Chapter 5 Quiz

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1
Enter the letter corresponding to the response that best completes each of the following statements or questions.
In general, revenue is recognized as earned when there is reasonable certainty as to the collectibility of the asset to be
received and:
A)
The sales price has been collected.
B)
The earnings process is virtually complete.
C)
Production is completed. Incorrect.
D)
purchase order has been received.
2
!nder I"#$, revenue for the sale of goods is recognized when the seller has transferred to the buyer:
A)
signed invoice.
B)
The ris%s and rewards of ownership.
C)
&ompelling evidence that substantive installation has occurred.
D)
'one of the above.
3
(estern ppliance &ompany, which began business on )anuary *, +,*-, appropriately uses the installment sales
method of accounting. The following data are available for +,*-:
A)
a
B)
b
C)
c
D)
d
4
The Pattison &ompany began operations on )anuary +, +,*-, and appropriately uses the installment sales method of
accounting. The following data are available for +,*- and +,*.:
The deferred gross profit that would appear in the +,*. balance sheet is:
A)
/*0,,,,,
B)
/+,,,,,,
C)
/+01,,,,
D)
/++1,,,,
5
(hen accounting for a long2term construction contract under I"#$, if the percentage2of2completion method is not
appropriate, the seller should account for revenue using:
A)
The cost recovery method.
B)
The completed contract method.
C)
Either the cost recovery method or the completed contract method.
D)
'either the cost recovery method or the completed contract method.
6
(hen I"#$ uses the cost recovery method to account for a long2term contract,
A)
#evenue typically is recognized in e3cess of costs incurred early in the life of the contract.
B)
&osts in e3cess of revenue are typically recognized early in the life of the contract.
C)
#evenue equal to costs are typically recognized early in the life of the contract.
D)
#evenue is based on contract completion, not on costs, early in the life of the contract.
7
"or profitable long2term contracts, income is recognized in each year under the:
A)
&ompleted contract method: 'o4 Percentage2of2completion method: 'o
&ompleted contract method: 5es4 Percentage2of2completion method: 'o
B)
C)
&ompleted contract method: 5es4 Percentage2of2completion method: 5es
D)
&ompleted contract method: 'o4 Percentage2of2completion method: 5es
8
(hen accounting for a long2term construction contract using the percentage2of2completion method, gross profit
recognized in any year is debited to:
A)
&onstruction in progress.
B)
6illings on construction contract.
C)
7eferred income.
D)
ccounts receivable.
9
8ollywood &onstruction &ompany uses the percentage2of2completion method of accounting for long2term construction
contracts. 7uring +,*., 8ollywood began wor% on a /-,,,,,,,, fi3ed2fee construction contract, which was completed in
+,*9. The accounting records disclosed the following data at year2end:
"or the +,*1 year, 8ollywood should have recognized gross profit on this contract of:
A)
/*,,,,,,
B)
/1,,,,,,
C)
/+99,99:
D)
/++1,,,,
10
$andlewood &onstruction Inc. uses the percentage2of2completion method of accounting for long2term construction
contracts. In +,*-, $andlewood began wor% on a /*,,,,,,,,, construction contract, which was completed in +,*.. The
accounting records disclosed the following data at the end of +,*-:
8ow much gross profit should $andlewood have recognized in +,*-;
A)
/:,,,,,,
B)
/*,,,,,,,,
C)
/9,,,,,,
D)
/,
11
6ased on the same data in question *,, in addition to accounts receivable, what would appear in the +,*- balance
sheet related to the construction accounts;
A)
current asset of /*,-,,,,,,
B)
current liability of /<,,,,,,
C)
current asset of /<,,,,,,
D)
current asset of /*,<,,,,,,
12
The $impson &onstruction &ompany uses the percentage2of2completion method of accounting for long2term
construction contracts. In +,*-, $impson began wor% on a construction contract. Information on this contract at the
end of +,*- is as follows:
(hat is the contract price =total revenue> on this pro?ect;
A)
/:,,,,,,,,
B)
/0,:1,,,,,
C)
/:,1,,,,,,
D)
/<,,,,,,,,
13
$mith &ompany earns a *+@ return on assets. If net income is /:+,,,,,, average total assets must be:
A)
/09,.,,
B)
/9,,,,,,,,
C)
/9,,09,.,,
D)
/-,,,,,,,,
14
The Esquire &ompany reported sales of /*,9,,,,,, and cost of goods sold of /*,*++,,,, for the year ended 7ecember
-*, +,*-. Ending inventory for +,*+ and +,*- was /.+,,,,, and /.9,,,,,, respectively. EsquireAs inventory turnover
for +,*- is:
A)
+...
B)
+.11
C)
-.9.
D)
-..0
15
The following data for the BcCuire &orporation apply to this question:
The accounts receivable turnover for +,*- is:
A)
*,.,
B)
0.--
C)
1.+
D)
..--
16
The following data for the BcCuire &orporation apply to this question:
The return on shareholdersA equity for +,*- is:
A)
+,@
B)
0@
C)
++.++@
D)
+1@
17
(hich of the following is an indicator that the seller is an agent with respect to a transaction;
A)
The seller is primarily responsible for providing the product or service to the customer.
B)
The seller lac%s discretion in setting prices and identifying suppliers.
C)
The seller owns inventory prior to a customer ordering it and after a customer returns it.
D)
The seller holds the ris% of nonpayment by customers.
18
Question 18 is based on Appendix 5.
(hich of the following is not a required disclosure for interim period reporting;
A)
Earnings per share.
B)
E3traordinary items.
C)
Deneral and administrative e3penses.
D)
$ales.
19
Suppleent
!espond to t"ese #uestions $it" t"e presuption t"%t t"e guid%n&e pro'ided b( t"e ne$ A&&ounting
St%nd%rds )pd%te is being %pplied*
(hich of the following is not one of the steps for recognizing revenue;
A)
Identify the single most important performance obligation of the contract.
B)
Identify the contract with the customer.
C)
Estimate the total transaction price of the contract.
D)
llocate the transaction price to the separate performance obligations.
20
(hich of the following is not one of the characteristics of a contract for purposes of revenue recognition;
A)
Payment terms.
B)
Ei%ely performance.
C)
#ights.
D)
Performance.
21
(hich of the following is not a separate performance obligation;
A)
n individual good that is part of a bundle of interrelated goods and services that are combined by the seller as
part of an integration service to create a customized product for the buyer.
B)
good that is regularly sold separately from other goods and services.
C)
n option =sold with a product> that provides a material right beyond those offered by the firm to customers who
do not buy the product.
D)
warranty that the seller will fulfill all of the obligations specified in the original sales contract.
22
Drinstein sells consulting services that have a bonus clause. Drinstein is paid /*,,,, per wee%, plus /1,,,, at the end
of the si3 wee% contract if a performance goal has been met. Drinstein estimates a -,@ chance that the performance
goal will be met. ssuming that Drinstein uses a probability weighted estimate of uncertain consideration, how much
revenue will Drinstein record in wee% two of the contract;
A)
/*,1,,.
B)
/*,,,,.
C)
/*,+1,.
D)
/+,,,,.
23
Drinstein sells consulting services that have a bonus clause. Drinstein is paid /*,,,, per wee%, plus /1,,,, at the end
of the si3 wee% contract if a performance goal has been met. Drinstein estimates a -,@ chance that the performance
goal will be met. ssuming that Drinstein uses the most likely amount to estimate uncertain consideration, how much
revenue will Drinstein record in wee% four of the contract;
A)
/*,1,,.
B)
/*,,,,.
C)
/*,+1,.
D)
/+,,,,.
24
(hich of the following is not true about considering the time value of money in revenue recognition;
A)
Prepayment *1 months in advance results in interest revenue.
B)
Time value of money is included in the transaction price if it is significant.
C)
payment made 9 months after delivery does not result in interest e3pense.
D)
ll of the above are true.
25
(hich of the following is not true about recognizing revenue under the $!;
A)
performance obligation for transfer of control of a good is indicated when the buyer has assumed the ris%s and
rewards of ownership.
B)
performance obligation is being satisfied over time if the seller is enhancing an asset that the buyer controls as a
service is performed.
C)
The seller should not recognize all revenue in the arrangement until the seller is reasonably assured to receive the
total transaction price.
D)
The seller can recognize revenue associated with the gradual construction of a product so long as the product has
an alternate use to the seller.
26
(hich of the following is not true about recognizing revenue under the $!;
A)
6ad debts are recorded as an e3pense.
B)
llocation of the transaction price to performance obligation is based on standalone selling prices.
C)
If the selling price of a separate performance obligation is highly uncertain, the seller may use the residual method
to allocate transaction price to that performance obligation.
D)
If the seller provides a service of integrating a bundle of goods and services into a combined and customize item
for the buyer, that bundle of goods and services is viewed as a single performance obligation.