Exam 6: Reporting and Analyzing Revenues and Receivables

Income statement effects of uncollectibles occur at the point of estimation, not when an account is written-off.

Andy's accounts receivable financial data (in millions) for three years are listed below: A. Calculate the net realizable value of receivables that will be reported on Andy's balance sheet for each year. B. Determine the accounts receivable turnover for 2016 and 2015. C. Compare the accounts receivable turnovers for 2016 and 2015 and comment on the differences.

IFRS requires companies to use the completed contract method for long-term contracts.

Define accounts receivable turnover and the average collection period. What insights do these ratios offer an analysis of a company's accounts receivable?

Aircraft Carrier Company reports the following in its 2016 10-K filing (amounts in millions): Identify nonrecurring items on Aircraft Carrier's income statement.

One motive of earnings management is a desire to mislead some financial statement users about a company's financial performance in order to gain economic advantage.

Twelve years ago, Kenyon Construction began operating out of a new building that cost $84 million to construct. At that time, Kenyon's management estimated the building had a useful life of 30 years. Today (or twelve years later), management revised its estimate of the useful life of the building to 36 years, which will reduce annual depreciation expense to $2,100,000. A. How would the change in the estimated useful life of the building impact Kenyon's income statement? B. What possible incentives might management have to overestimate or underestimate the useful life of a long-term asset?

Which of the following items can be considered as a persistent income statement item for analysis purposes?

The balance in Allowance for Uncollectible Accounts represents the amount a company thinks it will not collect from a customer.

GAAP requires that companies recognize revenue subsequent to customer purchases by using the percentage-of-completion method.

A $3,600,000 contract is executed to build a luxury boat. Total estimated costs to complete the project are $2,340,000 million. The construction company incurred the following costs during the project: $936,000 in 2014; $234,000 in 2015; and $1,170,000 in 2016. Compute revenues, expenses, and income for each year 2014 through 2016 using the percentage-of-completion method.

Excess Construction Corp. has a $16 million contract to construct a building. The company estimates $10.4 million in costs to construct the building and an expected gross profit of $5.6 million. During the current year, the company incurred $3,120,000 of costs on the contract. Under the percentage-of-completion method, how much will Excess Construction Corp. report as revenue in the current year?