Question 1

In an effort to "clean up" company balance sheets,managers have often

Accepted Answer

A) taken minimal restructuring write-offs. 
B) understated estimated charges for future expenditures. 
C) overstated estimated charges for future expenditures. 
D) been required to invest their own assets in the company. 
A) taken minimal restructuring write-offs. 
B) understated estimated charges for future expenditures. 
C) overstated estimated charges for future expenditures. 
D) been required to invest their own assets in the company.

Question 2

Peachpit Software Developers shipped its accounting package to a customer on September 10,2014.In addition to the software,Peachpit's contract requires the company to provide: (1)training to the customer's accounting staff during October of 2014 and again in January 2015 when the upgrade is released-75% of the training hours are provided during October,(2)technical product support for one year starting October 1,2014,and (3)a major upgrade to the software early in 2015.The customer paid the total contract price of $80,000 upon receipt of the invoice on September 17,2014.Peachpit would charge the following if these individual contract elements were sold separately:
$$\begin{array} { l r } 
& \text { Fair Value } \
\text { Accounting package (software) } & \$ 65,000 \
\text { Training customer's staff } & 10,000 \
\text { Customer support } & 15,000 \
\text { Accounting software upgrade } & 10,000 \
\quad \text { Totals } & \$ 100,000
\end{array}$$ 
Required:
a.Prepare a journal entry to record receipt of the cash payment.
b.Determine the amount of revenue to be recognized in 2014 and prepare the necessary journal entry.

Accepted Answer

a.To record cash receipt for bundled sal

Question 3

The SEC permits Internet resellers (i.e.,those that act as agents or brokers in a transaction)to report revenue on either a "gross" or "net" basis.

Accepted Answer

A) True 
 B)False

Question 4

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 1 to record the income recognized using the percentage-of-completion method of revenue recognition?

Accepted Answer

A)  $\begin{array}{lr}
\text { DR Inventory: Construction in progress } & 250,000 \
\text { DR Construction expense } & 1,000,000\
\text { CR Construction revenue }&1,250,000
\end{array}$ 
B)  DR Inventory: Construction in progress $\quad 375,000$
CR Billings on construction in progress$\quad 375,000\ 
C)  DR Inventory: Construction in progress \(\quad$675,000
CR Billings on construction in progress $\quad$675,000 
D)  DR Income on long-term construction contract $\quad 3,125,000$ 
CR Accounts payable, cash, etc.$\quad$$3,125,000$ 
A)  $\begin{array}{lr}
\text { DR Inventory: Construction in progress } & 250,000 \
\text { DR Construction expense } & 1,000,000\
\text { CR Construction revenue }&1,250,000
\end{array}$ 
B)  DR Inventory: Construction in progress $\quad 375,000$
CR Billings on construction in progress$\quad 375,000\ 
C)  DR Inventory: Construction in progress \(\quad$675,000
CR Billings on construction in progress $\quad$675,000 
D)  DR Income on long-term construction contract $\quad 3,125,000$ 
CR Accounts payable, cash, etc.$\quad$$3,125,000$

Question 5

"Capacity swaps" have been used by telecommunications companies as a means to prematurely recognize revenue.

Accepted Answer

A) True 
 B)False

Question 6

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 2 to record the customer billing using the percentage-of-completion method of revenue recognition?

Accepted Answer

A)  DR Accounts receivable$\quad$$1,500,000$
CR Cash$\quad$$\quad$$1,500,000$ 
B)  DR Accounts receivable$\quad$$\quad$$1,500,000$
CR Billings on construction in progress$\quad$$\quad$$1,500,000$ 
C)  DR Accounts receivable$\quad$$\quad$$1,750,000$
CR Income on long-term construction contract$\quad$$\quad$$1,750,000$ 
D)  DR Accounts receivable$\quad$$1,750,000$
CR Billings on construction in progress$\quad$$1,750,000$ 
A)  DR Accounts receivable$\quad$$1,500,000$
CR Cash$\quad$$\quad$$1,500,000$ 
B)  DR Accounts receivable$\quad$$\quad$$1,500,000$
CR Billings on construction in progress$\quad$$\quad$$1,500,000$ 
C)  DR Accounts receivable$\quad$$\quad$$1,750,000$
CR Income on long-term construction contract$\quad$$\quad$$1,750,000$ 
D)  DR Accounts receivable$\quad$$1,750,000$
CR Billings on construction in progress$\quad$$1,750,000$

Question 7

Under the percentage-of-completion method,the profit to be recognized in any year is based on the ratio of

Accepted Answer

A) incurred contract costs divided by estimated total contract costs. 
B) incurred contract costs multiplied by estimated total contract costs. 
C) estimated total contract costs divided by incurred contract costs. 
D) estimated total contract costs multiplied by incurred contract costs. 
A) incurred contract costs divided by estimated total contract costs. 
B) incurred contract costs multiplied by estimated total contract costs. 
C) estimated total contract costs divided by incurred contract costs. 
D) estimated total contract costs multiplied by incurred contract costs.

Question 8

The most important criteria related to revenue recognition when the right of return exists is that the amount of future returns can be reasonably estimated.

Accepted Answer

A) True 
 B)False

Question 9

Unlike U.S.GAAP,IFRS calls for revenue to be measured at the fair value of the consideration received or receivable.

Accepted Answer

A) True 
 B)False

Question 10

SAB 104,"Revenue Recognition," was not meant to change GAAP,but rather to close some loopholes and eliminate gray areas in how GAAP was being applied in practice.

Accepted Answer

A) True 
 B)False

Question 11

When the risk of non-collection of installment payments is high or when there is no reasonable basis for estimating the proportion of installment accounts receivable likely to prove uncollectible,both IFRS and U.S.GAAP permit the use of the installment sales method.

Accepted Answer

A) True 
 B)False

Question 12

Several different parties are charged with the responsibility for discovering accounting errors and irregularities.These include all of the following except

Accepted Answer

A) the company's internal audit staff. 
B) the company's external auditors. 
C) the SEC. 
D) the company's legal counsel. 
A) the company's internal audit staff. 
B) the company's external auditors. 
C) the SEC. 
D) the company's legal counsel.

Question 13

When goods are shipped on consignment

Accepted Answer

A) revenue should be recognized by the manufacturer or seller on delivery. 
B) revenue should not be recognized by the manufacturer or seller on delivery. 
C) the risk of ownership of the goods is passed on to the distributors. 
D) they are always counted in the customer's inventory. 
A) revenue should be recognized by the manufacturer or seller on delivery. 
B) revenue should not be recognized by the manufacturer or seller on delivery. 
C) the risk of ownership of the goods is passed on to the distributors. 
D) they are always counted in the customer's inventory.

Question 14

The amount of revenue recognized under the percentage-of-completion method is equal to the progress payments received during the reporting period.

Accepted Answer

A) True 
 B)False

Question 15

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:

Accepted Answer

A) The seller's price to the buyer is substantially fixed or determinable at the date of sale. 
B) The buyer has paid the seller,or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product. 
C) The buyer's obligation to the seller changes in the event of theft or physical destruction or damage of the product. 
D) The amount of future returns can be reasonably estimateD. 
A) The seller's price to the buyer is substantially fixed or determinable at the date of sale. 
B) The buyer has paid the seller,or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product. 
C) The buyer's obligation to the seller changes in the event of theft or physical destruction or damage of the product. 
D) The amount of future returns can be reasonably estimateD.

Question 16

The audit committee and the company's internal audit staff provide the first-line defense against accounting errors/irregularities.

Accepted Answer

A) True 
 B)False

Question 17

A prior period adjustment results in an adjustment to the company's beginning retained earnings balance.

Accepted Answer

A) True 
 B)False

Question 18

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 cost of installment goods sold for Year 2?

Accepted Answer

A)  DR Cost of installment goods sold $\quad$162,500
CR Inventory$\quad$$\quad$162,500 
B)  DR Cost of installment goods sold $\quad 302,500$
CR Inventory$\quad$$\quad$302,500 
C)  DR Cost of installment goods sold$\quad$$\quad$162,500
CR Installment sales revenue$\quad$$\quad$162,500 
D)  DR Cost of installment goods sold$\quad$$\quad$302,500
CR Installment sales revenue$\quad$$\quad$302,500 
A)  DR Cost of installment goods sold $\quad$162,500
CR Inventory$\quad$$\quad$162,500 
B)  DR Cost of installment goods sold $\quad 302,500$
CR Inventory$\quad$$\quad$302,500 
C)  DR Cost of installment goods sold$\quad$$\quad$162,500
CR Installment sales revenue$\quad$$\quad$162,500 
D)  DR Cost of installment goods sold$\quad$$\quad$302,500
CR Installment sales revenue$\quad$$\quad$302,500

Question 19

"Cookie jar reserves" are required under GAAP.

Accepted Answer

A) True 
 B)False

Question 20

When accounting for sales where the risk of non-collection of installments is high or when there is no reasonable basis for estimating uncollectible accounts,IFRS

Accepted Answer

A) requires use of the installment sales method. 
B) permits either the cost recovery or the installment sales method. 
C) takes a more conservative approach than that allowed under U.S.GAAP. 
D) takes a less conservative approach than that allowed under U.S.GAAP. 
A) requires use of the installment sales method. 
B) permits either the cost recovery or the installment sales method. 
C) takes a more conservative approach than that allowed under U.S.GAAP. 
D) takes a less conservative approach than that allowed under U.S.GAAP.

In an effort to "clean up" company balance sheets,managers have often

The SEC permits Internet resellers (i.e.,those that act as agents or brokers in a transaction)to report revenue on either a "gross" or "net" basis.

"Capacity swaps" have been used by telecommunications companies as a means to prematurely recognize revenue.

Under the percentage-of-completion method,the profit to be recognized in any year is based on the ratio of

The most important criteria related to revenue recognition when the right of return exists is that the amount of future returns can be reasonably estimated.

Unlike U.S.GAAP,IFRS calls for revenue to be measured at the fair value of the consideration received or receivable.

SAB 104,"Revenue Recognition," was not meant to change GAAP,but rather to close some loopholes and eliminate gray areas in how GAAP was being applied in practice.

When the risk of non-collection of installment payments is high or when there is no reasonable basis for estimating the proportion of installment accounts receivable likely to prove uncollectible,both IFRS and U.S.GAAP permit the use of the installment sales method.

Several different parties are charged with the responsibility for discovering accounting errors and irregularities.These include all of the following except

When goods are shipped on consignment

The amount of revenue recognized under the percentage-of-completion method is equal to the progress payments received during the reporting period.

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:

The audit committee and the company's internal audit staff provide the first-line defense against accounting errors/irregularities.

A prior period adjustment results in an adjustment to the company's beginning retained earnings balance.

"Cookie jar reserves" are required under GAAP.

When accounting for sales where the risk of non-collection of installments is high or when there is no reasonable basis for estimating uncollectible accounts,IFRS

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

Exam 3: Additional Topics in Income Determination

In an effort to "clean up" company balance sheets,managers have often

The SEC permits Internet resellers (i.e.,those that act as agents or brokers in a transaction)to report revenue on either a "gross" or "net" basis.

"Capacity swaps" have been used by telecommunications companies as a means to prematurely recognize revenue.

Under the percentage-of-completion method,the profit to be recognized in any year is based on the ratio of

The most important criteria related to revenue recognition when the right of return exists is that the amount of future returns can be reasonably estimated.

Unlike U.S.GAAP,IFRS calls for revenue to be measured at the fair value of the consideration received or receivable.

SAB 104,"Revenue Recognition," was not meant to change GAAP,but rather to close some loopholes and eliminate gray areas in how GAAP was being applied in practice.

When the risk of non-collection of installment payments is high or when there is no reasonable basis for estimating the proportion of installment accounts receivable likely to prove uncollectible,both IFRS and U.S.GAAP permit the use of the installment sales method.

Several different parties are charged with the responsibility for discovering accounting errors and irregularities.These include all of the following except

When goods are shipped on consignment

The amount of revenue recognized under the percentage-of-completion method is equal to the progress payments received during the reporting period.

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:

The audit committee and the company's internal audit staff provide the first-line defense against accounting errors/irregularities.

A prior period adjustment results in an adjustment to the company's beginning retained earnings balance.

"Cookie jar reserves" are required under GAAP.

When accounting for sales where the risk of non-collection of installments is high or when there is no reasonable basis for estimating uncollectible accounts,IFRS

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