Deck 13: Revenue and Expense Recognition: Additional Concepts

Question 1

What 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.

Answer 1

A

Question 2

Which of the following is one of the key criteria that must normally be met in order that revenue may be recognised?

A) All costs of generating the revenue must have been paid in full.
B) The amount of revenue can be precisely measured in dollar terms.
C) Cash must have been received.
D) The economic benefit will probably flow to the seller.

Answer 2

D

Question 3

What profit was earned during the third year if the percentage of completion method was used?

A) $800 000
B) $440 000
C) $400 000
D) $360 000.

Answer 3

D

Question 4

What profit was earned during the first year if the percentage of completion method was used?

A) $300 000
B) $750 000
C) $1 500 000
D) $1 600 000.

Question 5

Which of the following statements about the percentage of completion method of revenue recognition is NOT true?

A) The percentage of completion method reflects the economics of what is happening.
B) The percentage of completion method is more conservative than the completion of production method.
C) Total costs must be reasonably determinable.
D) The use of this method requires considerable judgment.

Question 6

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 when a deposit is received.

Question 7

What profit was earned during the second year if the percentage of completion method was used?

A) $200 000
B) $240 000
C) $440 000
D) $1 500 000.

Question 8

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 purchase of merchandise.
D) Yhe business makes a cash sale of merchandise.

Question 9

When services are provided,it is customary to recognise revenue when the:

A) supplier agrees to provide the service
B) service is provided
C) service is paid for
D) warranty period expires.

Question 10

Revenue should be recognised when: (i)it can be reasonably measured in dollar terms
(ii)cash,a promise of cash,or other asset,has been received
(iii)most of the costs of generating the revenue have been incurred,and those remaining can be measured with reasonable accuracy.

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

Question 11

Revenue should not be recognised unless:

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

Question 12

Which of the following statements about the critical event in the revenue-generation sequence is true?

A) The most common critical event used is the receipt of cash from the customer.
B) The critical event is the point that can be readily documented and at which all revenue is recognised.
C) There can never be several critical events in a firm's operating cycle.
D) Revenue can be recognised even though no action relating to the contract has been completed.

Question 13

What profit was earned during the second year if the completed contract method was used?

A) $300 000
B) $750 000
C) $1 050 000
D) $0.

Question 14

What 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) $0.

Question 15

The most common critical event in the revenue generation sequence is:

A) manufacture of the goods
B) delivery to customer
C) collection of cash
D) completion of the warranty period.

Question 16

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

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

Question 17

Which of the following is NOT necessary in order to recognise revenue under the percentage of completion method?

A) Total costs for the project are reasonably determinable.
B) The contract price (total revenue)must be reasonably certain.
C) There must be a reasonable assurance of payment.
D) Engineering estimates of the percentage of completion have been made.

Question 18

What profit was earned during the third year if the percentage of completion method was used?

A) $450 000
B) $750 000
C) $1 500 000
D) $240 000.

Question 19

What 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) $400 000.

Question 20

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 21

At what point would you expect the builder of a football stadium to recognise revenue?

A) during production
B) on completion of production
C) at point of sale or delivery
D) when cash is received.

Question 22

What would be the effect of the change on 2011 net profit?

A) It would be $9100 higher.
B) It would be $9100 lower.
C) It would be $14 000 higher.
D) It would be $14 000 lower.

Question 23

Use the information below to answer the following questions:
On 1 January 2010, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from here to there. The light rail was to be built over 3 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:
$\begin{array}{llcc} & \text {\$ } \\ \text {2010 } &\$ 8000000 \\ \text { 2011 } &\$ 5000000 \\ \text { 2012} &\$ 2000000 \\ \text { } &\\ \text { } &\\\end{array}$

The project was completed in December 2012.

-Using the percentage of completion method,what profit would Romulus Ltd report in 2010?

A) $800 000
B) $2 000 000
C) $3 200 000
D) $1 300 000.

Question 24

At what point would you expect the Red Cross to recognise revenue from donations? There are no special conditions attached to the donations.

A) during production
B) on completion of production
C) at point of sale or delivery
D) when cash is received.

Question 25

Use the information below to answer the following questions:
On 1 January 2010, 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:
$$\begin{array} { r r } & \$ \\\text { 31 December 2010 } & \$ 15000000 \\\text { 31 December 2011 } & \$ 20000000 \\\text { 31 December 2012 } & \$ 29000000\end{array}$$
Estimated costs were $50 000 000. The project was 35% complete at the end of 2010, 75% complete at the end of 2011, and 100% complete at the end of 2012. Revenues and costs were as estimated.

-What profit was earned during 2011 if the percentage of completion method was used?

A) $3 281 250
B) $4 200 000
C) $4 900 000
D) $5 600 000.

Question 26

Use the information below to answer the following questions:
On 1 January 2010, 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:
$$\begin{array} { r r } & \$ \\\text { 31 December 2010 } & \$ 15000000 \\\text { 31 December 2011 } & \$ 20000000 \\\text { 31 December 2012 } & \$ 29000000\end{array}$$
Estimated costs were $50 000 000. The project was 35% complete at the end of 2010, 75% complete at the end of 2011, and 100% complete at the end of 2012. Revenues and costs were as estimated.

-What profit was earned during 2011 if the percentage of completion method was used?

A) $5 600 000
B) $4 375 000
C) $3 500 000
D) $10 500 000.

Question 27

At what point would you expect revenue from sales of software by a computer store to be recognised?

A) during production
B) on completion of production
C) at point of sale or delivery
D) when cash is received.

Question 28

Use the information below to answer the following questions:
On 1 January 2010, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from here to there. The light rail was to be built over 3 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:
$\begin{array}{llcc} & \text {\$ } \\ \text {2010 } &\$ 8000000 \\ \text { 2011 } &\$ 5000000 \\ \text { 2012} &\$ 2000000 \\ \text { } &\\ \text { } &\\\end{array}$

The project was completed in December 2012.

-Using the percentage of completion method,what profit would Romulus Ltd report in 2012?

A) $7 000 000
B) $6 000 000
C) $800 000
D) $280 000.

Question 29

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 30

Which of the following statements about the concept of revenue is true?

A) Estimates are not permitted in the measurement of revenue.
B) Contributions by owners may be considered revenues.
C) An inflow of future economic benefits may be considered revenues.
D) Revenue cannot be measured at fair value of the amount receivable.

Question 31

Opec Ltd manufactures crystal balls.Transactions for year ended 31 December 2012 were as follows: (i)18 000 units at a cost of $20 each were produced.
(ii)14 000 units were sold at $30 each.
(iii)Cash was collected on 10 000 of those units sold.
What was the reported profit for the year 2009?

A) $100 000
B) $140 000
C) $180 000
D) $350 000.

Question 32

What was the reported profit for the year ended 30 June 2012 if revenue was recognised when cash was received?

A) $5 000 000
B) $6 000 000
C) $24 000 000
D) $4 000 000.

Question 33

What was the reported profit for the year ended 30 June 2012 if revenue was recognised at the point of sale?

A) $4 750 000
B) $5 000 000
C) $6 000 000
D) $2 000 000.

Question 34

Toy Company manufactures toy koalas.Transactions for the year 2012 were as follows: (i)16 000 koalas were manufactured at a cost of $30 each.
(ii)12 000 koalas were sold for $50 each.
(iii)Cash was collected on 7000 of the items sold.
What was the reported profit for the year 2012 if revenue was recognised at the point of sale?

A) $140 000
B) $240 000
C) $320 000
D) $350 000.

Question 35

Use the information below to answer the following questions:
On 1 January 2010, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from here to there. The light rail was to be built over 3 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:
$\begin{array}{llcc} & \text {\$ } \\ \text {2010 } &\$ 8000000 \\ \text { 2011 } &\$ 5000000 \\ \text { 2012} &\$ 2000000 \\ \text { } &\\ \text { } &\\\end{array}$

The project was completed in December 2012.

-Using the percentage of completion method,what profit would Romulus Ltd report in 2011?

A) $2 000 000
B) $3,200 000
C) $6 000 000
D) $7 000 000.

Question 36

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

A) It paid $3300 in settlement of a loan obtained 3 months earlier.
B) It paid $500 for advertising performed in June.
C) It purchased $500 of repairs on account for the delivery truck,account will be paid during September.
D) It paid dividend to shareholders.

Question 37

When research and development costs are incurred in the expectation of future benefits but it is not possible,at the reporting date,to establish that it is probable that future economic benefits will eventuate,then:

A) the costs should be recognised as an asset
B) the costs should be recognised as expense together with estimated revenue
C) the costs should be recognised as expense prior to recognition of revenues
D) no action should be taken.

Question 38

Use the information below to answer the following questions:
On 1 January 2010, 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:
$$\begin{array} { r r } & \$ \\\text { 31 December 2010 } & \$ 15000000 \\\text { 31 December 2011 } & \$ 20000000 \\\text { 31 December 2012 } & \$ 29000000\end{array}$$
Estimated costs were $50 000 000. The project was 35% complete at the end of 2010, 75% complete at the end of 2011, and 100% complete at the end of 2012. Revenues and costs were as estimated.

-What profit was earned during 2012 if the percentage of completion method was used?

A) $3 500 000
B) $5 600 000
C) $6 343 750
D) $14 000 000.

Question 39

Which of the following transactions may NOT give rise to revenues?

A) receiving government grants
B) disposing of assets for book value
C) forgiveness of liabilities
D) cash received for services provided.

Question 40

Use the information below to answer the following questions:
On 1 January 2010, Romulus Ltd signed a contract worth $21 000 000 to construct a light rail from here to there. The light rail was to be built over 3 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:
$\begin{array}{llcc} & \text {\$ } \\ \text {2010 } &\$ 8000000 \\ \text { 2011 } &\$ 5000000 \\ \text { 2012} &\$ 2000000 \\ \text { } &\\ \text { } &\\\end{array}$

The project was completed in December 2012.

-Using the completion of production method,what profit would Romulus Ltd report in 2012?

A) $800 000
B) $5 000 000
C) $6 000 000
D) $0.

Question 41

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) There would be no difference.
D) It cannot be determined from the above information.

Question 42

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) It cannot be determined from the above information.

Question 43

Assuming that the dividend is unchanged,what is the effect of the error on retained profits at end of 2012?

A) It is $1800 too low.
B) It is $3000 too low.
C) It is $1800 too high.
D) There is no effect.

Question 44

What difference would there be to the total profit for two years if the completion of production method were used?

A) Profit would be $1 160 000 higher.
B) Profit would be $690 000 higher.
C) Profit would be $470 000 higher.
D) There would be no difference.

Question 45

Assuming that the dividend is unchanged,what is the effect of the error on retained profits at end of 2011?

A) It is $1200 too high.
B) It is $1800 too high.
C) It is $3000 too high.
D) There is no effect.

Question 46

If salaries expense amounting to $3000 were eliminated,what would be the effect on net profit after tax?

A) It would decrease by $2100.
B) It would decrease by $3000.
C) It would increase by $2100.
D) It would increase by $3000.

Question 47

What would be the effect of the change on 2012 cash flow from operations?

A) It would be $2450 lower.
B) It would be $4550 lower.
C) It would be $7000 lower.
D) There would be no cash flow effect.

Question 48

What difference would there be in profit for year 2 if the completion of production method were used?

A) Profit would be $200 000 higher.
B) Profit would be $200 000 lower.
C) Profit would be $220 000 higher.
D) Profit would be $420 000 higher.

Question 49

If the rate of income tax were raised to 40%,what would be the effect on net profit?

A) It would increase by $700.
B) It would decrease by $700.
C) It would increase by $1000.
D) It would decrease by $1000.

Question 50

What is the effect of the error on 2012 cash from operations?

A) It is $3000 too high.
B) It is $1800 too high.
C) It is $1800 too low.
D) There is no cash effect.

Question 51

What is the effect of the error on 2011 cash from operations?

A) There is no cash effect.
B) It is $1200 too high.
C) It is $1800 too high.
D) It is $3000 too high.

Question 52

If revenue increased by 30%,with no effect on expenses other than income tax,what would be the effect on net after tax profit?

A) It would increase by $6600.
B) It would decrease by $6600.
C) It would increase by $4620.
D) It would decrease by $4620.

Question 53

What is the effect of the error on 2012 net profit?

A) It is $1800 too low.
B) It is $3000 too low.
C) It is $1800 too high.
D) It is $3000 too high.

Question 54

What would be the effect of the change on 2012 net profit?

A) It would be $13 650 higher.
B) It would be $13 650 lower.
C) It would be $21 000 higher.
D) It would be $21 000 lower.

Question 55

What is the effect of the error on the 2008 net profit?

A) It is $3000 too high.
B) It is $1800 too high.
C) It is $1200 too high.
D) It is $3000 too low.

Question 56

What difference would there be to profit for year 2 if the completion of production method were used?

A) Profit would be $1 160 000 higher.
B) Profit would be $690 000 higher.
C) Profit would be $470 000 lower.
D) Profit would be $470 000 higher.

Question 57

What difference would there be to the total profit for the two years if the completion of production method were used?

A) Profit would be $200 000 higher.
B) Profit would be $420 000 higher.
C) Profit would be $420 000 lower
D) There would be no difference.