Question 1

Under a consignment sales arrangement, revenue is recognized under the earnings approach
A)upon shipment of the merchandise to the consignee.
B)upon receipt of the merchandise by the consignee.
C)upon sale by the consignee.
D)upon receipt by the consignor of notification of the sale.

Accepted Answer

Revenue is recognized upon sale by the consignee because until that point, the consignor still owns the merchandise and has not yet earned revenue from its sale. Additionally, the consignee may return unsold merchandise or the consignment arrangement may be terminated, so revenue recognition cannot occur until a actual sale takes place.

Question 2

Which of the following statements is correct regarding long-term construction contracts?
A)ASPE only allows the use of the completed-contract method.
B)ASPE only allows the use of the percentage-of-completion method.
C)IFRS only allows the use of the percentage-of-completion and the zero-profit method.
D)IFRS allows the use of the percentage-of-completion and the zero-profit method, but
Does not preclude the use of the completed-contract method.

Accepted Answer

The answer of Which of the following statements is correct...

Question 3

Use the following information for questions. A product and service are bundled together and sold to customers for $350.The fair values of the product and service are $300 and $100 respectively.
-Under the relative fair value method, how much would be allocated to the product?
A)$300.00
B)$262.50
C)$200.00
D)$175.00

Accepted Answer

The answer of Use the following information for questions. A...

Question 4

Use the following information for questions. A product and service are bundled together and sold to customers for $350.The fair values of the product and service are $300 and $100 respectively.
-Under the residual method, how much would be allocated to the product?
A)$300.00
B)$262.50
C)$250.00
D)$200.00

Accepted Answer

The answer of Use the following information for questions. A...

Question 5

Which of the following statements does NOT describe a long-term construction project that is accounted for under the completed contract method?
A)Revenues are recognized at the end of the contract.
B)Revenues are recognized evenly throughout the contract.
C)Gross profit is recognized at the end of the contract.
D)Losses are recognized immediately.

Accepted Answer

The completed contract method recognizes revenues and gross profit only when the contract is completed. Therefore, revenues cannot be recognized evenly throughout the contract under this method.

Question 6

Under the completed-contract method,
A)revenue, costs, and gross profit are recognized during the contract.
B)revenue and costs are recognized during the contract, but gross profit recognition is
Deferred until the contract is completed.
C)costs are recognized during the contract, but revenue and gross profit are not.
D)revenue, costs and gross profit are not recognized until the contract is finished.

Accepted Answer

Under the completed-contract method, revenue and costs are recognized during the contract, but gross profit recognition is deferred until the contract is completed.

Question 7

The journal entries to recognize the revenue from a consignment sale would likely be identical under the earnings and the contract-based approaches assuming
A)the contract is entered into at the same time as when control over the goods is passed to
The customer.
B)the underlying goods or services are valued under the residual value method.
C)the completed contract method is used.
D)the percentage-of-completion method is used.

Accepted Answer

The contract-based approach recognizes revenue when the performance obligation is satisfied, which is typically when control over the goods is passed to the customer. The earnings approach recognizes revenue when it is earned, which is also typically when control over the goods is passed to the customer. Therefore, the journal entries to recognize the revenue from a consignment sale would likely be identical under the earnings and the contract-based approaches assuming the contract is entered into at the same time as when control over the goods is passed to the customer.

Question 8

The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it
A)is unacceptable for income tax purposes.
B)gives results based upon estimates which may be subject to considerable uncertainty.
C)is likely to assign a small amount of revenue to a period during which a large amount of
Revenue was actually earned.
D)no revenue is recognized during the contract.

Accepted Answer

The answer of The principal disadvantage of using the percentage-of-completion...

Question 9

The proposed new revenue recognition model currently being studied by the IASB and FASB is the
A)contract-based approach.
B)earnings approach.
C)percentage of completion method.
D)completed contract method.

Accepted Answer

The answer of The proposed new revenue recognition model currently...

Question 10

Under the earnings approach, if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction should be recognized at the time of sale if
A)the market for returnable goods is untested.
B)there is a transfer of the risks and rewards of ownership.
C)the amount of future returns can be reasonably estimated.
D)the amount of goods returned is likely to be high.

Accepted Answer

Revenue from a sales transaction should be recognized when there is a transfer of the risks and rewards of ownership, even if the buyer has the right to return the product. This is because the seller has fulfilled its obligations under the contract by transferring ownership, and any potential returns do not affect this recognition. However, if future returns can be reasonably estimated, a provision for returns should be recorded at the time of sale to reflect the expected reduction in revenue.

Question 11

Use the following information for questions. A product and service are bundled together and sold to customers for $350.The fair values of the product and service are $300 and $100 respectively.
-Cello Corp.has made a sale to a customer valued at $1,500,000.The associated expenses are $300,000.Some aspects of this sale have created an element of measurement uncertainty. Assuming that this element of uncertainty can be reasonably estimated at $450,000, Cello should
A)Increase revenues by $450,000.
B)Increase expenses by $450,000.
C)Decrease expenses by $450,000.
D)Increase expenses by $300,000.

Accepted Answer

The correct answer is A because the element of measurement uncertainty should be recognized as an increase in revenues.

Question 12

Cost estimates at the end of the second year indicate a loss will result on completion of the entire contract.Which of the following statements is correct?
A)Under the completed-contract method, the loss is not recognized until the year the
Construction is completed.
B)Under the percentage-of-completion method, the gross profit recognized in the first year
Must not be changed.
C)Under the completed-contract method, when the billings exceed the accumulated costs,
The amount of the estimated loss is reported as a current liability.
D)Under the completed-contract method, when the Construction in Process balance
Exceeds the billings, the estimated loss is added to the accumulated costs.

Accepted Answer

Under the completed-contract method, when billings exceed accumulated costs, the estimated loss is recognized as a current liability to reflect the anticipated loss on the contract.

Question 13

Under the percentage-of-completion method, how should earned but unbilled revenues on a long-term contract be disclosed on the statement of financial position?
A)as construction in process in the current asset section
B)as construction in process in the noncurrent asset section
C)as a receivable in the noncurrent asset section
D)in a note to the financial statements until the customer is formally billed for the portion of
Work completed

Accepted Answer

The answer of Under the percentage-of-completion method, how should earned...

Question 14

Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract.In this case, the entire expected loss should be
A)recognized in the current period, regardless of whether the percentage-of-completion or
Completed-contract method is used.
B)recognized in the current period under the percentage-of-completion method, but the
Completed-contract method should defer recognition of the loss to the time when the
Contract is completed.
C)recognized in the current period under the completed-contract method, but the
Percentage-of-completion method should defer the loss until the contract is completed.
D)deferred and recognized when the contract is completed, regardless of whether the
Percentage-of-completion or completed-contract method is used.

Accepted Answer

The answer of Cost estimates on a long-term contract may...

Question 15

Which of the following is NOT one of the five steps under the proposed new revenue recognition standard currently being studied by the IASB and FASB?
A)Identify the contract(s)with the customer.
B)Determine the transaction price.
C)Determine the collectability of the contract.
D)Recognize revenue when a performance obligation is satisfied.

Accepted Answer

The answer of Which of the following is NOT one...

Question 16

Under a consignment sales arrangement,
A)the consignor receives the merchandise to sell.
B)the consignor retains legal title.
C)the consignee ships the merchandise to the consignor.
D)the consignee retains legal title.

Accepted Answer

Under a consignment sales arrangement, the consignor (the owner of the goods) retains legal title to the merchandise until it is sold. The consignee (the party selling the goods on behalf of the consignor) does not obtain legal title to the merchandise; instead, they sell the goods on behalf of the consignor.

Question 17

Use the following information for questions. A product and service are bundled together and sold to customers for $350.The fair values of the product and service are $300 and $100 respectively.
-On January 1, 2014, Trumpet Ltd.sold land that cost $180,000 for $240,000, receiving a note bearing interest at 10 percent.The note will be paid in three annual instalments of $96,510 starting December 31, 2014.Assuming that collection of the note is very uncertain, how much revenue from this sale should Trumpet recognize in 2014?
A)$0
B)$18,000
C)$24,000
D)$96,510

Accepted Answer

The answer of Use the following information for questions. A...

Question 18

The completed contract method for accounting for long-term construction projects requires that
A)no revenue is recognized until the project is completed.
B)costs are accumulated and revenue is recognized in proportion to cash collected.
C)gross profit is calculated each period, but deferred until the end of the contract.
Revenue Recognition 6 - 13
D)revenue is calculated each period, but deferred until the end of the contract.

Accepted Answer

The completed contract method recognizes revenue and gross profit only when the contract is completed, not during the construction process.

Question 19

When a realtor sells a house for a client, he/she
A)takes temporary title to the property until the client moves in.
B)has the risks and rewards of ownership until the client moves in.
C)receives a commission on the sale but does not hold title to the property.
D)does hold title to the property but has the risks and rewards of ownership until the client
Moves in.

Accepted Answer

The answer of When a realtor sells a house for...

Question 20

Losses in long-term construction projects
A)are generally deferred until the contract is complete.
B)are only recognized immediately under the completed-contract method.
C)are only recognized immediately under the percentage-of-completion method.
D)are recognized immediately under both the completed-contract method and the
Percentage-of-completion method.

Accepted Answer

Losses in long-term construction projects are recognized immediately under both the completed-contract method and the percentage-of-completion method to ensure that financial statements reflect the economic reality of the project.

Quiz 1: Intermediate Accounting Volume 1

Under a consignment sales arrangement, revenue is recognized under the earnings approach

Which of the following statements is correct regarding long-term construction contracts?

Use the following information for questions. A product and service are bundled together and sold to customers for $350.The fair values of the product and service are $300 and $100 respectively. -Under the relative fair value method, how much would be allocated to the product?

Use the following information for questions. A product and service are bundled together and sold to customers for $350.The fair values of the product and service are $300 and $100 respectively. -Under the residual method, how much would be allocated to the product?

Which of the following statements does NOT describe a long-term construction project that is accounted for under the completed contract method?

Under the completed-contract method,

The journal entries to recognize the revenue from a consignment sale would likely be identical under the earnings and the contract-based approaches assuming

The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it

The proposed new revenue recognition model currently being studied by the IASB and FASB is the

Under the earnings approach, if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction should be recognized at the time of sale if

Cost estimates at the end of the second year indicate a loss will result on completion of the entire contract.Which of the following statements is correct?

Under the percentage-of-completion method, how should earned but unbilled revenues on a long-term contract be disclosed on the statement of financial position?

Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract.In this case, the entire expected loss should be

Which of the following is NOT one of the five steps under the proposed new revenue recognition standard currently being studied by the IASB and FASB?

Under a consignment sales arrangement,

The completed contract method for accounting for long-term construction projects requires that

When a realtor sells a house for a client, he/she

Losses in long-term construction projects