Question 1

The deferred gross profit on installment sales is reported on the balance sheet as a

Accepted Answer

A) current asset 
B) current liability 
C) contra-asset 
D) long-term liability

Question 2

Which one of the following entries would you probably not see if an entity used the percentage-of-completion method?

Accepted Answer

A) 
Partial Billings $\quad \mathrm { XX }$
Construction Revenue $\quad \mathrm { XX }$ 
B) 
$\begin{array} { c c } 
\text { Construction Expense } & \text { XX } \
\text { Construction in Progress } & \mathrm { XX } \
\text { Construction Revenue } & \mathrm { XX }
\end{array}$ 
C) 
$\begin{array} { c c } 
\text { Accounts Receivable } & \text { XX } \
\text { Partial Billings } & \text { XX }
\end{array}$ 
D) Partial Billings $\quad \mathrm { XX }$
Construction in Progress $\mathrm { XX }$

Question 3

When there is not assurance that the buyer can be expected to satisfy its obligations under a contract, which of the following revenue recognition methods is preferable?

Accepted Answer

A) percentage-of-completion method 
B) installment method 
C) deposit method 
D) completed-contract method

Question 4

When a down payment is received, the deposit from purchaser account used under the deposit method is reported on the balance sheet of the seller as a(n)

Accepted Answer

A) revenue 
B) liability 
C) asset 
D) contra asset

Question 5

The proportional performance method is usually associated with

Accepted Answer

A) revenue recognition in the period of sale 
B) revenue recognition prior to the period of sale 
C) revenue recognition after the period of sale 
D) revenue recognition delayed until a future event occurs

Question 6

Your friend, a college marketing major, has started a marketing research consulting firm.He has already started working for his first client.When setting up his accounting system he wants to fully understand the theoretical issues associated with recording revenue.What do you advise?

Accepted Answer

The answer of Your friend, a college marketing major, has...

Question 7

Which of the following revenue recognition methods can be used by long-term construction companies in all circumstances? $\begin{array}{lll}
& \text {Percentage of}& \text {Completed}\
& \text {Completion}& \text {Contract}\

\text { I. } & \text { Yes } & \text { No } \
\text { II. } & \text { No } & \text { Yes } \
\text { III. } & \text { No } & \text { No } \
\text { IV } & \text { Yes } & \text { Yes }
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV

Question 8

When a sufficient transfer of the risks and benefits of ownership does not exist in a sales transaction, the preferred revenue recognition method is the

Accepted Answer

A) proportional performance method 
B) installment method 
C) cost recovery method 
D) deposit method

Question 9

Exhibit 18-3 On January 1, 2010, Dunedin Co.sold 100 contracts at $500 each.Each contract permitted the buyer to use a repair bay six times and a paint bay nine times.
Additional information: 
$\begin{array} { l l l } 
\text { Initial direct costs } & \$ 5,000 & \
\text { Annual indirect costs } & 1,000 & \
\text { Direct cost per service act: } & & \
& \text { Repair } & 30 \
& \text { Paint } & 20
\end{array}$
In 2010, the repair bay was used 180 times and the paint bay was used 162 times.
- 
Refer to Exhibit 18-3.What net income (loss)should be recognized by Dunedin in 2010?

Accepted Answer

A) $2, 590 loss 
B) $1, 160 income 
C) $1, 210 income 
D) $2, 640 loss

Question 10

In 2010, Rogers Company offered its goods to retailers on a consignment basis.The following information is provided regarding Rogers Company's 2010 operations: $\begin{array}{ll}
\text { Beginning inventory } & \$ 102,000 \
\text { Purchases } & 560,000 \
\text { Freight in } & 10,000\
\text { Transportation to consignees } & 5,000 \
\text { Freight out } & 35,000 \
\text { Ending inventory-Held by Rogers } & 45,000 \
\text { Ending inventory-Held by consigneess } & 20,000 
\end{array}$
 What is Rogers' cost of goods sold for 2010?

Accepted Answer

A) $507, 000 
B) $512, 000 
C) $527, 000 
D) $547, 000

Question 11

Which of the following methods could not be used to recognize revenue on a real estate sale?

Accepted Answer

A) completed contract 
B) deposit method 
C) installment method 
D) cost recovery method

Question 12

A client in the retail industry has come to you for an explanation.The client's company offers installment sales contracts to some of its customers, and the client believes that the installment method of revenue recognition must be the only way to account for such contracts.
Required:
Explain the difference between installment sales contracts and the installment method of revenue recognition.

Accepted Answer

The answer of A client in the retail industry has...

Question 13

Theoretically, for revenue to be recognized the risks and benefits of ownership must have been transferred to the buyer.This refers to

Accepted Answer

A) expected cash flows being recognized 
B) benefits being the expected net cash flows and the risks being the likelihood of another amount of cash being received 
C) benefits being properly recorded revenue and the risks being the likelihood of expenses being greater than expected 
D) expected revenue being realized

Question 14

If a company has an agreement to deliver software that does not require significant production, modification, or customization, it recognizes revenue when persuasive evidence of an agreement exists and

Accepted Answer

A) delivery has occurred 
B) the seller's fee is fixed or determinable 
C) collectibility is probable 
D) all of these

Question 15

Revenue recognition issues are studied because

Accepted Answer

A) there is both an income statement and balance sheet impact 
B) gross revenues must be accurate 
C) estimates should not compromise the quality of reported net income 
D) it is important to properly state expenses incurred each operating period

Question 16

Under the completed-contract method of revenue recognition, Partial Billings could be reported on the balance sheet as a $\begin{array}{lll}
& \text { Contra Asset}& \text { Current Liability}\
\text { I. } & \text { Yes } & \text { Yes } \
\text { II. } & \text { Yes } & \text { No } \
\text { III. } & \text { No } & \text { Yes } \
\text { IVI } & \text { No } & \text { No }
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV

Question 17

A Provision for Loss on Contract is reported in the financial statements as a(n)

Accepted Answer

A) contra-asset account 
B) other expense account 
C) operational expense account 
D) contra-liability account

Question 18

Net assets increase from cost to selling price when revenue is recognized $\begin{array}{llll}
&\text { During } & \text { At Time } & \text { At Time of } \
&\text { Production } & \text { of Sale } & \text { Cash Recein }\ 
\text { I. } & \text { Yes } & \text { Yes } & \text { Yes } \
\text { II. } & \text { Yes } & \text { Yes } & \text { No } \
\text { III. } & \text { Yes } & \text { No } & \text { No } \
\text { IV. } & \text { No } & \text { No } & \text { No }
\end{array}$

Accepted Answer

A) I 
B) II 
C) III 
D) IV

Question 19

Which one of the following types of cost is not a typical service cost involved with long-term service contracts?

Accepted Answer

A) initial direct costs 
B) direct costs 
C) initial indirect costs 
D) indirect costs

Question 20

Realization occurs when

Accepted Answer

A) revenues have been earned 
B) noncash resources are converted to cash or rights to cash 
C) an item is formally recorded in the books 
D) an item is reported in a company's financial statements

Exam 18: Income Recognition and Measurement of Net Assets

The deferred gross profit on installment sales is reported on the balance sheet as a

Which one of the following entries would you probably not see if an entity used the percentage-of-completion method?

When there is not assurance that the buyer can be expected to satisfy its obligations under a contract, which of the following revenue recognition methods is preferable?

When a down payment is received, the deposit from purchaser account used under the deposit method is reported on the balance sheet of the seller as a(n)

The proportional performance method is usually associated with

Your friend, a college marketing major, has started a marketing research consulting firm.He has already started working for his first client.When setting up his accounting system he wants to fully understand the theoretical issues associated with recording revenue.What do you advise?

When a sufficient transfer of the risks and benefits of ownership does not exist in a sales transaction, the preferred revenue recognition method is the

Which of the following methods could not be used to recognize revenue on a real estate sale?

Theoretically, for revenue to be recognized the risks and benefits of ownership must have been transferred to the buyer.This refers to

If a company has an agreement to deliver software that does not require significant production, modification, or customization, it recognizes revenue when persuasive evidence of an agreement exists and

Revenue recognition issues are studied because

A Provision for Loss on Contract is reported in the financial statements as a(n)

Which one of the following types of cost is not a typical service cost involved with long-term service contracts?

Realization occurs when