Question 1

Highrise Constructions Ltd had a large 3-year project with total revenue of $5 000 000 and estimated total costs of $4 200 000. The project was 25% complete at the end of the first year, 55% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated.
-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.

Accepted Answer

Using the percentage of completion method, revenue and cost for the first year should be calculated as follows:

Year 1:
Revenue: 25% x $5 000 000 = $1 250 000
Cost: 25% x $4 200 000 = $1 050 000
Profit: $1 250 000 - $1 050 000 = $200 000

Therefore, the profit earned during the first year using the percentage of completion method is $200 000 (Option 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.

Accepted Answer

The key criteria that must normally be met in order that revenue may be recognised is that the economic benefit will probably flow to the seller. This means that the seller has provided the goods or services, and the buyer is likely to pay for them. Cash does not necessarily have to be received, and all costs do not have to be paid in full, as long as the economic benefit is expected to be received. The amount of revenue may also be estimated as long as it can be reasonably measured.

Question 3

Highrise Constructions Ltd had a large 3-year project with total revenue of $5 000 000 and estimated total costs of $4 200 000. The project was 25% complete at the end of the first year, 55% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated.
-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.

Accepted Answer

Using the percentage of completion method, the profit recognized during a period is equal to the estimated total profit multiplied by the percentage of completion for that period.

At the end of the first year, 25% of the project was complete, so the estimated profit for that year would be 25% of the total estimated profit:
$5,000,000 x 25% = $1,250,000

Similarly, at the end of the second year, 55% of the project was complete, so the estimated profit for that year would be:
$5,000,000 x 55% = $2,750,000

To find the profit earned during the third year, we need to subtract the total profit recognized at the end of the first and second years from the total estimated profit:
$5,000,000 - $1,250,000 - $2,750,000 = $1,000,000

Since the project was 100% complete at the end of the third year, we can recognize the remaining $1,000,000 of profit during that year:
$1,000,000 x 100% = $1,000,000

Therefore, the profit earned during the third year is $1,000,000 - $640,000 = $360,000 (Option D).

Question 4

Use the information below to answer the following questions:
Multi-Storey Builders Ltd had a large 3-year project with total revenue of $8 000 000 and estimated total costs of $6 500 000. The project was 20% complete at the end of the first year, 70% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated.
-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.

Accepted Answer

Using the percentage of completion method, profit is recognized based on the percentage of the project that has been completed. Since the project was 20% complete at the end of the first year, Multi-Storey Builders Ltd would recognize 20% of the estimated gross profit, which is $1 500 000 ($8 000 000 - $6 500 000), resulting in a profit of $300 000.

Therefore, the best choice for the first question is A) $300 000. There is no follow-up question or additional information provided to answer a second question.

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.

Accepted Answer

The percentage of completion method is generally considered less conservative than the completion of production method since it allows revenue to be recognized before the project is fully completed.

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.

Accepted Answer

Revenue recognition means that revenue is recorded when earned. This means that revenue is recognized regardless of when payment is received from the customer or when a deposit is made. It is important to recognize revenue in the period it is earned to accurately reflect a company's financial performance. Delaying the recognition of revenue can result in misstated financial statements and can potentially mislead investors and stakeholders.

Question 7

Highrise Constructions Ltd had a large 3-year project with total revenue of $5 000 000 and estimated total costs of $4 200 000. The project was 25% complete at the end of the first year, 55% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated.
-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.

Accepted Answer

The percentage of completion method recognizes revenue and expenses based on the percentage of the project that is complete. At the end of the second year, the project was 55% complete. Therefore, the revenue recognized during the second year is 55% of $5,000,000 = $2,750,000. The costs incurred during the second year are 55% of $4,200,000 = $2,310,000. The profit earned during the second year is $2,750,000 - $2,310,000 = $440,000.

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.

Accepted Answer

Revenue is recognised when the business makes a sale, which is indicated by the receipt of cash. Therefore, option D - the business makes a cash sale of merchandise - is the only circumstance where revenue would normally be recognised. The other options do not involve a sale and receipt of cash.

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.

Accepted Answer

Revenue for services should be recognised when the service is provided to the customer, regardless of when payment is received or when the warranty period expires. The agreement to provide the service is not sufficient to recognise revenue, as the service must actually be performed.

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).

Accepted Answer

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

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.

Accepted Answer

Revenue should only be recognised when it can be reasonably measured. The other options are not necessarily required for revenue recognition.

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.

Accepted Answer

The critical event is the point at which all revenue is recognized, and it can often be documented easily. However, this critical event may differ depending on the nature of the firm's operations. There can also be multiple critical events in a firm's operating cycle. Additionally, revenue cannot be recognized until an action relating to the contract has been completed, so choice D is incorrect.

Question 13

Use the information below to answer the following questions:
Multi-Storey Builders Ltd had a large 3-year project with total revenue of $8 000 000 and estimated total costs of $6 500 000. The project was 20% complete at the end of the first year, 70% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated.
-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.

Accepted Answer

Under the completed contract method, revenue and profit are recognized only when the contract is completed. Therefore, no profit is recognized in the second year.

Question 14

Use the information below to answer the following questions:
Multi-Storey Builders Ltd had a large 3-year project with total revenue of $8 000 000 and estimated total costs of $6 500 000. The project was 20% complete at the end of the first year, 70% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated.
-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.

Accepted Answer

The percentage of completion method recognizes revenue and expenses based on the percentage of completion of the project. At the end of the second year, the project was 70% complete. Therefore, 70% of the total revenue ($8,000,000) was recognized as revenue in the second year, which is $5,600,000. Similarly, 70% of the total costs ($6,500,000) was recognized as expenses in the second year, which is $4,550,000. The profit earned in the second year is the difference between the revenue and expenses recognized in the second year, which is $5,600,000 - $4,550,000 = $1,050,000.

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.

Accepted Answer

Delivery to the customer is often considered the critical event in the revenue generation sequence because it is the point at which the earnings process is typically considered complete, and revenue can be recognized according to accounting principles.

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.

Accepted Answer

Revenue is recognized when it is earned, not when payment is received. Since the services were provided in February, the revenue should have been recognized in February, not March.

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.

Accepted Answer

The percentage of completion method primarily requires that total costs and the contract price are reasonably determinable, and there is reasonable assurance of payment. Engineering estimates of the percentage of completion, while commonly used, are not strictly necessary for revenue recognition under this method; other methods of measuring progress towards completion can also be used.

Question 18

Use the information below to answer the following questions:
Multi-Storey Builders Ltd had a large 3-year project with total revenue of $8 000 000 and estimated total costs of $6 500 000. The project was 20% complete at the end of the first year, 70% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated.
-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.

Accepted Answer

The answer of Use the information below to answer the...

Question 19

Use the information below to answer the following questions:
Highrise Constructions Ltd had a large 3-year project with total revenue of $5,000,000 and estimated total costs of $4 200,,000. The project was 25% complete at the end of the first year, 55% complete at the end of the second year, and 100% complete at the end of the third year. Revenues and costs were as estimated.
-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.

Accepted Answer

Under the completion of production method, all revenue and costs are recognized at the end of the project. Therefore, the profit earned during the third year is the total revenue minus the total costs: $5,000,000 - $4,200,000 = $800,000.

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.

Accepted Answer

Revenue is typically recognized when the product or service is delivered to the customer, as this is the point at which the seller has fulfilled their obligation under the contract and earned the right to the revenue. While customer orders, payment, and warranty periods can all be factors in the revenue recognition process, they are not necessarily the key trigger point.

Quiz 13: Revenue and Expense Recognition: Additional Concepts

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

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

Revenue recognition means that:

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

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

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.

Revenue should not be recognised unless:

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

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

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

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

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