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 realized gross profit on installment sales of Year 1 in Year 2?

A) DR Deferred gross profit-Year 1$\quad$$\quad$60,000 DR Deferred gross profit-Year 2$\quad$$\quad$87,500 CR Realized gross profit on installment sales$\quad$$\quad$147,500 B) DR Deferred gross profit Adjustment to Accounts $\quad$$\quad$24,000 Receivable-Year 1 CR Recognized gross profit on installment sales-Year 1 $\quad$$\quad$24,000 C) DR Installment sales revenue$\quad$$\quad$69,500 CR Realized gross profit on installment sales$\quad$$\quad$69,500 D) DR Installment sales revenue$\quad$$\quad$87,500 CR Realized gross profit on installment sales$\quad$87,500 A) DR Deferred gross profit-Year 1$\quad$$\quad$60,000 DR Deferred gross profit-Year 2$\quad$$\quad$87,500 CR Realized gross profit on installment sales$\quad$$\quad$147,500 B) DR Deferred gross profit Adjustment to Accounts $\quad$$\quad$24,000 Receivable-Year 1 CR Recognized gross profit on installment sales-Year 1 $\quad$$\quad$24,000 C) DR Installment sales revenue$\quad$$\quad$69,500 CR Realized gross profit on installment sales$\quad$$\quad$69,500 D) DR Installment sales revenue$\quad$$\quad$87,500 CR Realized gross profit on installment sales$\quad$87,500

Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project estimated to cost $4,000,000 and the following information is available: $\begin{array}{llll}(\$ \text { in thousands) } & \text { Year 1 } & \text { Year 2 } & \text { Year 3 }\\ \text { Costs incurred } & \$ 1,000 & \$ 1,500 & \$ 1,250 \\ \text { Estimated completion costs } & \$ 3,000 & \$ 1,500 & \$ 10 \\ \text { Billings } & \$ 750 & \$ 1,750 & \$ 2,500 \\ \text { Cash collected } & \$ 500 & \$ 1,500 & \$ 3,000 \end{array}$ -Which one of the following entries would be made in Year 3 to record the completion and acceptance of the project using the completed-contract method of revenue recognition?

A) DR Inventory: Construction in progress$\quad$$5,000,000$ CR Billings on construction in progress$\quad$$5,000,000$ B) DR Billings on construction in progress $\quad 5,000,000$ CR Inventory: Construction in progress$\quad$$3,750,000$ CR Income on long-term construction contract$\quad$$1,250,000$ C) DR Inventory: Construction in progress $\quad 3,750,000$ DR Income on long-term construction contract $\quad 1,250,000$ CR Billings on construction in progress$\quad$$5,000,000$ D) DR Billings on construction in progress$\quad$$\quad$$1,250,000$ CR Inventory: Construction in progress$\quad$$\quad$$1,250,000$ A) DR Inventory: Construction in progress$\quad$$5,000,000$ CR Billings on construction in progress$\quad$$5,000,000$ B) DR Billings on construction in progress $\quad 5,000,000$ CR Inventory: Construction in progress$\quad$$3,750,000$ CR Income on long-term construction contract$\quad$$1,250,000$ C) DR Inventory: Construction in progress $\quad 3,750,000$ DR Income on long-term construction contract $\quad 1,250,000$ CR Billings on construction in progress$\quad$$5,000,000$ D) DR Billings on construction in progress$\quad$$\quad$$1,250,000$ CR Inventory: Construction in progress$\quad$$\quad$$1,250,000$

Exam 3: Additional Topics in Income Determination

The Sarver Farm has completed the fall harvest with 50,000 bushels of premium wheat. The wheat cost $75,000 from planting to harvest and the market price of the wheat on the day it is placed in the silo is $2.50 per bushel. Sarver sells 42,000 bushels in Year 1 and holds the remaining 8,000 until Year 2 when it sells for $3.00 per bushel. -Using the completed transaction (sales)method,how much net income should Sarver recognize in Year 2?

(Multiple Choice)

4.9/5

(34)

Question 41

The Sarver Farm has completed the fall harvest with 50,000 bushels of premium wheat. The wheat cost $75,000 from planting to harvest and the market price of the wheat on the day it is placed in the silo is $2.50 per bushel. Sarver sells 42,000 bushels in Year 1 and holds the remaining 8,000 until Year 2 when it sells for $3.00 per bushel. -Using the market price (production)method,how much net income should Sarver recognize in Year 1?

(Multiple Choice)

4.8/5

(39)

Question 42

Errors discovered after the year in which they occur are corrected through disclosure in notes to the financial statements.

(True/False)

4.9/5

(35)

Question 43

The SEC specifies four criteria for revenue recognition and allows recognition of revenue when

(Multiple Choice)

4.9/5

(32)

Question 44

When the outcome of a transaction for services cannot be reliably measured,IFRS rules call for entities to recognize revenue only up to the amount of recoverable costs incurred to that point.

(True/False)

4.8/5

(40)

Question 45

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 realized gross profit on installment sales of Year 1 in Year 2?

(Multiple Choice)

4.7/5

(38)

Question 46

Deferred gross profit on installment sales is generally treated as a deduction from installment sales.

(True/False)

4.8/5

(40)

Question 47

Under IFRS,when the cost recovery method is applied to installment sales,the seller will recognize gross profit only after the cumulative amount of cash collected exceeds the cost of sales.

(True/False)

4.8/5

(30)

Question 48

Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project estimated to cost $4,000,000 and the following information is available: (\ in thousands) Year 1 Year 2 Year 3 Costs incurred \ 1,000 \ 1,500 \ 1,250 Estimated completion costs \ 3,000 \ 1,500 \ 10 Billings \ 750 \ 1,750 \ 2,500 Cash collected \ 500 \ 1,500 \ 3,000 -Which one of the following entries would be made in Year 3 to record the completion and acceptance of the project using the completed-contract method of revenue recognition?

(Multiple Choice)

4.7/5

(36)

Question 49

Initial franchise fee revenue should be recognized when all material services or conditions relating to the sale have been substantially performed by the franchisor.

(True/False)

4.8/5

(30)

Question 50

In the context of revenue recognition,an "arrangement" means there is a final understanding between the parties as to the specific nature and terms of the agreed-upon transaction.

(True/False)

4.8/5

(37)

Question 51

Generally accepted accounting principles leave ample room for managers to manipulate earnings to their satisfaction.

(True/False)

4.9/5

(31)

Question 52

Revenue is recognized at the earliest moment in time that the revenue is "earned" and "realized or realizable."

(True/False)

4.7/5

(47)

Question 53

Revenue is recognized at the earliest moment that the critical event and measurability criteria are both satisfied.

(True/False)

4.9/5

(32)

Question 54

The key accounting issue related to bundled (multiple-element)sales transactions

(Multiple Choice)

4.9/5

(39)

Question 55

Trans Fat Express,Inc.entered into an agreement with a franchisee on July 1,2014.The agreement specified that Trans Fat Express receive an initial franchise fee of $200,000 (30% due at signing;the balance to be paid in equal annual installments plus interest at 8% of the unpaid balance beginning July 1,2015).The franchise fee is comprised of (1)consideration for the right to operate the franchise,and (2)payment for services to be performed by Trans Fat Express that include site selection and building design,employee training,and management training.Substantial performance of these services is deemed to have occurred when the franchise opens for business in April 2015.Trans Fat Express allocates 60% of the fee to the right to operate the franchise and the remainder to the subsequently performed services. Required: a.Prepare the entry to record the signing of the franchise agreement and receipt of the payment due at that time. b.Prepare any adjusting journal entries necessitated at December 31,2014 by this agreement. c.Prepare the entry Trans Fat Express should make when the franchisee opens the location in April 2015.

(Essay)

4.9/5

(45)

Question 56

Academic studies have found that actual earnings

(Multiple Choice)

4.8/5

(38)

Question 57

GAAP specifies that for a seller to record revenue at time of sale when right of return exists the following conditions must be met except:

(Multiple Choice)

4.9/5

(40)

Question 58

Selling,general,and administrative expenses relating to installment sales are deferred until the revenue is recognized.

(True/False)

4.9/5

(37)

Question 59

Under the percentage-of-completion method of revenue recognition,the percentage-of-completion ratio is computed by dividing

(Multiple Choice)

4.8/5

(37)

Question 60

Showing 41 - 60 of 128

Errors discovered after the year in which they occur are corrected through disclosure in notes to the financial statements.

The SEC specifies four criteria for revenue recognition and allows recognition of revenue when

When the outcome of a transaction for services cannot be reliably measured,IFRS rules call for entities to recognize revenue only up to the amount of recoverable costs incurred to that point.

Deferred gross profit on installment sales is generally treated as a deduction from installment sales.

Under IFRS,when the cost recovery method is applied to installment sales,the seller will recognize gross profit only after the cumulative amount of cash collected exceeds the cost of sales.

Initial franchise fee revenue should be recognized when all material services or conditions relating to the sale have been substantially performed by the franchisor.

In the context of revenue recognition,an "arrangement" means there is a final understanding between the parties as to the specific nature and terms of the agreed-upon transaction.

Generally accepted accounting principles leave ample room for managers to manipulate earnings to their satisfaction.

Revenue is recognized at the earliest moment in time that the revenue is "earned" and "realized or realizable."

Revenue is recognized at the earliest moment that the critical event and measurability criteria are both satisfied.

The key accounting issue related to bundled (multiple-element)sales transactions

Academic studies have found that actual earnings

GAAP specifies that for a seller to record revenue at time of sale when right of return exists the following conditions must be met except:

Selling,general,and administrative expenses relating to installment sales are deferred until the revenue is recognized.

Under the percentage-of-completion method of revenue recognition,the percentage-of-completion ratio is computed by dividing

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

Filters