Exam 7: Revenue Recognition and Related Expenses

Application of the LIFO and FIFO inventory methods result in differences in the balance sheet, income statement and cash flow statement. Compare and contrast the effect of the two methods on each financial statement and determine the advantages and disadvantages of each method.

A contractor would not use ________________________________________ method of income recognition when there is substantial uncertainty regarding the total costs it will incur in completing the project. or

When cash collectibility is uncertain, a firm using the ____________________ method recognizes revenue as it collects portions of the selling price in cash.

JCP, Inc. is a major producer of printing equipment. JCP uses a LIFO cost-flow assumption for inventories. The company's tax rate is 35%. Below is selected financial data for the company. Required:

When cash collectibility is uncertain the ___________________________________ method matches the costs of generating revenues dollar for dollar with cash receipts until the firm recovers all such costs.

A company that uses LIFO will experience a ______________________________ during a period it sells more units than it purchases.

A company that uses LIFO will find that its ______________________________ account will be somewhat out of date.

Under the accrual method of accounting when a firm has substantially completed its value-adding activities it should recognize ____________________.

The process of allocating the historical cost of certain assets to the periods of their use in a reasonably systematic manner is referred to as ____________________.

One sign that a company may be recognizing sales too early is that it has unusually large amounts of ______________________________.

The difference between the economic resources received from customers and the economic resources paid to suppliers, employees and other providers of goods and services is called ____________________.

Many users of financial statements believe that the quality of accounting information for intangible assets is low because firms seldom report intangible asset resources on the balance sheet. However, from the perspective of accounting quality what are arguments in favor of expensing most intangibles and not recording them on the balance sheet?

The following information is taken from Just Pants financial statements (amounts in thousands): Inventory Footnote: If the first-in, first-out method of accounting for inventory had been used, inventory would have been approximately $26.9 million and $25.1 million higher than reported at 12/31/2005 and 12/31/2004, respectively. Required:

Financial reporting requires firms to ____________________ immediately all R&D costs incurred internally.

Most publicly traded firms in the United States use the _________________________ method of depreciation.

Firms that capitalize routine maintenance and repair charges will end up with the result of having the current period's income being ____________________.

A Company that uses FIFO will find that its ___________________________________ account tends to be somewhat out of date.

Assume that Arena Corp. has agreed to construct a new basketball arena for Hoop Town for $70 million dollars. Construction of the new arena begins in July, 2007 and is expected to be completed in March 2009. At the signing of the contract Arena Corp. estimates that the new arena will cost $60 million dollars to build. Given the following cost and building schedule determine the cumulative degree of completion and how much revenue and gross margin Arena Corp. should recognize in years 2007, 2008 and 2009.

The following information is available from Sharp Corp.: Use the information above to calculate the following: a. Average age of the depreciable assets b. Average remaining useful life of the depreciable assets

Under the percentage-of-completion contract method