Exam 7: Revenue Recognition and Related Expenses

Folio Corp. Folio Corp. sold a paper machine to Library Inc. on January 1, 2007. The sale price of the machine was $4,000,000 and the machine cost $3,200,000 for Folio to manufacture. Library will make four payments at the end of each year, beginning with 2007, of $1,261,883 each. The four payments of $1,261,883 when discounted at 10% have a present value of $4,000,000. An amortization table appears below: If Folio Corp. is uncertain that it will collect all four payments from Library Inc. and uses the cost recovery method of accounting for revenue recognition what amount of gross profit should Folio recognize in 2007 from the sale?

Finale Company's accounting manager decided to start capitalizing the company's routing repairs and maintenance expense, starting in 2006. What effect will this change have on the company's 2007 income and assets respectively?

Assume that Playground Corp. has agreed to construct a new playground for Township County for $2,300,000 dollars. Construction of the new playground will begin on March 17, 2007 and is expected to be completed in August 2008. At the signing of the contract Playground Corp. estimates that the it will cost $1,600,000 dollars to build the playground. At the end of 2007 Playground provided the following information about the project: If Playground uses the percentage of completion to recognize revenue on the long-term contract how much gross margin should Playground recognize in 2007?

Although LIFO generally provides higher quality earnings measures, FIFO generally provides higher _____________________________________________ measures.

Firms recognize an impairment loss when the carrying amount of a tangible fixed asset is deemed "not recoverable" as specified by GAAP. GAAP defines a carrying amount as "not recoverable" if

Which of the following would not be suggestive of a company recognizing sales too early?

A LIFO liquidation during periods when prices are increasing results in a company

Using the information below calculate the average total depreciable life of the assets:

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is

A company may try to paint a favorable picture of itself by accelerating the timing of revenues or estimating the collectible amounts too aggressively. In these cases the quality of accounting information declines because it does not represent the company's true economic condition and may not be sustainable. List four conditions which might suggest that a company is recognizing revenues too early?

___________________________________ include trade and brand names, trademarks, patents, copyrights, franchise rights, customer lists and goodwill.

Note that this topic is covered in the Appendix Currently financial reporting does not take into account changes in prices, either at the general level or at the specific level. Many analysts believe that not taking price changes into account distorts the meaningfulness of financial reports. How do changing prices affect financial reports?