Question 1

Excess Construction Corp. has a $16 million contract to construct a building. The company estimates $10.4 million in costs to construct the building and an expected gross profit of $5.6 million. During the current year, the company incurred $3,120,000 of costs on the contract.
Under the percentage-of-completion method, how much will Excess Construction Corp. report as revenue in the current year?

Accepted Answer

The percentage-of-completion method recognizes revenues by determining the costs incurred per the contract as compared to its total expected cost. The revenue to be recognized in the year at hand is calculated by dividing cost incurred during the year at hand by total estimated costs and multiplying this percentage by the total contract amount. $3,120,000/$ 10,400,000 × $16,000,000 = $4,800,000.

Question 2

Which of the following is not true regarding a discontinued operation?

Accepted Answer

The company has no obligation to report its intention to sell any of its business units in its income statement or any other reports. The first three conditions, instead, are necessary for a business unit to be qualified as a discontinued operation.

Question 3

Caroline's Collectibles estimates its uncollectible accounts by aging its accounts receivable and applying percentages to various aged categories of accounts. Caroline's Collectible computes a total of $6,720 in estimated losses as of December 31, 2016. Its Accounts Receivable account has a balance of $ 225,600 and its Allowance for Uncollectible Accounts has an unused balance of $960 before adjustment at December 31, 2016.
How much is bad debt expense that Caroline's Collectibles will report in 2016?

Accepted Answer

To bring the allowance to the desired balance of $6,720, the company will need to increase the allowance account by $5,760 (or $6,720 - $ 960) resulting in bad debt expense of that same amount.

Question 4

On which financial statement and at what amount are accounts receivable reported?

Accepted Answer

Accounts receivable are reported on the balance sheet at the amount expected to be collected which is accounts receivable less allowance for uncollectible accounts, also known as net realizable value.

Question 5

Nickolas's Pizza intentionally overestimates the amount of its write-downs of assets in order to record a nonrecurring loss in a period of already depressed income.
What is this behavior called?

Accepted Answer

Behavior such as this is referred to as a "big bath".

Question 6

At what amount will accounts receivable be reported on the balance sheet if the gross receivable balance is $94,000 and the allowance for uncollectible accounts is estimated at 8% of gross receivables?

Accepted Answer

Receivables are reported net of the allowance account.
In this case, $94,000 - ($94,000 x 8%) = $86,480.

Question 7

Which of the following does not occur when a company receives additional information that requires it to increase its expectations of uncollectible accounts receivable?

Accepted Answer

The allowance account is increased, resulting in additional expense and a reduction of profit and retained earnings.

Question 8

Which of the following formula computes the average collection period?

Accepted Answer

Average collection period = Average accounts receivable / Average daily sales

Question 9

If the collection period lengthens compared to historic figures and industry averages, what might the reason be?

Accepted Answer

A lengthened collection period means that receivables turnover slows Answers A and B are reasons for a slowdown in the receivables turnover.

Question 10

Identify and explain when each of the following companies should recognize revenue for the sales of their products:
A. Sears is a retail store that sells products with a 30-day period of right of return.
B. United Airlines sells airplane tickets for the current and upcoming year.
C. Apple sells computers and extended warranties for those computers.

Accepted Answer

The answer of Identify and explain when each of the...

Question 11

Following is the income statement reported by Durfey's Cable, Inc. from its 2016 annual report (amounts in millions).
  Identify the items in its income statement that might be considered nonrecurring items.

Accepted Answer

The answer of Following is the income statement reported by...

Question 12

Identify and explain potential revenue recognition issues relating to the following operations:
A. Motor Bikes, Inc. is a store that sells second-hand motorcycles on consignment from sellers. It remits to the sellers the sale price less the commission.
B. 1-800-MyFlowers is an internet flower store. It receives fees in advance to provide flowers all year long.

Accepted Answer

The answer of Identify and explain potential revenue recognition issues...

Question 13

Following are the income statement accounts for a recent Tom's Computers income statement.
  Identify the items in Tom's Computers' statement that might be considered nonrecurring items.

Accepted Answer

The answer of Following are the income statement accounts for...

Question 14

A $3,600,000 contract is executed to build a luxury boat. Total estimated costs to complete the project are $2,340,000 million. The construction company incurred the following costs during the project: $936,000 in 2014; $234,000 in 2015; and $1,170,000 in 2016. Compute revenues, expenses, and income for each year 2014 through 2016 using the percentage-of-completion method.

Accepted Answer

The answer of A $3,600,000 contract is executed to build...

Question 15

Mathew's Marble contracts to lay marble in a new museum over a three-year period. The company's accountants record the following details relating to the project:
  Compute the amount of revenue, expense and income for each year using the percentage-of-completion method.

Accepted Answer

The answer of Mathew's Marble contracts to lay marble in...

Question 16

Consider the following results for Waldow's Webcam:
  Prepare the income statement for this company assuming a 35% income tax rate. Omit the statement heading.

Accepted Answer

The answer of Consider the following results for Waldow's Webcam:
...

Question 17

Mathew's Marble, a national supplier of marble products, has enjoyed several years of strong earnings during the recent housing boom. However, economists believe construction spending will be down significantly over the next couple of years. In an effort to maintain its current level of profitability, Mathew's Marble has decided to decrease its allowance for uncollectible accounts estimate from 3.5% to 2%. What effect will this action have on current and future period profits?

Accepted Answer

The answer of Mathew's Marble, a national supplier of marble...

Question 18

Twelve years ago, Kenyon Construction began operating out of a new building that cost $84 million to construct. At that time, Kenyon's management estimated the building had a useful life of 30 years. Today (or twelve years later), management revised its estimate of the useful life of the building to 36 years, which will reduce annual depreciation expense to $2,100,000.
A. How would the change in the estimated useful life of the building impact Kenyon's income statement?
B. What possible incentives might management have to overestimate or underestimate the useful life of a long-term asset?

Accepted Answer

The answer of Twelve years ago, Kenyon Construction began operating...

Question 19

C-Market reports the following analysis of potential losses in its accounts receivable:
  The balance of Allowance for Uncollectible Accounts is $560 on December 31, 2016 prior to adjustments.
A. Compute bad debt expense that will be recorded for 2016.
B. What is the amount of accounts receivable to be reported on C-Market's December 31, 2016 balance sheet?

Accepted Answer

The answer of C-Market reports the following analysis of potential...

Question 20

American Chocolate Co. reports the following in its 2016 10K report:
  Calculate the accounts receivable turnover and average collection period for 2016 and 2015. Comment on the findings.

Accepted Answer

The answer of American Chocolate Co. reports the following in...

Quiz 6: Reporting and Analyzing Revenues and Receivables

Which of the following is not true regarding a discontinued operation?

On which financial statement and at what amount are accounts receivable reported?

Nickolas's Pizza intentionally overestimates the amount of its write-downs of assets in order to record a nonrecurring loss in a period of already depressed income. What is this behavior called?

At what amount will accounts receivable be reported on the balance sheet if the gross receivable balance is $94,000 and the allowance for uncollectible accounts is estimated at 8% of gross receivables?

Which of the following does not occur when a company receives additional information that requires it to increase its expectations of uncollectible accounts receivable?

Which of the following formula computes the average collection period?

If the collection period lengthens compared to historic figures and industry averages, what might the reason be?

Following is the income statement reported by Durfey's Cable, Inc. from its 2016 annual report (amounts in millions). Identify the items in its income statement that might be considered nonrecurring items.

Following are the income statement accounts for a recent Tom's Computers income statement. Identify the items in Tom's Computers' statement that might be considered nonrecurring items.

Mathew's Marble contracts to lay marble in a new museum over a three-year period. The company's accountants record the following details relating to the project: Compute the amount of revenue, expense and income for each year using the percentage-of-completion method.

Consider the following results for Waldow's Webcam: Prepare the income statement for this company assuming a 35% income tax rate. Omit the statement heading.

American Chocolate Co. reports the following in its 2016 10K report: Calculate the accounts receivable turnover and average collection period for 2016 and 2015. Comment on the findings.