Deck 4: Revenue Recognition

Question 1

If the goods sold to a customer are damaged in shipment the buyer normally asks for a n):

A)cash discount
B)accounts receivable
C)price allowance
D)credit allowance

Answer 1

C

Question 2

The return on investment is equal to the net income divided by the sales investment.

Answer 2

False

Question 3

The cost recovery and completed contract methods are two examples of revenue recognition being postponed until the cash from a sale is collected.

Answer 3

False

Question 4

F.O.B.destination means that revenue is normally recognized when the goods reach the customer.

Question 5

The incentive built in for prompt payment of cash by a customer for a credit sale is called a cash discount.

Question 6

In which of the following businesses would the delivery of the product and the collection of cash occur at the same time?

A)A clothing retail store
B)An consulting firm
C)A home builder
D)An advertising firm

Question 7

A company may choose numerous methods of recognizing revenue for different revenue types.

Question 8

The matching concept requires that all costs and revenues be recognized early in the cash-to-cash cycle.

Question 9

In some industries, revenues are recognized at the time of production.

Question 10

Which of the following would not be a cost incurred in the acquisition of inventory component of the cash-to-cash cycle?

A)Purchasing equipment
B)Hiring labour
C)Delivering the product
D)Purchasing inventory

Question 11

The estimation of warranty costs is required by which accounting concept or principle?

A)Revenue recognition
B)Matching principle
C)Reliability
D)Cost-benefit

Question 12

The matching principle requires which of the following costs that have been incurred to produce this period's revenue to be recognized in the same period?

A)Costs incurred in the present period only.
B)Costs incurred in past and present periods.
C)Costs incurred in the present and future periods.
D)Costs incurred in the past, present and future periods.

Question 13

All of the following are considered to be activities in the selling activity of the cash-to-cash cycle except:

A)Hiring the sales staff
B)Pricing the product
C)Advertising the product
D)Delivering the product

Question 14

If performance has been achieved, the amounts earned can be measured and there is reasonable assurance of collection, then revenue should be recognized.

Question 15

If a $6,750 sale is made on December 30 with terms of 2\10, net 30 and collection is made on January 31 the amount collected is:

A)$5,400
B)$6,615
C)$6,750
D)$6,885

Question 16

Which of the following would indicate high quality earnings for a company?

A)Increasing revenue while cash from operations is stable.
B)Increasing net income while cash from operations decreases.
C)Revenue and net income that move together.
D)Net income and cash flow from operations that move together.

Question 17

All of the following statements about the cash-to-cash cycle are true except:

A)It includes normal day to day operating activities, investing activities, and financing activities.
B)It includes normal buying \ selling of goods to earn profit.
C)Typical business operations involve an outflow of cash followed by an inflow of cash
D)Specific activities include purchasing inventory and selling product.

Question 18

A service business would normally have a larger cash outlay in the initial phase of its cash-to-cash cycle than a retail company.

Question 19

In order to use the completed contract method of revenue recognition for a long-term project it is necessary to be able to reasonably estimate the total costs of the project.

Question 20

If a $12,500 sale is made on September 21 with terms 2\10 net 30 and collection is made on October 2, the amount collected is:

A)$12,250
B)$10,000
C)$12,750
D)$12,500

Question 21

Revenue is recognized at the time of production in which of the following types of companies?

A)Long term construction
B)Real Estate
C)Franchises
D)Grocery

Question 22

Perry's Painters took a $1,500 deposit from a customer when they signed the contract to paint the customer's residence.It took them three weeks to complete the job.On completion the customer paid the $3,500 balance.How should Perry's Painters recognize revenue for this job?

A)The $1,500 as revenue when it is received, and the $3,500 as revenue when it is received.
B)The $1,500 as unearned revenue and the $3,500 as revenue when it is received.
C)$1,667 a week during the painting period.
D)$5,000 as revenue at the completion of the project.

Question 23

The matching principle is concerned with:

A)when to recognize a transaction as a revenue or an expense.
B)which transactions result in cash inflows or outflows.
C)matching revenues to the expenses incurred each period.
D)how a company earns its revenues and why it incurs expenses.

Question 24

Raleigh Co.is a mail order clothing retailer.All items are shipped to customers FOB shipping point and must be prepaid by the customer before any items are shipped.At what point should Raleigh recognize revenue?

A)At the time of shipping
B)When the goods reach the customer
C)When payment is received
D)When the goods are placed into inventory

Question 25

Angel Gifts is a giftware wholesaler.All orders are shipped FOB destination and paid for on delivery.When should Angel Gifts recognize its revenues?

A)At the time of shipping
B)When the goods reach the customer
C)When payment is received
D)When the goods are placed into inventory

Question 26

All of the following are necessary for revenue recognition under GAAP, except?

A)The earnings process is substantially complete.
B)The amount can be measured.
C)Collection is reasonably assured.
D)The buyer and seller have signed a contract.

Question 27

Garcon Building Ltd.is a construction company located in Toronto.The company is responsible for several large building complexes currently being constructed in the Toronto area.Total revenue and costs can be readily estimated and each contract is expected to take several years to complete.Garcon is most likely to recognize revenue using which method?

A)Percentage of completion method
B)Instalment method
C)At the time of contract signing
D)Completed-contract method

Question 28

Revenue may be recognized during production in which of the following types of business?

A)Retail sales
B)Manufacturing for mass-production
C)Construction
D)Franchise operations

Question 29

Daphne's Spa sells gift certificates for future services.These gift certificate sales should be recorded as:

A)a credit to sales revenue
B)a credit to cash
C)a debit to sales revenue
D)a credit to unearned revenue

Question 30

Bracor is a gold mining company located in British Columbia.The critical event in the revenue earning process for this company is likely to occur when:

A)the gold is produced.
B)the gold is received by the customer.
C)the customer pays for the gold.
D)the gold is sold on the open market.

Question 31

Except for cash sales, revenue recognition criteria are almost met before the collection of cash; the exception to this is the:

A)completed contract method
B)percentage completion method
C)instalment method
D)recognition of unearned revenue method

Question 32

Fine Furniture Co.is a manufacturer of specialty furniture.Because each piece is custom manufactured, the company requires a down payment of 40% of the estimated cost of the finished piece before production begins.Fine Furniture Co.should record the deposit as a:

A)credit to sales revenue.
B)credit to unearned revenue.
C)credit to inventory.
D)credit to cost of goods sold.

Question 33

In the retail industry, when customers pay cash at the time of sale, revenue is recognized:

A)when the inventory is purchased.
B)at the time of sale.
C)when the time frame for returns has passed.
D)when the cash is deposited in the bank.

Question 34

When performance is substantially complete, revenue is said to be:

A)recognized.
B)earned.
C)realized.
D)realizable.

Question 35

Which method of revenue recognition delays revenue recognition until the actual cash is received?

A)Instalment method
B)Cash accounts method
C)Completed contract method
D)The sales return and allowances method

Question 36

All of the following are criteria that must be met before revenue can be recognized except:

A)revenue must be earned
B)the amount earned is measurable
C)all sales returns and allowances have been recorded
D)there is reasonable assurance as to the collectibility of the amount earned

Question 37

Managements' ability to manipulate net income through deliberate choices regarding revenue recognition and cost is known as:

A)cash management
B)earnings management
C)income management
D)income measurement

Question 38

Recognizing revenue early in the cash-to-cash cycle:

A)is timely but less reliable.
B)is reliable but not timely.
C)does not require warranty costs to be estimated
D)is not permitted by GAAP.

Question 39

Kali Consulting, a Winnipeg based Company, has just signed a contract to complete a strategic plan for a local business.This plan will likely take 2 to 3 months to complete.Kali Consulting should recognize revenue using which of the following methods?

A)Percentage of completion method
B)Instalment method
C)At the time of contract signing
D)Completed-contract method

Question 40

Revenue is recognized at the time of collection under the:

A)completed contract method.
B)point of sale method.
C)percentage of completion method.
D)instalment method.

Question 41

Use the following information for questions:
A corporation sold a tract of land for $525,000 that had originally cost $350,000.The buyer will make three annual payments of: $250,000; $125,000; and $150,000.Ignore interest and use the instalment method.
The amount of gross profit recognized in the first year is:

A)$0
B)$58,333
C)$83,333
D)$175,000

Question 42

Use the following information for questions:
Sun Mountain operates a ski resort in the Rocky mountains of Alberta.They sell three types of ski tickets.Season tickets are sold throughout the year.and entitle the holder to ski any day all season long.They are non-refundable.Daily tickets are sold at the mountain and are only valid for the day they are sold.Corporate group tickets are sold throughout the year.The buyer receives a package of 20 daily ticket coupons at a discounted price and the coupons can be redeemed for a day of skiing any time during the season.The skier needs to present the coupon for a ticket on the desired ski day.Unused tickets coupons) expire at the end of the season and are non-refundable.
When should Sun Mountain recognize revenue for the season tickets?

A)At the time of sale.
B)On the day the mountain first opens for skiing.
C)Throughout the ski season.
D)At the end of the ski season.

Question 43

If an overall loss is projected on a long-term construction project, when is it recognized under the percentage of completion method?

A)In the period it occurred
B)In the period it was estimated
C)In the last period of the job
D)In each period the job is in process

Question 44

MJ Limited sold $1,750,000 worth of goods during the current year.The cost of goods sold is $1,050,000.Credit sales were $1,575,000, of which 40% were still outstanding.How much cash was collected by MJ Ltd.?

A)$1,575,000
B)$1,120,000
C)$ 805,000
D)$ 175,000

Question 45

The revenue recognition method most often used for short-term construction projects is to recognize revenue:

A)during the construction process as a percentage of the costs completed.
B)at the completion of the project.
C)at the time the construction contract is signed.
D)as cash is received.

Question 46

Use the following information for questions:
Sun Mountain operates a ski resort in the Rocky mountains of Alberta.They sell three types of ski tickets.Season tickets are sold throughout the year.and entitle the holder to ski any day all season long.They are non-refundable.Daily tickets are sold at the mountain and are only valid for the day they are sold.Corporate group tickets are sold throughout the year.The buyer receives a package of 20 daily ticket coupons at a discounted price and the coupons can be redeemed for a day of skiing any time during the season.The skier needs to present the coupon for a ticket on the desired ski day.Unused tickets coupons) expire at the end of the season and are non-refundable.
When should Sun Mountain recognize revenue for the corporate tickets redeemed?

A)At the time of sale.
B)On the day they are redeemed for a ticket.
C)Throughout the ski season.
D)At the end of the ski season.

Question 47

In order to apply the percentage of completion method the contractor must be able to estimate all the following except:

A)the total cost of the project
B)the total revenue for the project
C)the collectibility of all receivables
D)the amount of revenue to be recognized each period

Question 48

Companies involved with retail land sales can recognize revenue from such sales in the period of the sale if all of the following conditions are met, except:

A)There are only minimal costs yet to be incurred by the seller
B)Collectibility of the receivable is reasonably assured
C)The company has completed substantially all related development costs
D)The seller does not offer a refund period

Question 49

Use the following information for questions:
Dudeck Construction Co.agreed to build a bridge for Genoa City.The contract specifies that construction will take three years and Dudeck will receive $12,500,000.The company expects annual costs to be $3,500,000; $2,750,000; and $1,800,000.
Assume Dudeck uses the percentage of completion method.Profits for year one will be:

A)$ -0-
B)$ 1,483,333
C)$1,934,783
D)$ 4,450,000

Question 50

On May 1, Alison Enterprises paid rent for 3 months in advance.The total payment was $1,200.In accordance with the matching principle, how much rent expense should Alison recognize for the month of May?

A)$1,200
B)$ 300
C)$ 600
D)$ 400

Question 51

Use the following information for questions:
Sun Mountain operates a ski resort in the Rocky mountains of Alberta.They sell three types of ski tickets.Season tickets are sold throughout the year.and entitle the holder to ski any day all season long.They are non-refundable.Daily tickets are sold at the mountain and are only valid for the day they are sold.Corporate group tickets are sold throughout the year.The buyer receives a package of 20 daily ticket coupons at a discounted price and the coupons can be redeemed for a day of skiing any time during the season.The skier needs to present the coupon for a ticket on the desired ski day.Unused tickets coupons) expire at the end of the season and are non-refundable.
How should Sun Mountain account for the corporate tickets not redeemed?

A)They should estimate an amount at the time of sale and recognize it as revenue then.
B)They should estimate an amount at the time of sale and recognize it as revenue evenly throughout the ski season.
C)They should estimate an amount at the time of sale and recognize it as revenue proportionally every time a coupon is redeemed.
D)They should recognize it as revenue at the end of the ski season.

Question 52

Joanie's Java sells franchises of its coffee shop concept.Franchisees pay a $375,000 initial franchise fee at the time of signing the contract.In return Joanie's Java provides assistance until the coffee shop is opened, usually a period of six months.After opening the franchisee pays a royalty of 2% of sales.What are the appropriate revenue recognition polices for Joanie's Java as a franchisor?

A)The $375,000 fee at the time of signing and the 2% royalty when received.
B)The $375,000 fee when the coffee shop opens and the 2% royalty when received.
C)The $375,000 fee at the time of signing and the 2% royalty on an accrual basis.
D)The $375,000 fee when the coffee shop opens and the 2% royalty on an accrual basis.

Question 53

Use the following information for questions:
A corporation sold a tract of land for $525,000 that had originally cost $350,000.The buyer will make three annual payments of: $250,000; $125,000; and $150,000.Ignore interest and use the instalment method.
The profit to be recognized in year two is:

A)$0
B)$41,667
C)$58,333
D)$175,000

Question 54

Use the following information for questions:
Dudeck Construction Co.agreed to build a bridge for Genoa City.The contract specifies that construction will take three years and Dudeck will receive $12,500,000.The company expects annual costs to be $3,500,000; $2,750,000; and $1,800,000.
Assume Dudeck uses the completed contract method.Expenses recognized in year two will be:

A)$ -0-
B)$2,750,000
C)$2,683,333
D)$8,050,000

Question 55

Which of the following recognizes revenue based on costs incurred relative to estimated total costs?

A)Cost recovery
B)Instalment
C)Percentage of completion
D)Completed contract

Question 56

Use the following information for questions:
A corporation sold a tract of land for $525,000 that had originally cost $350,000.The buyer will make three annual payments of: $250,000; $125,000; and $150,000.Ignore interest and use the instalment method.
The unrecognized profit at the end of year two amounts to:

A)$0
B)$50,000
C)$91,667
D)$175,000

Question 57

During the current year, Sierra Corporation sold $1,250,000 in goods that cost $750,000.Cash sales were $500,000 and credit sales $750,000.Sierra collected $500,000 of the credit sales during the year.What amount of revenue should Jamul recognize for the year under the revenue recognition principle?

A)$1,250,000
B)$ 500,000
C)$ 750,000
D)$ 1,000,000

Question 58

If an overall loss is projected on a long-term construction project, when is it recognized under the completed contract method?

A)In the period it occurred
B)In the period it was estimated
C)In the last period of the job
D)In each period the job is in process

Question 59

When franchisors meet certain minimum requirements, they may recognize revenue at the time of:

A)production.
B)contract signing.
C)collection.
D)completion.

Question 60

The Smiths decided to open a Bed and Breakfast.In the first month of operation they collected cash and credit card receipts of $1,800.All rooms rent out at $75 a night and during the month they had 19 room rentals and had received non-refundable deposits of $37.50 each on another five nights of rentals.For two of those deposits the people had failed to show up and the Smiths did not refund the deposits, the other three deposits were for future stays.The appropriate amount for them to recognize as revenue for their first month is:

A)$1,425
B)$1,500
C)$1,800
D)$1,575

Question 61

Use the following information for questions:
Dudeck Construction Co.agreed to build a bridge for Genoa City.The contract specifies that construction will take three years and Dudeck will receive $12,500,000.The company expects annual costs to be $3,500,000; $2,750,000; and $1,800,000.
Assume Dudeck uses the percentage of completion method.Revenue recognized in year three will be:

A)$1,800,000
B)$2,795,030
C)$4,166,667
D)$12,500,000

Question 62

When should an estimated total loss on a construction project be recognized under the percentage of completion method and the completed contract method, respectively?

Question 63

Use the following information for questions:
Streetside Construction agreed to build a shopping centre for $25,000,000 over the next four years.Estimated cost for years one through four are: $7,500,000; $5,000,000; $5,000,000; and $2,500,000.
Assume total estimated costs to complete the job at the beginning of year three were revised to $27,000,000.Under the percentage of completion method, the loss for year three would be:

A)$3,125,000)
B)$2,000,000)
C)$7,000,000)
D)$5,125,000)

Question 64

Under what condition is it possible to recognize revenue using the production method?

A)When the production process takes a reasonably short period of time.
B)When the collection of the receivable is reasonably uncertain.
C)When the sale must be reported as a credit sale.
D)When market value of the sale is reasonably certain.

Question 65

An investor invested $25,000 in a company's common shares and sold it one year later for $32,500.During that year the company had average total assets of $3,750,000, average common shareholders' equity of $550,000, sales of $1,250,000 and net income of $ 125,000.The investor's ROI for the period was closest to?

A)10%
B)22.7%
C)26%
D)30%

Question 66

Use the following information for questions:
Streetside Construction agreed to build a shopping centre for $25,000,000 over the next four years.Estimated cost for years one through four are: $7,500,000; $5,000,000; $5,000,000; and $2,500,000.
Assume total estimated costs to complete the job at the beginning of year three were revised to $27,000,000.If actual costs in year four were equal to those revised estimated costs, and the completed contract method were used, what would be the profit or loss recognized in year four?

A)$ -0-
B)$2,000,000)
C)$3,000,000
D)$1,000,000)

Question 67

Use the following information for questions:
Streetside Construction agreed to build a shopping centre for $25,000,000 over the next four years.Estimated cost for years one through four are: $7,500,000; $5,000,000; $5,000,000; and $2,500,000.
Estimated profit or loss for year one, assuming the percentage of completion method, would be:

A)$1,250,000)
B)$0
C)$1,250,000
D)$1,875,000

Question 68

All of the following statements are true except:

A)A company that has multiple lines of business must consistently apply one revenue recognition policy for all types of revenue.
B)A company that has multiple lines of business can use different methods of revenue recognition for different products.
C)A company that has multiple lines of business must tell users what policies they are using so that that they can make informed decisions
D)A company that has multiple lines of business must choose revenue recognition policies that are appropriate for their revenue streams.

Question 69

Which of the following measures the amount of income earned per $1 invested in the company's shares?

A)ROI
B)ROA
C)ROE
D)EPS

Question 70

A company had assets at the beginning of the year of $7,750,000 and at the end of the year of $6,750,000.During the year they reported sales of $2,750,000 net income of $275,000.What was their return on investment for the year?

A)10%
B)4.0%
C)3.8%
D)3.3%

Question 71

In situations where a company can not estimate the probability of collection, revenue would be recognized under the:

A)percentage completion method
B)the contract signing method
C)instalment method
D)completed contract method