Deck 13: Revenue and Expense Recognition: Additional Concepts

Question 1

Toy Company manufactures toy koalas. Transactions for the year 2018 were as follows: What was the reported profit for the year 2018 if revenue was recognised at the point of sale?

A) $140 000
B) $240 000
C) $320 000
D) None of the above

Answer 1

B

Question 2

Revenue from a credit sale should not be recognised until:

A) the goods have been paid for.
B) the warranty period has expired.
C) collection is reasonably assured.
D) it is certain that the goods will not be returned.

Answer 2

C

Question 3

Revenue should be recognised when:

A) i and ii only
B) i and iii only
C) ii and iii only
D) i, ii and iii

Answer 3

D

Question 4

Opec Ltd manufactures crystal balls. Transactions for year ended 31 December 2018 were as follows: What was the reported profit for the year 2018?

A) $100 000
B) $140 000
C) $180 000
D) None of the above

Question 5

With respect to services provided, it is customary to recognise revenue when the:

A) customer requests the service.
B) supplier agrees to provide the service.
C) service is provided.
D) service is paid for.

Question 6

The percentage of completion profit for a particular project of Redgate Ltd was $200 000 for year 1 and $220 000 for year 2 (completion). What difference would there be in profit for year 1 if the completion of production method were used?

A) Profit would be $200 000 higher.
B) Profit would be $200 000 lower.
C) There would be no difference.
D) None of the above.

Question 7

On 1 January 2017, Peter Ltd signed a contract worth $64 000 000 to construct the Cycling Stadium. The stadium was to be built over three years, with progress payments as follows: Estimated costs were $50 000 000. The project was 35 per cent complete at the end of 2017, 75 per cent complete at the end of 2018 and 100 per cent complete at the end of 2019. Revenues and costs were as estimated. How much profit was earned during 2019 if the percentage of completion method was used?

A) $3 500 000
B) $5 600 000
C) $14 000 000
D) None of the above

Question 8

Junction Company had the following transactions, among others, during August. Which transaction represented an expense during August?

A) It paid $4 000 in settlement of a loan obtained three months earlier.
B) It paid $700 for advertising performed in June.
C) It paid dividend to shareholders.
D) It received an invoice for $500 of repairs on the delivery truck; the account will be paid during September.

Question 9

The profit for a particular project of Blue Fin Ltd, using the percentage of completion method, was $470 000 for year 1 and $690 000 for year 2 (completion). What difference would there be to profit for year 1 if the completion of production method were used?

A) Profit would be $470 000 lower.
B) Profit would be $470 000 higher.
C) Profit would be $690 000 higher.
D) There would be no difference.

Question 10

Highrise Constructions Ltd had a large three-year project with total revenue of $5 000 000 and estimated total costs of $4 200 000. The project was 25 per cent complete at the end of the first year, 55 per cent complete at the end of the second year and 100 per cent complete at the end of the third year. Revenues and costs were as estimated. How much profit was earned during the first year if the percentage of completion method was used?

A) $200 000
B) $240 000
C) $250 000
D) $800 000

Question 11

Under which of the following circumstances would revenue normally be recognised?

A) A customer pays an overdue account
B) A customer pays for goods in advance of production
C) The business makes a cash sale of merchandise
D) None of the above

Question 12

At what point would you expect revenue from sales of building materials to be recognised?

A) During production
B) On completion of production
C) At point of sale or delivery
D) When cash is received

Question 13

Highrise Constructions Ltd had a large three-year project with total revenue of $5 000 000 and estimated total costs of $4 200 000. The project was 25 per cent complete at the end of the first year, 55 per cent complete at the end of the second year and 100 per cent complete at the end of the third year. Revenues and costs were as estimated. How much profit was earned during the third year if the completion of production method was used?

A) $360 000
B) $440 000
C) $800 000
D) None of the above

Question 14

Which of the following transactions should not result in revenue recognition in 2018?

A) Services for a customer were carried out on credit in 2018, to be collected in 2019.
B) Services were carried out for a customer for cash in 2018.
C) Payment was received from a customer in 2018, for services provided in 2017.
D) Goods were sold to a customer on credit in 2018, with cash to be collected in 2019.

Question 15

On 1 January 2016, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from A to B. The light rail was to be built over three years, with progress payments of $7 000 000 to be made at the end of each year. Estimated costs were $15 000 000 and the following costs incurred and paid by Romulus Ltd were in accordance with estimates and represented the percentage completed in each year: The project was completed in December 2018. Using the percentage of completion method, what profit would Romulus Ltd report in 2016?

A) $800 000
B) $2 000 000
C) $3 200 000
D) None of the above

Question 16

The profit for a particular project of Blue Fin Ltd, using the percentage of completion method, was $470 000 for year 1 and $690 000 for year 2 (completion). What difference would there be to profit for year 2 if the completion of production method were used?

A) Profit would be $470 000 higher.
B) Profit would be $690 000 higher.
C) Profit would be $1 160 000 higher.
D) None of the above

Question 17

Although revenue may be recognised at various points in the revenue generation sequence, it is normally recognised when:

A) customers forward a firm order.
B) the product is delivered to customer.
C) the customer pays for the goods.
D) the warranty period expires.

Question 18

Multi-Storey Builders Ltd had a large three-year project with total revenue of $8 000 000 and estimated total costs of $6 500 000. The project was 20 per cent complete at the end of the first year, 70 per cent complete at the end of the second year and 100 per cent complete at the end of the third year. Revenues and costs were as estimated. How much profit was earned during the second year if the percentage of completion method was used?

A) $300 000
B) $750 000
C) $1 050 000
D) None of the above

Question 19

Revenue recognition means that:

A) revenue is not recorded until payment by the customer.
B) the recording of expenses is delayed until the related revenue has been earned.
C) revenue is recorded when earned.
D) revenue is recorded when a deposit is received.

Question 20

On 1 January 2016, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from A to B. The light rail was to be built over three years, with progress payments of $7 000 000 to be made at the end of each year. Estimated costs were $15 000 000 and the following costs incurred and paid by Romulus Ltd were in accordance with estimates and represented the percentage completed in each year: The project was completed in December 2018. Using the completed contract method, how much profit would Romulus Ltd report in 2018?

A) $800 000
B) $2 000 000
C) $6 000 000
D) None of the above

Question 21

The income statement of Berrima Barbed Wire Ltd is: If revenue increased by 30 per cent, with no effect on expenses other than income tax, what would be the effect on net after tax profit?

A) It would increase by $4 620.
B) It would increase by $6 600.
C) It would decrease by $6 600.
D) None of the above.

Question 22

Leslie Ltd has found an error in its revenue account: an invoice for $3 000 was recorded as revenue in 2018 when it should have been recorded in 2019. The company's income tax rate is 40 per cent and there was no corresponding error in cost of goods sold. What is the effect of the error on 2018 cash from operations?

A) It is $1 200 too high.
B) It is $1 800 too high.
C) It is $3 000 too high.
D) There is no cash effect.

Question 23

Leslie Ltd has found an error in its revenue account: an invoice for $3 000 was recorded as revenue in 2018 when it should have been recorded in 2019. The company's income tax rate is 40 per cent and there was no corresponding error in cost of goods sold. What is the effect of the error on the 2018 net profit?

A) It is $1 200 too high.
B) It is $1 800 too high.
C) It is $3 000 too high.
D) Profit is not affected.