Question 1

The rationale for adoption of the percentage-of-completion method is that:

Accepted Answer

A)  Results are more conservative.
B)  It provides a measure of periodic accomplishment.
C)  It is a better match with legal ownership.
D)  It results in a lower income tax.E) All of the above
F) A) and D)

Question 2

Assume a payment is made nine months after delivery of a product. The seller is likely to do which of the following, with respect to the time value of money over the life of the contract?

Accepted Answer

A)  Recognize interest expense.
B)  Recognize interest revenue.
C)  Ignore the time value of money.
D)  None of the other answers is correctE) B) and C)
F) A) and C)

Question 3

Hulkster's 2013 average collection period is:

Accepted Answer

A)  73 days.
B)  104 days.
C)  109 days.
D)  128 days.E) B) and D)
F) C) and D)

Question 4

In 2014, Lake would recognize realized gross profit of:

Accepted Answer

A)  $0.
B)  $300,000.
C)  $310,000.
D)  $700,000.E) C) and D)
F) B) and D)

Question 5

Performance obligations are distinct if:

Accepted Answer

A)  The seller regularly sells the good or service separately.
B)  A buyer could use the good or service on its own.
C)  A buyer could use the good or service in combination with goods or services the buyer could obtain elsewhere.
D)  All of the other answers is correctE) A) and B)
F) A) and C)

Question 6

The percentage-of-completion method violates the general rule for revenue recognition that:

Accepted Answer

A)  Collection is reasonably assured.
B)  Costs are known or reasonably estimated.
C)  The earnings process is complete.
D)  Collections have been received.E) B) and C)
F) A) and C)

Question 7

Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS can recognize revenue associated with the $50,000:

Accepted Answer

A)  When Steffi signs the agreement, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.
B)  As soon as RS has assisted Steffi in setting up the store, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.
C)  Gradually as RS provides advertising and administration services.
D)  When RS receives installment payments from Steffi, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.E) A) and B)
F) C) and D)

Question 8

Sanjeev enters into a contract offering uncertain consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev estimates uncertain consideration using the most likely amount. What is the amount of revenue Sanjeev would recognize for the first month of the contract?

Accepted Answer

A)  $0.
B)  $1,000.
C)  $1,333.
D)  $1,400.E) B) and D)
F) B) and C)

Question 9

What is SDH's journal entry to record revenue in 2013?

Accepted Answer

A)   
B)   
C)   
D)   E) A) and C)
F) B) and C)

Question 10

Jing Statistical Services operates a website that links experienced statisticians with businesses that need data analyzed. Statisticians post their rates, qualifications, and references on the website, and Jing receives 25% of the fee paid to the statisticians in exchange for identifying potential customers. VetMed Associates contact Jing and arranges to pay a consultant $1,500 in exchange for analyzing some data. Jing's income statement would include the following with respect to this transaction:

Accepted Answer

A)  Revenue of $1,500.
B)  Revenue of $1,500, and cost of services of $1,125 (= 75% x $1,500) .
C)  Revenue of $375 (= 25% x $1,500) .
D)  None of the other answers is correct.E) All of the above
F) A) and B)

Question 11

Identify and explain the criteria for recognition of revenue added by SEC guidelines for revenue recognition .

Accepted Answer

The four criteria identified were: 1. Pe...

Question 12

Sullivan should recognize revenue for the two parts of the arrangement as follows:

Accepted Answer

A)  Recognize the entire $500 when the customer pays cash to buy the package.
B)  Recognize the portion of the $500 attributable to the software program when the customer pays cash to buy the package, defer the portion attributable to technical support and recognize over the support period.
C)  Defer the entire $500 and recognize over the support period.
D)  None of the other answers is correctE) C) and D)
F) B) and D)

Question 13

For 2013, what is the journal entry to record revenue?

Accepted Answer

A)   
B)   
C)   
D)   E) None of the above
F) B) and C)

Question 14

Gunk Goblin sells vacuums and just launched a policy where customers have the right to return a vacuum during a three-year period following purchase. Gunk management has no experience under this sort of policy and does not believe it can accurately estimate returns. What is the longest period of time that Gunk may have to wait before recognizing gross profit associated with one of these sales?

Accepted Answer

A)  No time delay, recognize gross profit upon delivery.
B)  Gunk should recognize gross profit as cash is received under the installment method.
C)  Gunk should defer gross until costs are recovered under the cost recovery method.
D)  Three years, after the right of return has expireD.If returns can't be estimated, revenue should be deferred until it can or until the return of right expires.E) A) and D)
F) All of the above

Question 15

Firms have free choice as to whether they use the percentage-of-completion method or the completed contract method to account for a long-term contract.

Accepted Answer

A) True 
 B)False

Question 16

Revenue on a multiple-element contract typically is allocated to independent parts of the contract based on their relative selling prices.

Accepted Answer

A) True 
 B)False

Question 17

IFRS provides detailed guidance concerning accounting for revenue with respect to multiple-element contracts.

Accepted Answer

A) True 
 B)False

Question 18

The percentage-of-completion method is preferable to the completed contract method and should only be avoided if:

Accepted Answer

A)  Completion rates are certain.
B)  Profits are low.
C)  Projects are more than five years to completion.
D)  There is a lack of dependable estimates or inherent hazards cause forecasts to be doubtful.E) A) and B)
F) A) and C)

Question 19

Under the realization principle, revenue should not be recognized until the earnings process is deemed virtually complete and:

Accepted Answer

A)  Revenue is realized.
B)  Any receivable is collected.
C)  Collection is reasonably certain.
D)  Collection is absolutely assured.E) B) and D)
F) None of the above

Question 20

In 2013, Reliable would recognize gross profit of:

Accepted Answer

A)  $0.
B)  $6,000.
C)  $5,000.
D)  $10,000.E) None of the above
F) A) and B)

Exam 5: Income Measurement and Profitability Analysis

Correct Answer
verified

Correct Answer
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Hulkster's 2013 average collection period is:

Correct Answer
verified

Under the realization principle, revenue should not be recognized until the earnings process is deemed virtually complete and:

Correct Answer
verified

The percentage-of-completion method is preferable to the completed contract method and should only be avoided if:

Correct Answer
verified

The rationale for adoption of the percentage-of-completion method is that:

Correct Answer
verified

Firms have free choice as to whether they use the percentage-of-completion method or the completed contract method to account for a long-term contract.

Correct Answer
verified

Assume a payment is made nine months after delivery of a product. The seller is likely to do which of the following, with respect to the time value of money over the life of the contract?

Correct Answer
verified

For 2013, what is the journal entry to record revenue?

Correct Answer
verified

What is SDH's journal entry to record revenue in 2013?

Correct Answer
verified

Correct Answer
verified

Revenue on a multiple-element contract typically is allocated to independent parts of the contract based on their relative selling prices.

Correct Answer
verified

In 2013, Reliable would recognize gross profit of:

Correct Answer
verified

Performance obligations are distinct if:

Correct Answer
verified

Sullivan should recognize revenue for the two parts of the arrangement as follows:

Correct Answer
verified

Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS can recognize revenue associated with the $50,000:

Correct Answer
verified

In 2014, Lake would recognize realized gross profit of:

Correct Answer
verified

Identify and explain the criteria for recognition of revenue added by SEC guidelines for revenue recognition .

Correct Answer
verified
The four criteria identified were: 1. Pe...
View Answer

IFRS provides detailed guidance concerning accounting for revenue with respect to multiple-element contracts.

Correct Answer
verified

The percentage-of-completion method violates the general rule for revenue recognition that:

Correct Answer
verified

Exam 5: Income Measurement and Profitability Analysis

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Hulkster's 2013 average collection period is:

Correct AnswerverifiedShow Answer

Under the realization principle, revenue should not be recognized until the earnings process is deemed virtually complete and:

Correct AnswerverifiedShow Answer

The percentage-of-completion method is preferable to the completed contract method and should only be avoided if:

Correct AnswerverifiedShow Answer

The rationale for adoption of the percentage-of-completion method is that:

Correct AnswerverifiedShow Answer

Firms have free choice as to whether they use the percentage-of-completion method or the completed contract method to account for a long-term contract.

Correct AnswerverifiedShow Answer

Assume a payment is made nine months after delivery of a product. The seller is likely to do which of the following, with respect to the time value of money over the life of the contract?

Correct AnswerverifiedShow Answer

For 2013, what is the journal entry to record revenue?

Correct AnswerverifiedShow Answer

What is SDH's journal entry to record revenue in 2013?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Revenue on a multiple-element contract typically is allocated to independent parts of the contract based on their relative selling prices.

Correct AnswerverifiedShow Answer

In 2013, Reliable would recognize gross profit of:

Correct AnswerverifiedShow Answer

Performance obligations are distinct if:

Correct AnswerverifiedShow Answer

Sullivan should recognize revenue for the two parts of the arrangement as follows:

Correct AnswerverifiedShow Answer

Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS can recognize revenue associated with the $50,000:

Correct AnswerverifiedShow Answer

In 2014, Lake would recognize realized gross profit of:

Correct AnswerverifiedShow Answer

Identify and explain the criteria for recognition of revenue added by SEC guidelines for revenue recognition .

Correct AnswerverifiedThe four criteria identified were: 1. Pe...View AnswerShow Answer

IFRS provides detailed guidance concerning accounting for revenue with respect to multiple-element contracts.

Correct AnswerverifiedShow Answer

The percentage-of-completion method violates the general rule for revenue recognition that:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The four criteria identified were: 1. Pe...
View Answer

Correct Answer
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Correct Answer
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