contract price must be known with certainty in order for the contract based approach to be applied.

ABC Inc. uses the percentage of completion method to account for one of its long-term construction projects. ABC reported a loss on this contract for its most recent fiscal year, but the contract is expected to be profitable. This is an onerous contract.

If sales are made on "FOB destination" terms, the revenue earning process is completed when the products are removed from the seller's place of business by the common carrier.

Given the following data, what is profit in 2007 under the percentage-of-completion method for a project begun in 2006 with a contract price of $1,000? 2006 2007 Costs incurred this year \ 100 \ 200 Total estimated costs remaining at end of year 700 400

The completed-contract method of revenue recognition recognizes revenue on a long-term project as work progresses so that timely information is provided.

Once biological assets become ready for sale, they effectively become inventory. Deemed cost in this case is fair value of the items less their selling costs. Subsequently they are valued at their fair value less costs to sell with gains and losses flowing to income.

The revenue principle states that revenue should be recognized only when a(n):

Choose the correct statement concerning the percentage-of-completion method of accounting for a firm with only one current long-term construction contract in process (assume no loss is projected):

Revenue is recognized prior to the time of sale under the:

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Depreciation, Amortization, and Impairment

Financial Instruments: Investments in Bonds and Equity Securities

Filters