The revenue recognition principle provides thatrevenue is recognized when
c.it is realized or realizable and itis earned.
When goods or services are exchanged for cash orclaims to cash (receivables), revenues are
When the entity has substantially accomplishedwhat it must do to be entitled to the benefits represented by the revenues,revenues are
Which of the following is not an accuraterepresentation concerning revenue recognition?
b.Revenue from services rendered isrecognized when cash is received or when services have been performed.
The process of formally recording orincorporating an item in the financial statements of an entity is
P26.Dot Point, Inc. is a retailer of washers anddryers and offers a three-year service contract on each appliance sold.Although Dot Point sells the appliances on an installment basis, all servicecontracts are cash sales at the time of purchase by the buyer. Collectionsreceived for service contracts should be recorded as
b. deferred service revenue
Which of the following is not a reason whyrevenue is recognized at time of sale?
d. all of these are reasons to recognize revenue at the time of sale
An alternative available when the seller isexposed to continued risks of ownership through return of the product is
d. all of these
A sale should not be recognized as revenue bythe seller at the time of sale if
c.the buyer has a right to return theproduct and the amount of future returns cannot be reasonably estimated.
The FASB concluded that if a company sells itsproduct but gives the buyer the right to return the product, revenue from thesales transaction shall be recognized at the time of sale only if all of sixconditions have been met. Which of the following is not one of these sixconditions?
d.The buyer is obligated to pay theseller upon resale of the product.
In selecting an accounting method for a newlycontracted long-term construction project, the principal factor to beconsidered should be
b.the degree to which a reliableestimate of the costs to complete and extent of progress toward completion ispracticable
The percentage-of-completion method must be usedwhen certain conditions exist. Which of the following is not one of thosenecessary conditions?
a.Estimates of progress towardcompletion, revenues, and costs are reasonably dependable.
When work to be done and costs to be incurred ona long-term contract can be estimated dependably, which of the followingmethods of revenue recognition is preferable?
How should the balances of progress billings andconstruction in process be shown at reporting dates prior to the completion ofa long-term contract?
c.Net, as a current asset if debitbalance, and current liability if credit balance.
In accounting for a long-term construction-typecontract using the percentage-of-completion method, the gross profit recognizedduring the first year would be the estimated total gross profit from thecontract, multiplied by the percentage of the costs incurred during the year tothe
b.total estimated cost
How should earned but unbilled revenues at thebalance sheet date on a long-term construction contract be disclosed if thepercentage-of-completion method of revenue recognition is used?
a.As construction in process in thecurrent asset section of the balance sheet.
The principal disadvantage of using thepercentage-of-completion method of recognizing revenue from long-term contractsis that it
b.gives results based upon estimateswhich may be subject to considerable uncertainty.
One of the more popular input measures used todetermine the progress toward completion in the percentage-of-completion methodis
d. cost-to-cost basis
The principal advantage of thecompleted-contract method is that
a.reported revenue is based on finalresults rather than estimates of unperformed work.
Under the completed-contract method
c.revenue, cost, and gross profit arerecognized at the time the contract is completed.
Cost estimates on a long-term contract may indicatethat a loss will result on completion of the entire contract. In this case, theentire expected loss should be
a.recognized in the current period,regardless of whether the percentage-of-completion or completed-contract methodis employed.
Cost estimates at the end of the second yearindicate a loss will result on completion of the entire contract. Which of thefollowing statements is correct?
c.Under the completed-contractmethod, when the billings exceed the accumulated costs, the amount of theestimated loss is reported as a current liability.
The criteria for recognition of revenue at thecompletion of production of precious metals and farm products include
d.all of these
In certain cases, revenue is recognized at the completionof production even though no sale has been made. Which of the followingstatements is not true?
a. Examples involve precious metals or farm equipment.
.For which ofthe following products is it appropriate to recognize revenue at the completionof production even though no sale has been made?
When there is a significant increase in theestimated total contract costs but the increase does not eliminate all profiton the contract, which of the following is correct?
b.Under the percentage-of-completionmethod only, the estimated cost increase requires a current period adjustmentof excess gross profit recognized on the project in prior periods.
Deferred gross profit on installment sales isgenerally treated as a(n)
c.unearned revenue and classified as a current liability
The installment-sales method of recognizingprofit for accounting purposes is acceptable if
c.collection of the sales price isnot reasonably assured.
The method most commonly used to report defaultsand repossessions is a.provide nobasis for the repossessed asset thereby recognizing a loss.
b.record the repossessed merchandiseat fair value, recording a gain or loss if appropriate.
Under the installment-sales method,
b.gross profit is deferredproportionate to cash uncollected from sale of the product, but total revenuesand costs are recognized at the point of sale.
The realization of income on installment salestransactions involves
c.deferring gross profit whilerecognizing operating or financial expenses in the period incurred.
A manufacturer of large equipment sells on aninstallment basis to customers with questionable credit ratings. Which of thefollowing methods of revenue recognition is least likely to overstate theamount of gross profit reported?
d.The cost–recovery method
A seller is properly using the cost-recoverymethod for a sale. Interest will be earned on the future payments. Which of thefollowing statements is not correct?
b.Interest revenue may be recognizedbefore all costs have been recovered.
Under the cost-recovery method of revenuerecognition,
b. .income is recognized when the cashreceived from the sale of the product is greater than the cost of the product.
Winser, Inc. is engaged in extensive explorationfor water in Utah. If, upon discovery of water, Winser does not recognize anyrevenue from water sales until the sales exceed the costs of exploration, thebasis of revenue recognition being employed is the
d.cost recovery basis.
The deposit method of revenue recognition is usedwhen
b.cash is received before the salestransaction is complete
The cost-recovery method
d.recognizes total revenue and totalcost of goods sold in the period of sale.
Types of franchising arrangements include all of thefollowing except
in consignment sales, the consignee
d.prepares an “account report” forthe consignor which shows sales, expenses, and cash receipts.
.Some of theinitial franchise fee may be allocated to
d.All of these may reduce the amountof the initial franchise fee that is recognized as revenue.
Continuing franchise fees should be recorded bythe franchisor
a.as revenue when earned andreceivable from the franchisee.
Occasionally a franchise agreement grants thefranchisee the right to make future bargain purchases of equipment or supplies.When recording the initial franchise fee, the franchisor should
b.record a portion of the initialfranchise fee as unearned revenue which will increase the selling price whenthe franchisee subsequently makes the bargain purchases.
A franchise agreement grants the franchisor anoption to purchase the franchisee's business. It is probable that the optionwill be exercised. When recording the initial franchise fee, the franchisorshould
a.record the entire initial franchisefee as a deferred credit which will reduce the franchisor's investment in thepurchased outlet when the option is exercised.
Revenue is recognized by the consignor when the
d.consignor receives an accountsales from the consignee.
At December 31, 2012, Seasons estimates that itis 30% complete with the construction, based on costs incurred. What is thetotal amount of Revenue from Long-Term Contracts recognized for 2012 and whatis the balance in the Accounts Receivable account assuming Cannon Cafe has notyet made its last quarterly payment?
At December 31, 2013, Seasons Constructionestimates that it is 75% complete with the building; however, the estimate oftotal costs to be incurred has risen to $10,800,000 due to unanticipated priceincreases. What is the total amount of Construction Expenses that Seasons willrecognize for the year ended December 31, 2013?
Seasons Construction completes the remaining 25%of the building construction on December 31, 2014, as scheduled. At that timethe total costs of construction are $11,250,000. What is the total amount ofRevenue from Long-Term Contracts and Construction Expenses that Seasons willrecognize for the year ended December 31, 2014?
For the year ended December 31, 2013, Cooperwould recognize gross profit on the building of:
At December 31, 2013Cooper would report Construction in Process in the amount of:
Hayes uses the percentage-of-completion methodas the basis for income recognition. For the years ended December 31, 2012, and2013, respectively, Hayes should report gross profit of
c.$600,000 and $300,000.
Monroe Construction Company uses thepercentage-of-completion method of accounting. In 2013, Monroe began work on acontract it had received which provided for a contract price of $20,000,000.Other details follow:
What should be the gross profit recognized in2013?
In 2013, Fargo Corporation began constructionwork under a three-year contract. The contract price is $3,600,000. Fargo usesthe percentage-of-completion method for financial accounting purposes. Theincome to be recognized each year is based on the proportion of costs incurredto total estimated costs for completing the contract.
How much cash collected in 2013?
What was the initial estimated total income beforetax on this contract?
Adler Construction Co. uses thepercentage-of-completion method. In 2012, Adler began work on a contract for$5,500,000 and it was completed in 2013. Data on the costs are: For the years 2012 and 2013, Adler shouldrecognize gross profit of
Gomez, Inc. began work in 2012 on contract#3814, which provided for a contract price of $9,600,000. Other details follow: Assume that Gomez uses thepercentage-of-completion method of accounting. The portion of the total grossprofit to be recognized as income in 2012 is
Assume that Gomez uses the completed-contractmethod of accounting. The portion of the total gross profit to be recognized asincome in 2013 is
Kiner, Inc. began work in 2012 on a contract for$12,600,000. Other data are as follows: 2012 2013 Costs incurred to date$5,400,000$8,400,000 Estimated costs to complete3,600,000— Billings to date4,200,00012,600,000 Collections to date3,000,00010,800,000 If Kiner uses the percentage-of-completion method,the gross profit to be recognized in 2012 is
If Kiner uses the completed-contract method, thegross profit to be recognized in 2013 is
Horner Construction Co. uses thepercentage-of-completion method. In 2012, Horner began work on a contract for$11,000,000; it was completed in 2013. The following cost data pertain to thiscontract:
The amount of gross profit to be recognized onthe income statement for the year ended December 31, 2013 is
If the completed-contract method of accountingwas used, the amount of gross profit to be recognized for years 2012 and 2013 wouldbe
Remington Construction Company uses thepercentage-of-completion method. During 2012, the company entered into afixed-price contract to construct a building for Sherman Company for$18,000,000. The following details pertain to the contract::The amount of construction costs incurred during2013 was
At December 31, 2013, Eilert would reportConstruction in Process in the amount of
Hiser Builders, Inc. is using thecompleted-contract method for a $8,400,000 contract that will take two years tocomplete. Data at December 31, 2013, the end of the first year, are as follows:
The gross profit or loss that should berecognized for 2013 is
b.a $360,000 loss.
Gorman Construction Co. began operations in2013. Construction activity for 2013 is shown below. Gorman uses thecompleted-contract method.
Which of the following should be shown on theincome statement for 2013 related to Contract 1?
c.Gross profit, $1,050,000
Which of the following should be shown on thebalance sheet at December 31, 2013 related to Contract 2?
c.Current liability, $680,000
Which of the following should be shown on thebalance sheet at December 31, 2013 related to Contract 3?
Oliver Co. uses the installment-sales method.When an account had a balance of $11,200, no further collections could be madeand the dining room set was repossessed. At that time, it was estimated thatthe dining room set could be sold for $3,200 as repossessed, or for $4,000 ifthe company spent $400 reconditioning it. The gross profit rate on this salewas 70%. The gain or loss on repossession was a
Spicer Corporation has a normal gross profit oninstallment sales of 30%. A 2011 sale resulted in a default early in 2013. Atthe date of default, the balance of the installment receivable was $40,000, andthe repossessed merchandise had a fair value of $22,500. Assuming therepossessed merchandise is to be recorded at fair value, the gain or loss onrepossession should be
b.a $5,500 loss.
Fryman Furniture uses the installment-salesmethod. No further collections could be made on an account with a balance of$36,000. It was estimated that the repossessed furniture could be sold as isfor $10,800, or for $12,600 if $600 were spent reconditioning it. The gross profitrate on the original sale was 40%. The loss on repossession was
Melton Company sold some machinery to AddisonCompany on January 1, 2012. The cash selling price would have been $758,160.Addison entered into an installment sales contract which required annualpayments of $200,000, including interest at 10%, over five years. The firstpayment was due on December 31, 2012. What amount of interest income should beincluded in Melton's 2013 income statement?
Carperter Company has used the installmentmethod of accounting since it began operations at the beginning of 2013. Thefollowing information pertains to its operations for 2013:
The amount to be reported on the December 31,2013 balance sheet as Deferred Gross Profit should be
Daily, Inc. appropriately used the installmentmethod of accounting to recognize income in its financial statement. Somepertinent data relating to this method of accounting include:
What amount to be realized gross profit shouldbe reported on Daily’s income statement for 2013?
Sutton Company sells plasma-screen televisionson an installment basis and appropriately uses the installment-sales method ofaccounting. A customer with an account balance of $2,800 refuses to make anymore payments and the merchandise is repossessed. The gross profit rate on theoriginal sale is 40%. Sutton estimates that the television can be sold as isfor $875, or for $1,050 if $70 is spent to refurbish it. The loss onrepossession is
d. $ 700
During 2012, Vaughn Corporation sold merchandisecosting $3,000,000 on an installment basis for $4,000,000. The cash receiptsrelated to these sales were collected as follows: 2012, $1,600,000; 2013,$1,400,000; 2014, $1,000,000.
What is the rate of gross profit on theinstallment sales made by Vaughn Corporation during 2012?
.If expenses,other than the cost of the merchandise sold, related to the 2012 installmentsales amounted to $180,000, by what amount would Vaughn’s net income for 2012increase as a result of installment sales?
What amount would be shown in the December 31,2013 financial statement for realized gross profit on 2012 installment sales,and deferred gross profit on 2012 installment sales, respectively?
d.$350,000 and $250,000
During 2012, Martin Corporation sold merchandisecosting $2,800,000 on an installment basis for $4,000,000. The cash receiptsrelated to these sales were collected as follows: 2012, $1,600,000; 2013,$1,400,000; 2014, $1,000,000.
What is the rate of gross profit on theinstallment sales made by Martin Corporation during 2012?
If expenses, other than the cost of themerchandise sold, related to the 2012 installment sales amounted to $160,000,by what amount would Martin’s net income for 2012 increase as a result ofinstallment sales?
What amount would be shown in the December 31,2013 financial statements for realized gross profit on 2012 installment sales,and deferred gross profit on 2012 installment sales, respectively?
a.$420,000 and $300,000
Assuming that Coaster uses the installmentmethod of accounting for its installment sales, what amount of realized grossprofit will Coaster report in its income statement for the year ended December31, 2012?
Assuming that Coaster uses the cost-recoverymethod of accounting for its installment sales, what amount of realized gross profitwill Coaster report in its income statement for the year ended December 31,2013?
On January 1, 2013, Shaw Co. sold land that cost$420,000 for $560,000, receiving a note bearing interest at 10%. The note willbe paid in three annual installments of $225,190 starting on December 31, 2013.Because collection of the note is very uncertain, Shaw will use thecost-recovery method. How much revenue from this sale should Shaw recognize in2013?
On May 1, 2013, TV Inc. consigned 80 TVs to Ed'sTV. The TVs cost $360. Freight on the shipment paid by Ed’s TV was $800. OnJuly 10, TV Inc. received an account sales and $17,200 from Ed's TV. Thirty TVshad been sold and the following expenses were deducted:
The total sales price of the TVs sold by Ed's TVwas
The inventory of TVs will be reported on whosebalance sheet and at what amount? BalanceSheet ofAmount of Inventory
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