Question 1

Under the percentage-of-completion method, a company has recognized $40,000 of profit through to the beginning of the current year on a contract, and total estimated contract cost is $500,000 at that time. The contract price is $800,000. What is the percent of completion at the beginning of the current year?

Accepted Answer

A)  13.33% 
B)  15.8% 
C)  8% 
D)  Insufficient data

Question 2

Under IFRS, sales contracts with multiple deliverables should be split according to their relative fair values if possible, and accounted for accordingly.

Accepted Answer

A) True 
 B)False

Question 3

Revenues for certain commodities with a readily available market may be recognized at production since uncertainties with respect to the sale are likely to be minimal.

Accepted Answer

A) True 
 B)False

Question 4

When goods are sold, revenue may still be recognized if there is an insignificant degree of continuing managerial involvement in some instances.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following would not be considered a multiple-deliverable arrangement?

Accepted Answer

A)  A product sold with a manufacturer's warranty, where both the product and warranty have separately identifiable revenue streams. 
B)  A product sold with a manufacturer's warranty which covers only product assurances, where only the product has a separately identifiable revenue stream. 
C)  Customer Loyalty Programs. 
D)  Franchise Fees.

Question 6

If a company receives a commission on products it sells but otherwise has no control over selling prices, it is essentially acting as an agent on behalf of another company, and would likely record revenue from these sales on a net basis.

Accepted Answer

A) True 
 B)False

Question 7

When cash is collected on account and the instalment sales method is used, the debit is to instalment accounts receivable and the credit is to cash.

Accepted Answer

A) True 
 B)False

Question 8

An initial licensing fee that allows the holder to use the name of another company for a defined period of time would be capitalized and subsequently amortized over the number of periods benefitted.

Accepted Answer

A) True 
 B)False

Question 9

A construction company uses the percentage-of-completion method of accounting. In 2007, the company began work on a government contract which had a contract price of $4,000,000 and estimated costs of $3,000,000. Additional data were as follows: $\begin{array}{|l|l|l|}
\hline & \mathbf{2 0 0 7} & \mathbf{2 0 0 8} \
\hline \text { Costs incurred during the year } & \$ 600,000 & \$ 2,550,000 \
\hline \text { Estimated costs to complete, as of } 12 / 31 / 2007 & 2,400,000 & \
\hline \text { Billing during the year } & 720,000 & 3,080,000 \
\hline \text { Collections during the year } & 500,000 & 3,100,000 \
\hline
\end{array}$ The portion of the total contract income to be recognized during 2007 is:

Accepted Answer

A)  $120,000 
B)  $200,000 
C)  $250,000 
D)  $1,000,000

Question 10

A company sold goods for $100,000 during 2007. Of this amount, $60,000 was cash and $40,000 was on account. The company collected $20,000 of the sales on account during 2001. In conformity with the revenue principle, the amount of revenue that should be recognized in 2007 is ___________________.

Accepted Answer

The answer of A company sold goods for $100,000 during...

Question 11

If it becomes apparent that a long term project will result in a loss, the full amount of the loss must be accounted for in the year it is first estimable.

Accepted Answer

A) True 
 B)False

Question 12

ABC Inc. sold a DVD player to a client on June 30th, Year 2 for $150. The DVD player, which came with a 2-year warranty, was thought to be worth $100 if sold without the warranty. As a result of this sale, how much sales/revenue would ABC Inc. take into income on its December 31st, Year 2 income statement?

Accepted Answer

A)  $100.00. 
B)  $112.50. 
C)  $125.00. 
D)  $150.00.

Question 13

Given the following data, calculate profit recognized in 2007 under the percentage of completion method for a project begun in 2007 with a contract price of $1,000? $\begin{array}{|l|l|l|}
\hline & 2007 & 2008 \
\hline \text { Costs incurred this year } & \$ 100 & \$ 200 \
\hline \text { Total estimated costs remaining at end of year } & 700 & 400 \
\hline
\end{array}$

Accepted Answer

The answer of Given the following data, calculate profit recognized...

Question 14

Company X has a machine with a book value of $10,000 and a fair value of $15,000. Company Y has a machine with a book value of $10,000 and a fair value of $9,000. Company X and Y exchange machines. In addition, Company X gives $1,000 to Company Y as a result of the exchange. The transaction is deemed to lack commercial substance. Assuming that the book value method is used, Company X would record:

Accepted Answer

A)  no gain or loss on this transaction. 
B)  a gain of $1,000 on this transaction. 
C)  a loss of $1,000 on this transaction. 
D)  a loss of $2,000 on this transaction.

Question 15

Non-refundable payments can normally be recognized upon receipt, since there is no performance obligation related to these payments.

Accepted Answer

A) True 
 B)False

Question 16

A company incurred the following costs and received the following collections from customers $\begin{array} { | l | l | l | } 
\hline & \text { Costs } & \text { Collections } \
\hline 2001 & \$ 120,000 & - 0 - \
\hline 2002 & 20,000 & \$ 80,000 \
\hline 2003 & 20,000 & 40,000 \
\hline 2004 & 10,000 & 100,000 \
\hline 2005 & - 0 - & 8,000 \
\hline
\end{array}$ (a) If the company used the cost recovery method of revenue recognition, the income that should be recognized in 2003 is ___________________.
(b) If the cost recovery method continues to be used through 2004, the amount of 2004 income that should be recognized is ____________________.

Accepted Answer

The answer of A company incurred the following costs and...

Exam 6: Revenue Recognition

Under IFRS, sales contracts with multiple deliverables should be split according to their relative fair values if possible, and accounted for accordingly.

Revenues for certain commodities with a readily available market may be recognized at production since uncertainties with respect to the sale are likely to be minimal.

When goods are sold, revenue may still be recognized if there is an insignificant degree of continuing managerial involvement in some instances.

Which of the following would not be considered a multiple-deliverable arrangement?

If a company receives a commission on products it sells but otherwise has no control over selling prices, it is essentially acting as an agent on behalf of another company, and would likely record revenue from these sales on a net basis.

When cash is collected on account and the instalment sales method is used, the debit is to instalment accounts receivable and the credit is to cash.

An initial licensing fee that allows the holder to use the name of another company for a defined period of time would be capitalized and subsequently amortized over the number of periods benefitted.

A company sold goods for $100,000 during 2007. Of this amount, $60,000 was cash and $40,000 was on account. The company collected $20,000 of the sales on account during 2001. In conformity with the revenue principle, the amount of revenue that should be recognized in 2007 is ___________________.

If it becomes apparent that a long term project will result in a loss, the full amount of the loss must be accounted for in the year it is first estimable.

Non-refundable payments can normally be recognized upon receipt, since there is no performance obligation related to these payments.