Chapter 5 Quiz(See related pages)

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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)A purchase order has been received.

2Under IFRS, revenue for the sale of goods is recognized when the seller has transferred to the buyer:

A)A signed invoice.

B)The risks and rewards of ownership.

C)Compelling evidence that substantive installation has occurred.

D)None of the above.

3Western Appliance Company, which began business on January 1, 2013, appropriately uses the installment sales method of accounting. The following data are available for 2013:

A)a

B)b

C)c

d

D)

4The Pattison Company began operations on January 2, 2013, and appropriately uses the installment sales method of accounting. The following data are available for 2013 and 2014:

The deferred gross profit that would appear in the 2014 balance sheet is:

A)$180,000

B)$200,000

C)$285,000

D)$225,000

5When accounting for a long-term construction contract under IFRS, if the percentage-of-completion 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)Neither the cost recovery method or the completed contract method.

6When IFRS uses the cost recovery method to account for a long-term contract,

A)Revenue typically is recognized in excess of costs incurred early in the life of the contract.

B)Costs in excess of revenue are typically recognized early in the life of the contract.

C)Revenue equal to costs are typically recognized early in the life of the contract.

D)Revenue is based on contract completion, not on costs, early in the life of the contract.

7For profitable long-term contracts, income is recognized in each year under the:

A)Completed contract method: No; Percentage-of-completion method: No

Completed contract method: Yes; Percentage-of-completion method: No

B)

C)Completed contract method: Yes; Percentage-of-completion method: Yes

D)Completed contract method: No; Percentage-of-completion method: Yes

8When accounting for a long-term construction contract using the percentage-of-completion method, gross profit recognized in any year is debited to:

A)Construction in progress.

B)Billings on construction contract.

C)Deferred income.

D)Accounts receivable.

9Hollywood Construction Company uses the percentage-of-completion method of accounting for long-term construction contracts. During 2014, Hollywood began work on a $3,000,000 fixed-fee construction contract, which was completed in 2016. The accounting records disclosed the following data at year-end:

For the 2015 year, Hollywood should have recognized gross profit on this contract of:

A)$100,000

B)$500,000

C)$266,667

D)$225,000

10Sandlewood Construction Inc. uses the percentage-of-completion method of accounting for long-term construction contracts. In 2013, Sandlewood began work on a $10,000,000 construction contract, which was completed in 2014. The accounting records disclosed the following data at the end of 2013:

How much gross profit should Sandlewood have recognized in 2013?

A)$700,000

B)$1,000,000

C)$600,000

D)$0

11Based on the same data in question 10, in addition to accounts receivable, what would appear in the 2013 balance sheet related to the construction accounts?

A)A current asset of $1,300,000

B)A current liability of $900,000

C)A current asset of $900,000

D)A current asset of $1,900,000

12The Simpson Construction Company uses the percentage-of-completion method of accounting for long-term construction contracts. In 2013, Simpson began work on a construction contract. Information on this contract at the end of 2013 is as follows:

What is the contract price (total revenue) on this project?

A)$7,000,000

B)$8,750,000

C)$7,500,000

D)$9,000,000

13Smith Company earns a 12% return on assets. If net income is $720,000, average total assets must be:

A)$86,400

B)$6,000,000

C)$6,086,400

D)$3,000,000

14The Esquire Company reported sales of $1,600,000 and cost of goods sold of $1,122,000 for the year ended December 31, 2013. Ending inventory for 2012 and 2013 was $420,000 and $460,000, respectively. Esquire's inventory turnover

for 2013 is:

A)2.44

B)2.55

C)3.64

D)3.48

15The following data for the McQuire Corporation apply to this question:

The accounts receivable turnover for 2013 is:

A)10.0

B)8.33

C)5.2

D)4.33

16The following data for the McQuire Corporation apply to this question:

The return on shareholders' equity for 2013 is:

A)20%

8%

B)

C)22.22%

D)25%

17Which 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 lacks 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 risk of nonpayment by customers.

18Question 18 is based on Appendix 5.

Which of the following is not a required disclosure for interim period reporting?

A)Earnings per share.

B)Extraordinary items.

C)General and administrative expenses.

D)Sales.

19SupplementRespond to these questions with the presumption that the guidance provided by the new Accounting Standards Update is being applied.

Which 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)Allocate the transaction price to the separate performance obligations.

20Which of the following is not one of the characteristics of a contract for purposes of revenue recognition?

A)Payment terms.

B)Likely performance.

C)Rights.

D)Performance.

21Which of the following is not a separate performance obligation?

A)An 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)A good that is regularly sold separately from other goods and services.

C)An 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)A warranty that the seller will fulfill all of the obligations specified in the original sales contract.

22Grinstein sells consulting services that have a bonus clause. Grinstein is paid $1,000 per week, plus $5,000 at the end of the six week contract if a performance goal has been met. Grinstein estimates a 30% chance that the performance goal will be met. Assuming that Grinstein uses a probability weighted estimate of uncertain consideration, how much revenue will Grinstein record in week two of the contract?

A)$1,500.

B)$1,000.

C)$1,250.

D)$2,000.

23Grinstein sells consulting services that have a bonus clause. Grinstein is paid $1,000 per week, plus $5,000 at the end of the six week contract if a performance goal has been met. Grinstein estimates a 30% chance that the performance goal will be met. Assuming that Grinstein uses the most likely amount to estimate uncertain consideration, how much revenue will Grinstein record in week four of the contract?

A)$1,500.

B)$1,000.

C)$1,250.

D)$2,000.

24Which of the following is not true about considering the time value of money in revenue recognition?

A)Prepayment 15 months in advance results in interest revenue.

B)Time value of money is included in the transaction price if it is significant.

C)A payment made 6 months after delivery does not result in interest expense.

D)All of the above are true.

25Which of the following is not true about recognizing revenue under the ASU?

A)A performance obligation for transfer of control of a good is indicated when the buyer has assumed the risks and rewards of ownership.

B)A 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.

26Which of the following is not true about recognizing revenue under the ASU?

A)Bad debts are recorded as an expense.

B)Allocation 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.