Exam 8: Revenue Recognition, Receivables, and Advances From Customers

Conceptual guidance in U.S.GAAP refers to the selling entity having earned the revenues (that is, having completed the earnings process).IFRS refers to

At the end of Year 2, the unadjusted trial balance of Alaska Company includes $1,500,000 of outstanding accounts receivable and an Allowance for Uncollectible Accounts of $14,600.Total sales for the year are $22,200,000 and 85% of the sales were on account.The company estimates that 1.8% of credit sales are uncollectible and no entries have been made during the year to reflect these uncollectibles.Prepare the adjusting entry for the allowance for uncollectible accounts.

In estimating the amount of uncollectible accounts the accountant (1) estimates the amount of uncollectible accounts that will likely occur over time in connection with sales of each period and (2) makes an entry debiting Bad Debt expense and crediting Allowance for Uncollectible Accounts.The name of this procedure is/are the

A construction firm enters a long-term contract to build a bridge.The expected and actual cash receipts and disbursements for the project are as follows: Period Receipts Expenditures 1 \ 1,000 \ 4,000 2 2,000 2,000 3 3,000 1,000 4 4,000 1,000 Required: What is the revenue during each of the following periods under each of the specified methods of revenue recognition? Mehod Period Completed Contract 1 a. Completed Contract 4 b. Percentage of Completion 1 c. Percentage of Completion 4 d. Installment method 1 e. Installment Method 4 f. Cost Recovery First 1 g. Cost Recovery First 4 h.

When using the allowance method

As long as the amount collected from credit sales to a given group of customers exceeds the cost of goods sold and the other costs of serving that group of customers, including the costs of _____ accounts, the retailer will be better off selling to that group rather than losing the sales.

The U.S.Internal Revenue Service requires that firms recognize bad debt expense only when they conclude an account is not collectible.

When firms that are temporarily short of cash and unable to borrow from usual sources convert accounts receivable into cash by pledging the accounts receivable, they disclose this information

Describe the allowance method for uncollectible accounts.

Describe income recognition after the sale when substantial performance remains.

If the firm has received a promise of payment but cannot measure this promise with reasonable reliability, and U.S.GAAP would permit revenue to be recognized, but IFRS would not permit revenue to be recognized.

The method of revenue recognition where the seller collects part of the selling price in cash and at the same time recognizes as expenses each period the same portion of the cost of goods or services sold as the portion of total revenues recognized is called the direct payment method.

The percentage-of-sales procedure arises from the idea that uncollectible amounts will vary with the volume of credit business.The firm estimates the appropriate percentage by studying its own experience or by inquiring into the experience of similar firms.Default rates generally fall within the range of .01% to .02% of credit sales.

The write-off of specific customers' accounts has no effect on Accounts Receivable, Net, because the write-off amount decreases Accounts Receivable, Gross, and its contra account, the Allowance for Uncollectibles, by exactly the same amount.

A firm may factor its accounts receivable to a bank or other financial institution in exchange for cash. Which of the following is/are not true?

Rock Aerospace Company signed a contract on April 1, Year 4, to build a satellite for $28,000,000.Estimated costs for the contract are: Year 4 \ 5,600,000 Year 5 \ 11,200,000 Year 6 \ 5,600,000 $\text { Assume that actual costs incurred coincide with expectations. Cash collections of the contract price are as follows: }$ Year 4 \ 4,200,000 Year 5 \ 7,000,000 Year 6 \ 16,800,000 Refer to the Rock Aerospace Company example.Income from the contract for Year 5 under the completed contract method is:

The accounts receivable turnover ratio captures the speed of cash collections from credit customers and is calculated as follows:

Sellers of merchandise offer sales discount or cash discounts in order to

The Accounts Receivable, Gross amount less the Allowance for Uncollectibles yields Accounts Receivable, Net, which reflects the amount of cash the firm expects to collect.

The financial statements contain information for analyzing the collectibility of accounts receivable and the adequacy of the expense for uncollectible accounts.Typical ratios used for this analysis include the