Ford Appliance Center records revenue on the installment sales method. The following information is available for the first two years of business. $\begin{array}{lrr}&\text { Year } 1&\text { Year } 2\\ \text { Sales } & \$ \overline{200,000} & \$ 2 \overline{50,000} \\ \text { Cost of goods sold } & 140,000 & 162,500 \\ \text { Cash collections: } & & \\ \quad \text { Year 1 sales } & 100,000 & 80,000 \\ \quad \text { Year 2 sales } & & 130,000 \end{array}$ -Which one of the following entries properly records the deferral of gross profit on Year 2 installment sales not yet collected?

A) DR Cost of installment goods sold $ \quad 62,500 $ DR Deferred gross profit-Year $ 2 \quad 87,500 $ CR Installment sales revenue $ \quad 150,000$ B) $\begin{array}{lr} \text { DR Cost of installment goods sold } & 302,500 \\ \text { DR Deferred gross profit-Year 1 } & 60,000 \\ \text { DR Deferred gross profit-Year 2 } & 87,500\\\text { CR Installment sales revenue }&450,000 \end{array}$ C) DR Deferred gross profit-Year 2$\quad$$\quad$42,000 CR Deferred gross profit-Adjustment to accounts receivable-Year 2$\quad$$\quad$$\quad$$\quad$42,000 D) DR Deferred gross profit_-Adjustment to accounts Receivable-Year 2$\quad$$\quad$42,000 CR Deferred gross profit-Year 2$\quad$$\quad$42,000 A) DR Cost of installment goods sold $ \quad 62,500 $ DR Deferred gross profit-Year $ 2 \quad 87,500 $ CR Installment sales revenue $ \quad 150,000$ B) $\begin{array}{lr} \text { DR Cost of installment goods sold } & 302,500 \\ \text { DR Deferred gross profit-Year 1 } & 60,000 \\ \text { DR Deferred gross profit-Year 2 } & 87,500\\\text { CR Installment sales revenue }&450,000 \end{array}$ C) DR Deferred gross profit-Year 2$\quad$$\quad$42,000 CR Deferred gross profit-Adjustment to accounts receivable-Year 2$\quad$$\quad$$\quad$$\quad$42,000 D) DR Deferred gross profit_-Adjustment to accounts Receivable-Year 2$\quad$$\quad$42,000 CR Deferred gross profit-Year 2$\quad$$\quad$42,000 C

A) can be used to manipulate earnings. B) is mandated under the SEC rules for publicly held companies. C) is a new theory of management. D) is rarely useD. A) can be used to manipulate earnings. B) is mandated under the SEC rules for publicly held companies. C) is a new theory of management. D) is rarely useD.

Ford Appliance Center records revenue on the installment sales method. The following information is available for the first two years of business. $\begin{array}{lrr}&\text { Year } 1&\text { Year } 2\\ \text { Sales } & \$ \overline{200,000} & \$ 2 \overline{50,000} \\ \text { Cost of goods sold } & 140,000 & 162,500 \\ \text { Cash collections: } & & \\ \quad \text { Year 1 sales } & 100,000 & 80,000 \\ \quad \text { Year 2 sales } & & 130,000 \end{array}$ -How much realized gross profit on installment sales will Ford recognize in Year 1?

A) $20,000 B) $30,000 C) $60,000 D) $100,000 A) $20,000 B) $30,000 C) $60,000 D) $100,000

Exam 3: Additional Topics in Income Determination

Ford Appliance Center records revenue on the installment sales method. The following information is available for the first two years of business. Year 1 Year 2 Sales \ \ 2 Cost of goods sold 140,000 162,500 Cash collections: Year 1 sales 100,000 80,000 Year 2 sales 130,000 -Which one of the following entries properly records the deferral of gross profit on Year 2 installment sales not yet collected?

Free

(Multiple Choice)

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Question 1

Correct Answer:

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When the outcome of a service contract can be reliably estimated,IFRS rules allow firms to recognize contract revenue and expenses using the percentage-of-completion method.

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(True/False)

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Question 2

Correct Answer:

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True

In both farming and mining there is general agreement that the critical event in adding value usually comes before the actual sale.

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(True/False)

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Question 3

Correct Answer:

Verified

True

Under the installment sales method,interest charged by the sellers is

(Multiple Choice)

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Question 4

IFRS and U.S.GAAP rules for revenue recognition and measurement largely overlap.

(True/False)

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Question 5

The percentage of completion ratio is determined by dividing costs incurred to date by the contract price.

(True/False)

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Question 6

The key accounting issue related to bundled (multiple-element)sales transactions is the amount of revenue to be recognized over the contract period.

(True/False)

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Question 7

The correction of an error causes previous year financial statements to be retroactively restated for comparative purposes.

(True/False)

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Question 8

The installment sales method recognizes revenue and income proportionately as cash is collected.

(True/False)

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Question 9

Initial franchise fees should be recorded as revenue by the franchisor

(Multiple Choice)

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Question 10

Even though well-organized markets for agricultural commodities exist,GAAP requires that farmers use only the completed-transaction method of revenue recognition.

(True/False)

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Question 11

Earnings management

(Multiple Choice)

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Question 12

Ford Appliance Center records revenue on the installment sales method. The following information is available for the first two years of business. Year 1 Year 2 Sales \ \ 2 Cost of goods sold 140,000 162,500 Cash collections: Year 1 sales 100,000 80,000 Year 2 sales 130,000 -How much realized gross profit on installment sales will Ford recognize in Year 1?

(Multiple Choice)

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Question 13

In the case of goods sold on layaway,

(Multiple Choice)

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Question 14

Andy's Skateboards,Inc.reported a retained earnings balance of $300,000 at December 31,2013.In June 2014,Andy's internal audit staff discovered two errors that were made in preparing the 2013 financial statements that are considered material: a.Merchandise costing $50,000 that was on consignment at various consignee locations was mistakenly omitted from the 2013 ending inventory. b.Equipment purchased in January 2,2013 for $150,000 was capitalized and depreciated using straight-line depreciation,a 10-year useful life,and $5,000 salvage value.The capitalized amount included $30,000 for repairs of the equipment which suffered major damage when it was struck by a forklift during installation. Required: a.What amount should Andy's Skateboards report as a prior period adjustment to beginning retained earnings at January 1,2014? (Ignore taxes) b.Prepare the journal entries that Andy's Skateboards would make in June 2014 to correct the errors made in 2013.Assume that depreciation for 2014 is made as a year-end adjusting entry.(Ignore taxes)

(Essay)

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Question 15

Stringent rules do not exist for determining when revenue has been earned and is realizable thus leaving some flexibility for management to "manage earnings" within the confines of generally accepted accounting principles.

(True/False)

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Question 16

A seller may recognize revenue when the production of the goods is complete if the buyer requests that the transaction be on a "bill and hold" basis and has a substantial business purpose for such a request.

(True/False)

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Question 17

When it's highly uncertain whether customers will make the cash payments called for in a contract,then the sale itself is not the critical event in creating value.

(True/False)

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Question 18

Research indicates that fewer firms report slightly negative earnings than slightly positive earnings,suggesting that managers of firms that would otherwise report a slight loss are finding ways to prop up earnings.

(True/False)

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Question 19

Producers of commodities have well-organized markets for their products,thus an established price is available for as many units as they choose to sell.

(True/False)

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Question 20

Showing 1 - 20 of 128

When the outcome of a service contract can be reliably estimated,IFRS rules allow firms to recognize contract revenue and expenses using the percentage-of-completion method.

In both farming and mining there is general agreement that the critical event in adding value usually comes before the actual sale.

Under the installment sales method,interest charged by the sellers is

IFRS and U.S.GAAP rules for revenue recognition and measurement largely overlap.

The percentage of completion ratio is determined by dividing costs incurred to date by the contract price.

The key accounting issue related to bundled (multiple-element)sales transactions is the amount of revenue to be recognized over the contract period.

The correction of an error causes previous year financial statements to be retroactively restated for comparative purposes.

The installment sales method recognizes revenue and income proportionately as cash is collected.

Initial franchise fees should be recorded as revenue by the franchisor

Even though well-organized markets for agricultural commodities exist,GAAP requires that farmers use only the completed-transaction method of revenue recognition.

Earnings management

In the case of goods sold on layaway,

Stringent rules do not exist for determining when revenue has been earned and is realizable thus leaving some flexibility for management to "manage earnings" within the confines of generally accepted accounting principles.

A seller may recognize revenue when the production of the goods is complete if the buyer requests that the transaction be on a "bill and hold" basis and has a substantial business purpose for such a request.

When it's highly uncertain whether customers will make the cash payments called for in a contract,then the sale itself is not the critical event in creating value.

Research indicates that fewer firms report slightly negative earnings than slightly positive earnings,suggesting that managers of firms that would otherwise report a slight loss are finding ways to prop up earnings.

Producers of commodities have well-organized markets for their products,thus an established price is available for as many units as they choose to sell.

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Inventories

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

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