Question 1

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

Accepted Answer

A) transferring the risks and rewards of ownership to customers (in the case of revenues involving goods). 
B) having rendered services (in the case of revenues involving services). 
C) measuring the costs of any obligations that the seller has not performed at the time it recognizes revenue with reasonable reliability. 
D) all of the above. 
E) none of the above.

Question 2

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.

Accepted Answer

The answer of At the end of Year 2, the...

Question 3

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

Accepted Answer

A) percentage-of-sales. 
B) aging-of-accounts-receivable. 
C) direct write-off. 
D) indirect write-off. 
E) tax accounting.

Question 4

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:
 $\begin{array}{lll}\text { Period } & \text { Receipts } &\text { Expenditures }\
1 & \$ 1,000 & \$ 4,000 \
2 & 2,000 & 2,000 \
3 & 3,000 & 1,000 \
4 & 4,000 & 1,000
\end{array}$ Required:
What is the revenue during each of the following periods under each of the specified methods of revenue recognition?
 $\begin{array} { l  }\text { Mehod }&\text { Period }\
 \text { Completed Contract }&1&a.\
 \text { Completed Contract }&4&b.\
 \text { Percentage of Completion }&1&c.\
 \text {Percentage of Completion  }&4&d.\
 \text {Installment method  }&1&e.\
 \text {Installment Method  }&4&f.\
 \text { Cost Recovery First }&1&g.\
 \text {Cost Recovery First }&4&h.\
\end{array}$

Accepted Answer

The answer of A construction firm enters a long-term contract...

Question 5

When using the allowance method

Accepted Answer

A) the write-off of specific customers' accounts does not affect income. 
B) the income effect occurs in the year of sale, when the firm provides for estimated uncollectible accounts. 
C) the write-off of specific customers' accounts does not affect (net) accounts receivable. 
D) all of the above. 
E) none of the above.

Question 6

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.

Accepted Answer

A) delinquent 
B) uncollectible 
C) collectible 
D) preferred 
E) common

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) on the income statement, only. 
B) on the balance sheet, only. 
C) on both the income statement and the balance sheet. 
D) by a footnote to the financial statements. 
E) in managements' discussion and analysis.

Question 9

Describe the allowance method for uncollectible accounts.

Accepted Answer

The answer of Describe the allowance method for uncollectible accounts....

Question 10

Describe income recognition after the sale when substantial performance remains.

Accepted Answer

The answer of Describe income recognition after the sale when...

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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?

Accepted Answer

A) The lender physically controls the receivables and collects cash from customers. 
B) Accounts receivable that the firm has factored do not appear on the balance sheet. 
C) The firm has sold the accounts receivable. 
D) The firm should disclose the factoring arrangement in its financial reports. 
E) None of the above.

Question 16

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:
$\begin{array}{ll}
\text { Year 4 } & \$ 5,600,000 \
\text { Year } 5 & \$ 11,200,000 \
\text { Year 6 } & \$ 5,600,000
\end{array}$
$\text { Assume that actual costs incurred coincide with expectations. Cash collections of the contract price are as follows: }$
$\begin{array}{ll}
\text { Year } 4 & \$ 4,200,000 \
\text { Year } 5 & \$ 7,000,000 \
\text { Year 6 } & \$ 16,800,000
\end{array}$ Refer to the Rock Aerospace Company example.Income from the contract for Year 5 under the completed contract method is:

Accepted Answer

A) $1,000,000 
B) $1,400,000 
C) $2,800,000 
D) $3,360,000 
E) None of the above

Question 17

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

Accepted Answer

A) average accounts receivable divided by sales revenue. 
B) sales revenue divided by average accounts receivable. 
C) sales revenue plus average accounts receivable. 
D) sales revenue minus average accounts receivable. 
E) sales revenue times average accounts receivable.

Question 18

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

Accepted Answer

A) provide an interest allowance on funds paid before the payment is due. 
B) induce prompt payment so that it can reduce bookkeeping costs. 
C) induce prompt payment so that it can reduce collection costs. 
D) all of the above. 
E) none of the above.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) accounts receivable turnover ratio, only. 
B) days receivables outstanding, only. 
C) write-off percentage, only. 
D) accounts receivable turnover ratio, days receivables outstanding, and write-off percentage. 
E) accounts receivable turnover ratio and days receivables outstanding, only.

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

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 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?

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