Question 1

If the goods sold to a customer are damaged in shipment the buyer normally asks for a n):
A)cash discount
B)accounts receivable
C)price allowance
D)credit allowance

Accepted Answer

If the goods sold to a customer are damaged in shipment, the buyer may request a price allowance or a credit allowance to compensate for the damaged goods. This is not the same as a cash discount, which is a reduction in the price for paying in cash, or an accounts receivable, which is the money owed to the seller by the buyer.

Question 2

The return on investment is equal to the net income divided by the sales investment.

Accepted Answer

The return on investment (ROI) is typically calculated as the net income divided by the total investment cost, not by the sales investment.

Question 3

The cost recovery and completed contract methods are two examples of revenue recognition being postponed until the cash from a sale is collected.

Accepted Answer

The cost recovery and completed contract methods are two examples of revenue recognition being postponed until the work is completed or the goods are delivered, not until the cash from a sale is collected.

Question 4

F.O.B.destination means that revenue is normally recognized when the goods reach the customer.

Accepted Answer

F.O.B. destination means that ownership of the goods transfers to the customer at the destination point, and revenue is recognized when the goods reach the customer.

Question 5

The incentive built in for prompt payment of cash by a customer for a credit sale is called a cash discount.

Accepted Answer

A cash discount is a price reduction offered by a supplier or seller to a customer who pays for a good or service within a specified time period. The discount serves as an incentive for the customer to pay promptly, and it allows the seller to receive immediate payment and avoid the need for financing or collection efforts.

Question 6

In which of the following businesses would the delivery of the product and the collection of cash occur at the same time?
A)A clothing retail store
B)An consulting firm
C)A home builder
D)An advertising firm

Accepted Answer

In a clothing retail store, when a customer purchases clothing, they typically pay for it at the same time as they receive the product. Therefore, the delivery of the product and the collection of cash occur simultaneously.

Question 7

A company may choose numerous methods of recognizing revenue for different revenue types.

Accepted Answer

A company may choose different revenue recognition methods based on the type of revenue they earn, such as recognizing revenue at the time of sale or over a period of time. The chosen method must adhere to the generally accepted accounting principles (GAAP).

Question 8

The matching concept requires that all costs and revenues be recognized early in the cash-to-cash cycle.

Accepted Answer

The matching concept requires that expenses be recognized in the same period as the revenues they help to generate. This means that some costs and revenues may not be recognized until a later period in the cash-to-cash cycle.

Question 9

In some industries, revenues are recognized at the time of production.

Accepted Answer

This is true for industries that use the percentage of completion method for revenue recognition, which recognizes revenue based on the percentage of work completed at a given time during production.

Question 10

Which of the following would not be a cost incurred in the acquisition of inventory component of the cash-to-cash cycle?
A)Purchasing equipment
B)Hiring labour
C)Delivering the product
D)Purchasing inventory

Accepted Answer

Delivering the product is associated with the distribution or sales phase of the business cycle, not the acquisition of inventory. The cash-to-cash cycle focuses on the period from when cash is spent on inventory until it is recovered through sales, and delivery costs occur after the inventory has been sold.

Question 11

The estimation of warranty costs is required by which accounting concept or principle?
A)Revenue recognition
B)Matching principle
C)Reliability
D)Cost-benefit

Accepted Answer

The estimation of warranty costs is required by the matching principle, which requires that expenses (such as warranty costs) be recognized in the same period as the related revenue is recognized. By estimating and accruing warranty costs in the period of sale, the matching principle is followed.

Question 12

The matching principle requires which of the following costs that have been incurred to produce this period's revenue to be recognized in the same period?
A)Costs incurred in the present period only.
B)Costs incurred in past and present periods.
C)Costs incurred in the present and future periods.
D)Costs incurred in the past, present and future periods.

Accepted Answer

The answer of The matching principle requires which of the...

Question 13

All of the following are considered to be activities in the selling activity of the cash-to-cash cycle except:
A)Hiring the sales staff
B)Pricing the product
C)Advertising the product
D)Delivering the product

Accepted Answer

Delivering the product is part of the production/operations cycle, not the selling activity.

Question 14

If performance has been achieved, the amounts earned can be measured and there is reasonable assurance of collection, then revenue should be recognized.

Accepted Answer

This is in accordance with the revenue recognition principle in accounting.

Question 15

If a $6,750 sale is made on December 30 with terms of 2\10, net 30 and collection is made on January 31 the amount collected is:
A)$5,400
B)$6,615
C)$6,750
D)$6,885

Accepted Answer

The terms 2/10, net 30 mean a 2% discount is available if payment is made within 10 days. Since the payment is made on January 31, which is beyond the 10-day discount period, the full amount of $6,750 is collected.

Question 16

Which of the following would indicate high quality earnings for a company?
A)Increasing revenue while cash from operations is stable.
B)Increasing net income while cash from operations decreases.
C)Revenue and net income that move together.
D)Net income and cash flow from operations that move together.

Accepted Answer

Net income and cash flow from operations that move together indicate that the reported earnings are backed by actual cash generated by the company's business operations. This suggests that the company's financial performance is sustainable and not solely based on accounting adjustments or non-operational items.

Question 17

All of the following statements about the cash-to-cash cycle are true except:
A)It includes normal day to day operating activities, investing activities, and financing activities.
B)It includes normal buying \ selling of goods to earn profit.
C)Typical business operations involve an outflow of cash followed by an inflow of cash
D)Specific activities include purchasing inventory and selling product.

Accepted Answer

The cash-to-cash cycle does not include investing activities or financing activities as they are separate and distinct from day to day operating activities aimed at buying and selling goods to earn a profit.

Question 18

A service business would normally have a larger cash outlay in the initial phase of its cash-to-cash cycle than a retail company.

Accepted Answer

A retail company typically has to purchase inventory and pay for it upfront, which results in a larger cash outlay in the initial phase of its cash-to-cash cycle. In contrast, a service business may not have significant upfront costs and its cash-to-cash cycle may be shorter.

Question 19

In order to use the completed contract method of revenue recognition for a long-term project it is necessary to be able to reasonably estimate the total costs of the project.

Accepted Answer

The completed contract method does not require an estimate of the total costs to recognize revenue; it recognizes revenue and expenses only when a contract is completed.

Question 20

If a $12,500 sale is made on September 21 with terms 2\10 net 30 and collection is made on October 2, the amount collected is:
A)$12,250
B)$10,000
C)$12,750
D)$12,500

Accepted Answer

The terms 2\10 net 30 mean the buyer can take a 2% discount if the invoice is paid within 10 days; otherwise, the full amount is due in 30 days. Since the collection is made on October 2, which is within 10 days from September 21, the buyer can take a 2% discount on $12,500, which is $250 ($12,500 * 2% = $250). Therefore, the amount collected is $12,500 - $250 = $12,250.

Quiz 4: Revenue Recognition

If the goods sold to a customer are damaged in shipment the buyer normally asks for a n) :

The return on investment is equal to the net income divided by the sales investment.

The cost recovery and completed contract methods are two examples of revenue recognition being postponed until the cash from a sale is collected.

F.O.B.destination means that revenue is normally recognized when the goods reach the customer.

The incentive built in for prompt payment of cash by a customer for a credit sale is called a cash discount.

In which of the following businesses would the delivery of the product and the collection of cash occur at the same time?

A company may choose numerous methods of recognizing revenue for different revenue types.

The matching concept requires that all costs and revenues be recognized early in the cash-to-cash cycle.

In some industries, revenues are recognized at the time of production.

Which of the following would not be a cost incurred in the acquisition of inventory component of the cash-to-cash cycle?

The estimation of warranty costs is required by which accounting concept or principle?

The matching principle requires which of the following costs that have been incurred to produce this period's revenue to be recognized in the same period?

All of the following are considered to be activities in the selling activity of the cash-to-cash cycle except:

If performance has been achieved, the amounts earned can be measured and there is reasonable assurance of collection, then revenue should be recognized.

If a $6,750 sale is made on December 30 with terms of 2\10, net 30 and collection is made on January 31 the amount collected is:

Which of the following would indicate high quality earnings for a company?

All of the following statements about the cash-to-cash cycle are true except:

A service business would normally have a larger cash outlay in the initial phase of its cash-to-cash cycle than a retail company.

In order to use the completed contract method of revenue recognition for a long-term project it is necessary to be able to reasonably estimate the total costs of the project.

If a $12,500 sale is made on September 21 with terms 2\10 net 30 and collection is made on October 2, the amount collected is: