Question 1

Billings in excess of costs and profits are carried on the balance sheet as a(n) ________.

Accepted Answer

A)  asset 
B)  liability 
C)  equity 
D)  revenue 
A)  asset 
B)  liability 
C)  equity 
D)  revenue B

Question 2

List the four criteria specified by the Securities and Exchange Commission for determining whether revenue should be reported on the income statement.

Accepted Answer

1. There is persuasive evidence that an arrangement exists.
2. Delivery has occurred or services have been rendered.
3. The seller's price to the buyer is fixed or determinable.
4. Collectability is reasonably assured.

Question 3

What is a consignment sale?

Accepted Answer

A consignment sale is an arrangement where an owner of goods (consignor) delivers those goods to a third party (consignee), who sells the goods to a customer. A consignment sale is an example of a principal-agent arrangement. The agent records only the revenue that he or she receives in commissions, while the principal recognizes the gross revenue from the sale and records the commission paid to the consignee as a selling expense.

Question 4

A seller recognizes the right to return sales as a(n) ________.

Accepted Answer

A)  liability 
B)  asset 
C)  revenue 
D)  expense 
A)  liability 
B)  asset 
C)  revenue 
D)  expense

Question 5

The percentage of-completion method accounting should not be used if ________.

Accepted Answer

A)  completion rates are determinable 
B)  completion time on projects exceeds four years 
C)  profits are low 
D)  it is not possible to make dependable estimates of progress 
A)  completion rates are determinable 
B)  completion time on projects exceeds four years 
C)  profits are low 
D)  it is not possible to make dependable estimates of progress

Question 6

According to the FASB, when a seller has collected cash, the earnings process is complete.

Accepted Answer

A) True 
 B)False

Question 7

GAAP and IFRS both allow a company to report service revenue using the percentage of completion method.

Accepted Answer

A) True 
 B)False

Question 8

Able sells a piece of equipment to Smythe for $2,300 on August 1. The equipment cost $1,300. The equipment is picked up by Smythe on August 10. How is this transaction accounted for under a perpetual system of inventory?

Accepted Answer

A)  $\begin{array}{lrr}
  \text {Sales  } &1,300\
 \text { Accounts Receivable } &&1,300\
\
 \text {  Cost of Goods Sold } &1,300\
 \text {  Inventory} &&1,300\
\end{array}$ 
B)  $\begin{array}{l}
\text { Accounts Receivable } &2,300\
\text { Sales }&&2,300
\end{array}  $
$\begin{array}{lrr}
  \text {  Cost of Goods Sold} &1,300\
 \text { Inventory } &&1,300\
\end{array}$ 
C)  $\begin{array} { l } 
\text { Sales } &2,300\
\quad \text { Accounts Receivable }&&2,300
\end{array}$
$\begin{array}{lrr}
  \text {  Cost of Goods Sold} &2,300\
 \text {  Inventory } &&2,300\
\end{array}$ 
D)  $$\begin{array} { lll} 
\text { Accounts Receivable }&2,300 \
\text { Sales }&&2,300
\end{array}$$ 
A)  $\begin{array}{lrr}
  \text {Sales  } &1,300\
 \text { Accounts Receivable } &&1,300\
\
 \text {  Cost of Goods Sold } &1,300\
 \text {  Inventory} &&1,300\
\end{array}$ 
B)  $\begin{array}{l}
\text { Accounts Receivable } &2,300\
\text { Sales }&&2,300
\end{array}  $
$\begin{array}{lrr}
  \text {  Cost of Goods Sold} &1,300\
 \text { Inventory } &&1,300\
\end{array}$ 
C)  $\begin{array} { l } 
\text { Sales } &2,300\
\quad \text { Accounts Receivable }&&2,300
\end{array}$
$\begin{array}{lrr}
  \text {  Cost of Goods Sold} &2,300\
 \text {  Inventory } &&2,300\
\end{array}$ 
D)  $$\begin{array} { lll} 
\text { Accounts Receivable }&2,300 \
\text { Sales }&&2,300
\end{array}$$

Question 9

Under IFRS, if a firm cannot reliably estimate the outcome of a construction contract, it uses the zero-gross profit approach.

Accepted Answer

A) True 
 B)False

Question 10

On November 15, 2016, LaGrow Developers sold a parcel of land for $4,000,000. They had originally paid $3,000,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the cost-recovery method, in its December 31, 2017 balance sheet, the company would report ________.

Accepted Answer

A)  $500,000 net installment accounts receivable 
B)  $3,000,000 net installment accounts receivable 
C)  $1,500,000 net installment accounts receivable 
D)  $2,000,000 net installment accounts receivable 
A)  $500,000 net installment accounts receivable 
B)  $3,000,000 net installment accounts receivable 
C)  $1,500,000 net installment accounts receivable 
D)  $2,000,000 net installment accounts receivable

Question 11

Tullis Construction enters into a long-term fixed price contract to build an office tower for $14,000,000. In the first year of the contract. Tullis incurs $2,000,000 of cost and the engineers determined that the remaining costs to complete are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,200,000 by the end of the end of the year. Refer to Tullis Corporation. How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the completed-contract method?

Accepted Answer

A)  $0 
B)  $800,000 
C)  $4,000,000 
D)  $1,000,000 
A)  $0 
B)  $800,000 
C)  $4,000,000 
D)  $1,000,000

Question 12

Another name for channel stuffing is ________.

Accepted Answer

A)  trade stuffing 
B)  trade loading 
C)  channel loading 
D)  trade disclosure 
A)  trade stuffing 
B)  trade loading 
C)  channel loading 
D)  trade disclosure

Question 13

Losses on unprofitable contracts are recognized ratably over the life of the contract.

Accepted Answer

A) True 
 B)False

Question 14

Craft Construction
Craft Construction entered into a contract to construct a generator station for a utility customer. The project was started in 2016 and completed in 2017. Cost and other information is presented below.
 $\begin{array}{lrc}
&2016&2017\
\text { Costs incurred during the year } & \$ 225,000 & \$ 550,000 \
\text { Estimated costs to complete } & 450,000 & -0 \text { - } \
\text { Billings during the year } & 200,000 & 700,000 \
\text { Cash collections during the year } & 150,000 & 750,000
\end{array}$

-Refer to Craft Construction. Assume Craft uses the percentage-of-completion method for revenue recognition. Compute the amount of gross profit for 2016 and 2017.

Accepted Answer

None

Question 15

Revenue received in advance is recorded as an asset on the provider's balance sheet.

Accepted Answer

A) True 
 B)False

Question 16

On November 15, 2016, LaGrow Developers sold a parcel of land for $6,000,000. They had originally paid $3,000,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the installment sales method, the company would recognize gross profit in 2016 of ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.)

Accepted Answer

A)  $0 
B)  $500,000 
C)  $3,000,000 
D)  $1,000,000 
A)  $0 
B)  $500,000 
C)  $3,000,000 
D)  $1,000,000

Question 17

On November 15, 2016, LaGrow Developers sold a parcel of land for $5,000,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $1,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the cost-recovery method, the company would recognize gross profit in 2017 of ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.)

Accepted Answer

A)  $0 
B)  $1,000,000 
C)  $280,000 
D)  $1,400,000 
A)  $0 
B)  $1,000,000 
C)  $280,000 
D)  $1,400,000

Question 18

Fare Jewelry Company is holding goods on consignment from Tomko with a selling price of $1,500,000. Fare is promised a commission of 25% for goods sold. By the end of 2017 Fare has sold $440,000 of goods. Refer to Fare Jewelry. How much revenue should Fare recognize for 2017 on this transaction?

Accepted Answer

A)  $0 
B)  $110,000 
C)  $375,000 
D)  $440,000 
A)  $0 
B)  $110,000 
C)  $375,000 
D)  $440,000

Question 19

Thompson Industries
Thompson Industries is a real estate developer that sells plots of land. On January 1 of the current year, the company sold a plot of land for $1,200,000. The land cost Thompson $780,000. Terms of the sale required a down payment of $300,000 and installments of $300,000 on January 1 of the next three years.
-Refer to Thompson Industries. Assume that Thompson Industries uses the installment sales approach. Prepare all journal entries related to the sale of land, the collection of cash, and the recognition of gross profit.

Accepted Answer

\[\begin{array}{l}
\text { Year } 1\
\b

Question 20

When merchandise sold under the installment sale method is repossessed, a gain may be recognized.

Accepted Answer

A) True 
 B)False

Billings in excess of costs and profits are carried on the balance sheet as a(n) ________.

List the four criteria specified by the Securities and Exchange Commission for determining whether revenue should be reported on the income statement.

What is a consignment sale?

A seller recognizes the right to return sales as a(n) ________.

The percentage of-completion method accounting should not be used if ________.

According to the FASB, when a seller has collected cash, the earnings process is complete.

GAAP and IFRS both allow a company to report service revenue using the percentage of completion method.

Able sells a piece of equipment to Smythe for $2,300 on August 1. The equipment cost $1,300. The equipment is picked up by Smythe on August 10. How is this transaction accounted for under a perpetual system of inventory?

Under IFRS, if a firm cannot reliably estimate the outcome of a construction contract, it uses the zero-gross profit approach.

Another name for channel stuffing is ________.

Losses on unprofitable contracts are recognized ratably over the life of the contract.

Revenue received in advance is recorded as an asset on the provider's balance sheet.

Fare Jewelry Company is holding goods on consignment from Tomko with a selling price of $1,500,000. Fare is promised a commission of 25% for goods sold. By the end of 2017 Fare has sold $440,000 of goods. Refer to Fare Jewelry. How much revenue should Fare recognize for 2017 on this transaction?

When merchandise sold under the installment sale method is repossessed, a gain may be recognized.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters

Exam 8: Extenssion: Ol Revenue Recognition Previous Standard

Billings in excess of costs and profits are carried on the balance sheet as a(n) ________.

List the four criteria specified by the Securities and Exchange Commission for determining whether revenue should be reported on the income statement.

What is a consignment sale?

A seller recognizes the right to return sales as a(n) ________.

The percentage of-completion method accounting should not be used if ________.

According to the FASB, when a seller has collected cash, the earnings process is complete.

GAAP and IFRS both allow a company to report service revenue using the percentage of completion method.

Able sells a piece of equipment to Smythe for $2,300 on August 1. The equipment cost $1,300. The equipment is picked up by Smythe on August 10. How is this transaction accounted for under a perpetual system of inventory?

Under IFRS, if a firm cannot reliably estimate the outcome of a construction contract, it uses the zero-gross profit approach.

Another name for channel stuffing is ________.

Losses on unprofitable contracts are recognized ratably over the life of the contract.

Revenue received in advance is recorded as an asset on the provider's balance sheet.

Fare Jewelry Company is holding goods on consignment from Tomko with a selling price of $1,500,000. Fare is promised a commission of 25% for goods sold. By the end of 2017 Fare has sold $440,000 of goods. Refer to Fare Jewelry. How much revenue should Fare recognize for 2017 on this transaction?

When merchandise sold under the installment sale method is repossessed, a gain may be recognized.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters