Question 1

The problem of allocating expenses over time was first considered by accountants in the 1960s.

Accepted Answer

A) True 
 B)False

Question 2

Most companies compute depletion on natural resources (such as oil wells) using the units of production method.

Accepted Answer

A) True 
 B)False

Question 3

If a company owns a machine for its entire expected useful life, it will have the same total depreciation expense over the asset's life if it uses the double declining balance method and if it uses the straight-line method.

Accepted Answer

A) True 
 B)False

Question 4

The straight-line method of allocating asset cost over time is always the theoretically best method.

Accepted Answer

A) True 
 B)False

Question 5

In which of the following cases, under GAAP, will a company usually not be able to recognize revenues at the time of shipment?

Accepted Answer

A)  The customer has the right to return products. In the past, product returns have ranged from 5% to 7% of sales. 
B)  The customer has bought on credit. In the past, bad debts have ranged from 3% to 5% of sales. 
C)  The customer has bought on credit and has the right to return the goods for up to one year. This is a new market for the company. 
D)  The customer has bought on credit, and has one year to pay. In the past, 93% of customers have in fact paid. 
A)  The customer has the right to return products. In the past, product returns have ranged from 5% to 7% of sales. 
B)  The customer has bought on credit. In the past, bad debts have ranged from 3% to 5% of sales. 
C)  The customer has bought on credit and has the right to return the goods for up to one year. This is a new market for the company. 
D)  The customer has bought on credit, and has one year to pay. In the past, 93% of customers have in fact paid.

Question 6

If a company owns a truck for five years, it will have higher depreciation expense every year it owns the truck if it uses the double declining balance method than if it uses the straight-line method.

Accepted Answer

A) True 
 B)False

Question 7

The formula for computing annual depreciation expense using the double declining balance method includes the cost of the asset, its salvage value, and the expected useful life of the asset.

Accepted Answer

A) True 
 B)False

Question 8

When a company sells a product, and receives its payments in installments over time, it should never recognize all the revenue at the time of shipment of the product.

Accepted Answer

A) True 
 B)False

Question 9

Companies usually allocate prepaid expenses, such as prepaid insurance, to expense in equal amounts each time period.

Accepted Answer

A) True 
 B)False

Question 10

The Jones Company makes sales on an installment basis. In 2016, it sells items with a cost of $20 million. The total sales price is $25 million. Ignoring interest payments, customers pay in five equal installments, of $5 million each, with one payment in each of 2016, 2017, 2018, 2019, and 2020. If the company uses the installment method of accounting for this sale, the gross profit it will recognize in 2016 is

Accepted Answer

A)  Zero 
B)  $1 million 
C)  $5 million 
D)  $25 million 
A)  Zero 
B)  $1 million 
C)  $5 million 
D)  $25 million

Question 11

One of the criteria under GAAP for recognizing revenue is that an earnings process must be substantially complete.

Accepted Answer

A) True 
 B)False

Question 12

Under GAAP, revenue can never be recognized before a company receives cash from the customer.

Accepted Answer

A) True 
 B)False

Question 13

Under GAAP rules, a company would not be able to recognize revenue at the time it delivered a product to the customer if

Accepted Answer

A)  It was unable to estimate the likelihood of the product being returned. 
B)  It had not yet been paid, but felt it could estimate the likelihood of bad debts. 
C)  It had an obligation to fix the product if it broke, and felt it could estimate the likelihood of having to pay warranty costs. 
D)  It was being paid in installments. 
A)  It was unable to estimate the likelihood of the product being returned. 
B)  It had not yet been paid, but felt it could estimate the likelihood of bad debts. 
C)  It had an obligation to fix the product if it broke, and felt it could estimate the likelihood of having to pay warranty costs. 
D)  It was being paid in installments.

Question 14

Most companies compute depletion on natural resources (such as oil wells) using the double declining balance method.

Accepted Answer

A) True 
 B)False

Question 15

In general, the cost recovery method of accounting for a single installment sale is less conservative than the installment method.

Accepted Answer

A) True 
 B)False

Question 16

Under GAAP, a company may freely choose whether to use the percentage of completion method, or the completed contract method, of accounting for long-term contracts. Neither method is preferred by the FASB.

Accepted Answer

A) True 
 B)False

Question 17

Under GAAP, tax expense is always computed on a cash basis.

Accepted Answer

A) True 
 B)False

Question 18

When a company sells a product, and receives its payments in installments over time, it should recognize the revenue at the time of sale unless there are major uncertainties regarding the amount of money it will ultimately collect.

Accepted Answer

A) True 
 B)False

Question 19

The basic revenue recognition criteria, under GAAP, are that revenue should not be recognized until:

Accepted Answer

A)  Services have been delivered, and cash has been received 
B)  Services have been agreed upon, and a price has been agreed upon, even if the services have not yet been delivered 
C)  An earnings process has been completed, and the revenue is either realized or realizable 
D)  Cash has been received, and services have been agreed upon, even if not delivered 
A)  Services have been delivered, and cash has been received 
B)  Services have been agreed upon, and a price has been agreed upon, even if the services have not yet been delivered 
C)  An earnings process has been completed, and the revenue is either realized or realizable 
D)  Cash has been received, and services have been agreed upon, even if not delivered

Question 20

"Allocation" over time involves taking one total number and dividing that total into parts which we then associate with particular time periods.

Accepted Answer

A) True 
 B)False

The problem of allocating expenses over time was first considered by accountants in the 1960s.

Most companies compute depletion on natural resources (such as oil wells) using the units of production method.

If a company owns a machine for its entire expected useful life, it will have the same total depreciation expense over the asset's life if it uses the double declining balance method and if it uses the straight-line method.

The straight-line method of allocating asset cost over time is always the theoretically best method.

In which of the following cases, under GAAP, will a company usually not be able to recognize revenues at the time of shipment?

If a company owns a truck for five years, it will have higher depreciation expense every year it owns the truck if it uses the double declining balance method than if it uses the straight-line method.

The formula for computing annual depreciation expense using the double declining balance method includes the cost of the asset, its salvage value, and the expected useful life of the asset.

When a company sells a product, and receives its payments in installments over time, it should never recognize all the revenue at the time of shipment of the product.

Companies usually allocate prepaid expenses, such as prepaid insurance, to expense in equal amounts each time period.

One of the criteria under GAAP for recognizing revenue is that an earnings process must be substantially complete.

Under GAAP, revenue can never be recognized before a company receives cash from the customer.

Under GAAP rules, a company would not be able to recognize revenue at the time it delivered a product to the customer if

Most companies compute depletion on natural resources (such as oil wells) using the double declining balance method.

In general, the cost recovery method of accounting for a single installment sale is less conservative than the installment method.

Under GAAP, a company may freely choose whether to use the percentage of completion method, or the completed contract method, of accounting for long-term contracts. Neither method is preferred by the FASB.

Under GAAP, tax expense is always computed on a cash basis.

When a company sells a product, and receives its payments in installments over time, it should recognize the revenue at the time of sale unless there are major uncertainties regarding the amount of money it will ultimately collect.

The basic revenue recognition criteria, under GAAP, are that revenue should not be recognized until:

"Allocation" over time involves taking one total number and dividing that total into parts which we then associate with particular time periods.

How Accounting Works

Selecting Your Business Structure

Choosing Accounting Software

Managing Your Accounts

Accounting for Inventory

Doing Business Day to Day

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters

Exam 9: Setting up New Team Members

The problem of allocating expenses over time was first considered by accountants in the 1960s.

Most companies compute depletion on natural resources (such as oil wells) using the units of production method.

If a company owns a machine for its entire expected useful life, it will have the same total depreciation expense over the asset's life if it uses the double declining balance method and if it uses the straight-line method.

The straight-line method of allocating asset cost over time is always the theoretically best method.

In which of the following cases, under GAAP, will a company usually not be able to recognize revenues at the time of shipment?

If a company owns a truck for five years, it will have higher depreciation expense every year it owns the truck if it uses the double declining balance method than if it uses the straight-line method.

The formula for computing annual depreciation expense using the double declining balance method includes the cost of the asset, its salvage value, and the expected useful life of the asset.

When a company sells a product, and receives its payments in installments over time, it should never recognize all the revenue at the time of shipment of the product.

Companies usually allocate prepaid expenses, such as prepaid insurance, to expense in equal amounts each time period.

One of the criteria under GAAP for recognizing revenue is that an earnings process must be substantially complete.

Under GAAP, revenue can never be recognized before a company receives cash from the customer.

Under GAAP rules, a company would not be able to recognize revenue at the time it delivered a product to the customer if

Most companies compute depletion on natural resources (such as oil wells) using the double declining balance method.

In general, the cost recovery method of accounting for a single installment sale is less conservative than the installment method.

Under GAAP, a company may freely choose whether to use the percentage of completion method, or the completed contract method, of accounting for long-term contracts. Neither method is preferred by the FASB.

Under GAAP, tax expense is always computed on a cash basis.

When a company sells a product, and receives its payments in installments over time, it should recognize the revenue at the time of sale unless there are major uncertainties regarding the amount of money it will ultimately collect.

The basic revenue recognition criteria, under GAAP, are that revenue should not be recognized until:

"Allocation" over time involves taking one total number and dividing that total into parts which we then associate with particular time periods.

How Accounting Works

Selecting Your Business Structure

Choosing Accounting Software

Managing Your Accounts

Accounting for Inventory

Doing Business Day to Day

Tackling the General Ledger

Reconciling Bank and Credit Card Statements

Understanding Insurance

Other Benefits and Reimbursements

Payroll Taxes

Appendix

Filters