Question 1

For U.S.companies, how do U.S.GAAP and income tax reporting compare in their treatment of uncollectible accounts?

Accepted Answer

A) U.S.GAAP and income tax reporting both require the direct write-off method. 
B) U.S.GAAP and income tax reporting both require the allowance method. 
C) U.S.GAAP and income tax reporting require different treatments of uncollectible accounts. 
D) U.S.GAAP and income tax reporting assume uncollectible accounts are estimated based on past experience for reporting purposes. 
E) none of the above. 
A) U.S.GAAP and income tax reporting both require the direct write-off method. 
B) U.S.GAAP and income tax reporting both require the allowance method. 
C) U.S.GAAP and income tax reporting require different treatments of uncollectible accounts. 
D) U.S.GAAP and income tax reporting assume uncollectible accounts are estimated based on past experience for reporting purposes. 
E) none of the above.

Question 2

Sao Paulo Trains Inc., incorporated in Brazil, manufactures high-speed trains.In this industry, the time to manufacture products usually exceeds one year.Assume that Sao Paulo Trains recently signed a €8 billion contract to provide 10 new high-speed trains to a customer in the European Union.The customer has paid a deposit of €500 million and will pay the remainder in equal installments over the next four years.When should Sao Paulo Trains recognize the revenue from this contract?

Accepted Answer

A) at the time Sao Paulo Trains signs the contract and receives €500 million cash from the customer 
B) assuming that Sao Paulo Trains can reliably estimate both the revenue from the contract and the costs to complete the contract, it will recognize revenue (as well as the costs associated with delivering on the contract) over the contract life. 
C) Sao Paulo Trains will recognize all of the revenue (as well as all of the costs associated with delivering on the contract) at the completion of the contract 
D) at the time Sao Paulo Trains signs the contract and receives the cash payments from the customer 
E) none of the above 
A) at the time Sao Paulo Trains signs the contract and receives €500 million cash from the customer 
B) assuming that Sao Paulo Trains can reliably estimate both the revenue from the contract and the costs to complete the contract, it will recognize revenue (as well as the costs associated with delivering on the contract) over the contract life. 
C) Sao Paulo Trains will recognize all of the revenue (as well as all of the costs associated with delivering on the contract) at the completion of the contract 
D) at the time Sao Paulo Trains signs the contract and receives the cash payments from the customer 
E) none of the above

Question 3

Ulrich Co.sells an asset to a buyer for a total sales price of $6,000 with a payment schedule of $2,000 in year 1, $2,000 in year 2, and $2,000 in year 3.The cost of the asset is $5,000.Under the cost-recovery-first method, what amount of net profit is recognized in year 3?

Accepted Answer

A) $2,000 
B) $1,000 
C) $666.67 
D) $333.33 
E) $0 
A) $2,000 
B) $1,000 
C) $666.67 
D) $333.33 
E) $0

Question 4

Wigs and Torys Plc.is a leading operator of pubs and pub restaurants in the United Kingdom.It operates and franchises about 10 wine restaurants under the name Bottoms Up Bar, primarily in London.Suppose that in contracting with a franchisee of an Bottoms Up Bar wine restaurant, Wigs and Torys agrees to provide services, including site selection, décor design, marketing, advertising, and recruiting; and the franchisee agrees to pay Wigs and Torys £100,000.It is common in the industry to permit the franchisee to pay in equal installments over several years.When should Wigs and Torys recognize revenue from the franchisee contract?

Accepted Answer

A) at the time Wigs and Torys Plc.signs the contract with the franchisee 
B) as the cash is received by Wigs and Torys from the franchisee 
C) as the income is earned by Wigs and Torys 
D) at the end of the franchise period 
E) half should be recognized when Wigs and Torys Plc.signs the contract with the franchisee and the other half after all the installments are received 
A) at the time Wigs and Torys Plc.signs the contract with the franchisee 
B) as the cash is received by Wigs and Torys from the franchisee 
C) as the income is earned by Wigs and Torys 
D) at the end of the franchise period 
E) half should be recognized when Wigs and Torys Plc.signs the contract with the franchisee and the other half after all the installments are received

Question 5

Healthy Lawn Maintenance Company started a lawn services business on January 1, 2013. It sends invoices to its customers for lawn maintenance services at the end of each month, and expects the customer to pay within 30 days. During 2013, Healthy Lawn Maintenance billed its customers a total of $2,000,000 for services rendered during the year. It made journal entries at the end of each month.

Assume that Healthy Lawn Maintenance estimates that it will not collect 2% of total credit sales in a given month. At the end of each month, it makes an adjusting entry.  The aggregate effect of these entries during 2013 is as follows:

Accepted Answer

A)  Bad Debt Expense. . .. . . . . . . . . . . . . .  . . . . 40,000      
      Accounts Receivable, net. ..  . . . . .. . . . . . . . 40,000 
B)  Allowance for Uncollectibles .. . . . . . . . . . . . . . 40,000 
       Bad Debt Expense. .. . . . . . . . . . . . .  . . . . 40,000 
C)  Bad Debt Expense. . . . . .  . . . . . . . . . .  . . . . 40,000      
      Allowance for Uncollectibles .  . . . .. . . . . . . . 40,000 
D)  Bad Debt Expense. . . . .  . . . . . . . . . . .  . . . . 40,000      
      Accounts Receivable, gross   . . . . . . . .. .  . . . 40,000 
E)  Accounts Receivable, gross . . . . . .. . . . . . . . . . 40,000 
       Bad Debt Expense. . . .. . . . . . . . . . .  . . . . 40,000 
A)  Bad Debt Expense. . .. . . . . . . . . . . . . .  . . . . 40,000      
      Accounts Receivable, net. ..  . . . . .. . . . . . . . 40,000 
B)  Allowance for Uncollectibles .. . . . . . . . . . . . . . 40,000 
       Bad Debt Expense. .. . . . . . . . . . . . .  . . . . 40,000 
C)  Bad Debt Expense. . . . . .  . . . . . . . . . .  . . . . 40,000      
      Allowance for Uncollectibles .  . . . .. . . . . . . . 40,000 
D)  Bad Debt Expense. . . . .  . . . . . . . . . . .  . . . . 40,000      
      Accounts Receivable, gross   . . . . . . . .. .  . . . 40,000 
E)  Accounts Receivable, gross . . . . . .. . . . . . . . . . 40,000 
       Bad Debt Expense. . . .. . . . . . . . . . .  . . . . 40,000

Question 6

Ratios used to evaluate the allowance for uncollectibles are

Accepted Answer

A) Bad Debt Expense to Sales Revenue and the ratio of the Accounts Receivable, Gross to Allowance for Uncollectibles to Accounts. 
B) Sales Revenue to Bad Debt Expense and the ratio of the Accounts Receivable, Gross to Allowance for Uncollectibles to Accounts. 
C) Sales Revenue to Bad Debt Expense and the ratio of the Allowance for Uncollectibles to Accounts Receivable, Gross. 
D) Bad Debt Expense to Sales Revenue and the ratio of the Allowance for Uncollectibles to Accounts Receivable, Gross. 
E) none of the above. 
A) Bad Debt Expense to Sales Revenue and the ratio of the Accounts Receivable, Gross to Allowance for Uncollectibles to Accounts. 
B) Sales Revenue to Bad Debt Expense and the ratio of the Accounts Receivable, Gross to Allowance for Uncollectibles to Accounts. 
C) Sales Revenue to Bad Debt Expense and the ratio of the Allowance for Uncollectibles to Accounts Receivable, Gross. 
D) Bad Debt Expense to Sales Revenue and the ratio of the Allowance for Uncollectibles to Accounts Receivable, Gross. 
E) none of the above.

Question 7

An example of a firm's use of a different set of accounting principles for financial reporting and for income tax reporting is

Accepted Answer

A) the allowance method for financial reporting and the direct write-off method for income tax reporting. 
B) the direct write-off method for financial reporting and the allowance method for income tax reporting. 
C) the direct write-off method for financial reporting and the percentage of sales method for income tax reporting. 
D) the allowance method for financial reporting and the percentage of payables method for income tax reporting. 
E) none of the above. 
A) the allowance method for financial reporting and the direct write-off method for income tax reporting. 
B) the direct write-off method for financial reporting and the allowance method for income tax reporting. 
C) the direct write-off method for financial reporting and the percentage of sales method for income tax reporting. 
D) the allowance method for financial reporting and the percentage of payables method for income tax reporting. 
E) none of the above.

Question 8

Under the accrual method, the timing of revenue recognition is influenced by when the services or product are provided.

Accepted Answer

A) True 
 B)False

Question 9

The life of a construction contract is 4 years.The firm used the percentage-of-completion method.Under this method, cash collected and revenues recognized are shown below.Total cost of the project was $800,000.What portion of the total cost was incurred each year?
 $\begin{array}{lll}& \text { Cash } & \text { Revenue } & \text { Cost } \
\text { Year } & \text { Collected } & \text { Recognized } & \text { Incurred }\
1&\$ 100,000 & \$ 300,000 & \text { A } \
2&200,000 & 300,000 & \text { B } \
3&200,000 & 150,000 & \text { C }\
4&200,000&250,000&D\
\text { Total. }&\$1,000,000&\$1,000,000&\$800,000
\end{array}$

Accepted Answer

The answer of The life of a construction contract is...

Question 10

Bad Debt Expense is also called the Provision for Bad Debts and the Provision for Uncollectible Accounts.

Accepted Answer

A) True 
 B)False

Question 11

Jaymar Software Corporation sells SPAM BE GONE to customers, who receive the software and have access to postdelivery telephone support and the right to receive certain upgrades and enhancements if and when Jaymar Software develops them.Jaymar Software sells SPAM BE GONE for approximately $100; customers pay cash or with a credit card.When should Jaymar Software recognize revenue from selling SPAM BE GONE?

Accepted Answer

A) It recognizes revenue from sale of the software at the time of delivery and revenue associated with future obligations over the product's life cycle. 
B) It recognizes revenue from sale of the software over the product's life cycle and revenue associated with future obligations at the time of delivery. 
C) It recognizes revenue from sale of the software and the revenue associated with future obligations over the product's life cycle. 
D) It recognizes revenue from sale of the software and the revenue associated with future obligations at the time of delivery. 
E) none of the above. 
A) It recognizes revenue from sale of the software at the time of delivery and revenue associated with future obligations over the product's life cycle. 
B) It recognizes revenue from sale of the software over the product's life cycle and revenue associated with future obligations at the time of delivery. 
C) It recognizes revenue from sale of the software and the revenue associated with future obligations over the product's life cycle. 
D) It recognizes revenue from sale of the software and the revenue associated with future obligations at the time of delivery. 
E) none of the above.

Question 12

There are two approaches that management can use to estimate the amount of credit sales that would prove to be uncollectible, they are the _____. Over time, the two methods, correctly used, will give the same cumulative income and asset totals.U.S.GAAP and IFRS do not require firms to use one or the other, and some firms use both methods.

Accepted Answer

A) gross amount of sales procedure and the aging-of-accounts-receivable procedure. 
B) percentage-of-sales procedure and the aging-of-accounts-receivable procedure. 
C) percentage-of-cost of good sold procedure and the amount of accounts-receivable procedure. 
D) percentage-of-cost of good sold procedure and the aging-of-notes-receivable procedure. 
E) gross amount of sales procedure and the amount of accounts-receivable procedure. 
A) gross amount of sales procedure and the aging-of-accounts-receivable procedure. 
B) percentage-of-sales procedure and the aging-of-accounts-receivable procedure. 
C) percentage-of-cost of good sold procedure and the amount of accounts-receivable procedure. 
D) percentage-of-cost of good sold procedure and the aging-of-notes-receivable procedure. 
E) gross amount of sales procedure and the amount of accounts-receivable procedure.

Question 13

If the firm has received a promise of payment but cannot measure this promise with reasonable reliability,

Accepted Answer

A) U.S.GAAP would permit revenue to be recognized, but IFRS would not permit revenue to be recognized. 
B) U.S.GAAP would not permit revenue to be recognized, but IFRS would permit revenue to be recognized. 
C) neither U.S.GAAP nor IFRS would permit revenue to be recognized. 
D) U.S.GAAP and IFRS would permit revenue to be recognized. 
E) none of the above 
A) U.S.GAAP would permit revenue to be recognized, but IFRS would not permit revenue to be recognized. 
B) U.S.GAAP would not permit revenue to be recognized, but IFRS would permit revenue to be recognized. 
C) neither U.S.GAAP nor IFRS would permit revenue to be recognized. 
D) U.S.GAAP and IFRS would permit revenue to be recognized. 
E) none of the above

Question 14

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 _____of credit sales.

Accepted Answer

A) .01% to .02% 
B) 1% to 2% 
C) 10% to 20% 
D) 21% to 30% 
E) 31% to 40% 
A) .01% to .02% 
B) 1% to 2% 
C) 10% to 20% 
D) 21% to 30% 
E) 31% to 40%

Question 15

The seller of merchandise often offers a reduction from the invoice price for prompt payment, this is called a

Accepted Answer

A) sales discount. 
B) purchase allowance. 
C) incentive discount. 
D) prompt payment discount. 
E) all of the above. 
A) sales discount. 
B) purchase allowance. 
C) incentive discount. 
D) prompt payment discount. 
E) all of the above.

Question 16

Cowden Properties sold a condominium to Ms.Roberts for $90,000.Cowden originally acquired the condo at a cost of $40,000 and made improvements to the unit totaling $20,000.The contract for sale required Ms.Roberts to pay the $90,000 as follows:
Year 1 - $ 5,000
Year 2 - $10,000
Year 3 - $30,000
Year 4 - $45,000
Refer to the Cowden Properties example.Under the installment method, how much net profit would Cowden recognize in year 1?

Accepted Answer

A) $1,667 
B) $2,667 
C) $3,333 
D) $3,667 
E) $5,000 
A) $1,667 
B) $2,667 
C) $3,333 
D) $3,667 
E) $5,000

Question 17

Discuss the application of the allowance method for sales returns.

Accepted Answer

SALES RETURNS: AN APPLICATION OF THE ALL

Question 18

A firm may use its accounts receivable as collateral for a loan from a bank or other financial institution.Which of the following is/are true?

Accepted Answer

A) The firm physically maintains control of the accounts receivable, collects cash from customers, and repays the loan. 
B) If the firm fails to repay the loan, the lender can claim the receivables. 
C) If the firm has used its accounts receivable as collateral for a loan, the firm will continue to show those receivables as an asset (and there will also be a loan payable liability). 
D) The firm should disclose the lending arrangement in its financial reports. 
E) all of the above 
A) The firm physically maintains control of the accounts receivable, collects cash from customers, and repays the loan. 
B) If the firm fails to repay the loan, the lender can claim the receivables. 
C) If the firm has used its accounts receivable as collateral for a loan, the firm will continue to show those receivables as an asset (and there will also be a loan payable liability). 
D) The firm should disclose the lending arrangement in its financial reports. 
E) all of the above

Question 19

The method of revenue recognition where the seller collects parts 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

Accepted Answer

A) completed contract method. 
B) direct payment method. 
C) installment method. 
D) cost-recovery-first method. 
E) cost-recovery-last method. 
A) completed contract method. 
B) direct payment method. 
C) installment method. 
D) cost-recovery-first method. 
E) cost-recovery-last method.

Question 20

The cost recovery method matches the costs of generating revenue with cash receipts until the seller recovers all its costs.

Accepted Answer

A) True 
 B)False

For U.S.companies, how do U.S.GAAP and income tax reporting compare in their treatment of uncollectible accounts?

Ulrich Co.sells an asset to a buyer for a total sales price of $6,000 with a payment schedule of $2,000 in year 1, $2,000 in year 2, and $2,000 in year 3.The cost of the asset is $5,000.Under the cost-recovery-first method, what amount of net profit is recognized in year 3?

Ratios used to evaluate the allowance for uncollectibles are

An example of a firm's use of a different set of accounting principles for financial reporting and for income tax reporting is

Under the accrual method, the timing of revenue recognition is influenced by when the services or product are provided.

Bad Debt Expense is also called the Provision for Bad Debts and the Provision for Uncollectible Accounts.

If the firm has received a promise of payment but cannot measure this promise with reasonable reliability,

The seller of merchandise often offers a reduction from the invoice price for prompt payment, this is called a

Discuss the application of the allowance method for sales returns.

A firm may use its accounts receivable as collateral for a loan from a bank or other financial institution.Which of the following is/are true?

The method of revenue recognition where the seller collects parts 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

The cost recovery method matches the costs of generating revenue with cash receipts until the seller recovers all its costs.

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

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

For U.S.companies, how do U.S.GAAP and income tax reporting compare in their treatment of uncollectible accounts?

Ulrich Co.sells an asset to a buyer for a total sales price of $6,000 with a payment schedule of $2,000 in year 1, $2,000 in year 2, and $2,000 in year 3.The cost of the asset is $5,000.Under the cost-recovery-first method, what amount of net profit is recognized in year 3?

Ratios used to evaluate the allowance for uncollectibles are

An example of a firm's use of a different set of accounting principles for financial reporting and for income tax reporting is

Under the accrual method, the timing of revenue recognition is influenced by when the services or product are provided.

Bad Debt Expense is also called the Provision for Bad Debts and the Provision for Uncollectible Accounts.

If the firm has received a promise of payment but cannot measure this promise with reasonable reliability,

The seller of merchandise often offers a reduction from the invoice price for prompt payment, this is called a

Discuss the application of the allowance method for sales returns.

A firm may use its accounts receivable as collateral for a loan from a bank or other financial institution.Which of the following is/are true?

The method of revenue recognition where the seller collects parts 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

The cost recovery method matches the costs of generating revenue with cash receipts until the seller recovers all its costs.

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters