Question 1

Total cash collections on installment sales during 2016 would be:

Accepted Answer

The answer of Total cash collections on installment sales during...

Question 2

Under IFRS,revenue for a product sale should occur when:

Accepted Answer

According to IFRS, revenue should be recognized when the risks and rewards of ownership have been transferred from the seller to the buyer, and the seller no longer has control over the goods. This typically occurs when the product is delivered to the buyer. Option A, inventory production being complete, is not a determining factor for revenue recognition. Option B, warranty fulfillment, is not relevant to the timing of revenue recognition. Option D, installment payments, may be relevant in certain circumstances, but it is not the primary factor for recognizing revenue.

Question 3

Hulkster's 2016 return on shareholders' equity is (rounded):

Accepted Answer

The answer of Hulkster's 2016 return on shareholders' equity is...

Question 4

Under IFRS,which of the following is not a condition for recognizing revenue?

Accepted Answer

Under IFRS, the condition for recognizing revenue related to the flow of economic benefits is that it is probable, not just "reasonably possible," that the economic benefits associated with the transaction will flow to the seller.

Question 5

Slick's Used Cars sells pre-owned cars on the installment basis and carries its own notes because its customers typically cannot qualify for a bank loan.Default rates tend to be high or unpredictable.However,in the event of nonpayment,Slick's can usually repossess the cars without loss.The revenue method Slick would use is the:

Accepted Answer

Given the high or unpredictable default rates and the ability to repossess cars without loss, Slick's Used Cars would likely use either the installment sales method or the cost recovery method to recognize revenue. These methods are more conservative and are used when there's a high degree of uncertainty regarding the collection of payments.

Question 6

In 2015,Lake would recognize realized gross profit of:

Accepted Answer

Lake would recognize realized gross profit of $150,000 in 2015 because the installment sales method is used to recognize revenue and gross profit over the life of the installment contract.

Question 7

In 2017,Rigsby would recognize realized gross profit of:

Accepted Answer

The answer of In 2017,Rigsby would recognize realized gross profit...

Question 8

Bert's Meat Market sells quarters and sides of beef on the installment basis.Losses on receivables are very difficult to predict,and meat products cannot be repossessed.The revenue recognition method used by Bert would be:

Accepted Answer

Bert's Meat Market has a high risk of loss on receivables and cannot repossess meat products once sold, so the revenue recognition method should be either installment sales or cost recovery. Installment sales recognize revenue over the period of the installment payments and cost recovery only recognizes revenue after all costs of the product have been recovered. Both methods minimize the risk of losses on receivables. Therefore, the best choice is to use either the installment sales method or the cost recovery method.

Question 9

In 2016,Rigsby would recognize realized gross profit of:

Accepted Answer

The answer of In 2016,Rigsby would recognize realized gross profit...

Question 10

At December 31,2017,Rigsby would report in its balance sheet:

Accepted Answer

Deferred gross profit is the portion of gross profit from installment sales that is not yet recognized as income. It is reported as a liability on the balance sheet.

Question 11

In 2017,Reliable would recognize gross profit of:

Accepted Answer

The answer of In 2017,Reliable would recognize gross profit of:
...

Question 12

In 2018,Lake would record a loss on repossession of:

Accepted Answer

The loss on repossession is the difference between the carrying value of the asset and the proceeds from the sale. In this case, the carrying value of the asset is $245,000 and the proceeds from the sale are $200,000. Therefore, the loss on repossession is $45,000.

Question 13

In 2016,Reliable would recognize gross profit of:

Accepted Answer

Reliable would recognize gross profit of $5,000. This can be obtained by subtracting the cost of goods sold ($15,000) from the total revenue ($20,000).

Note: Gross profit is the difference between total revenue and the cost of goods sold. It does not take into account other expenses such as operating expenses, interest, and taxes.

Question 14

Under the realization principle,revenue should not be recognized until the earnings process is deemed virtually complete and:

Accepted Answer

The realization principle states that revenue should not be recognized until the earnings process is substantially complete, and collection is reasonably certain. Choice C, stating that collection is reasonably certain, aligns with the realization principle. Choice A, revenue is realized, is not sufficient because revenue can be realized before the earnings process is complete. Choice B, any receivable is collected, is too strict because collection may not immediately follow completion of the earnings process. Choice D, collection is absolutely assured, is also too strict because collection may not be 100% assured in some cases.

Question 15

In 2017,Lake would recognize realized gross profit of:

Accepted Answer

The realized gross profit is determined by subtracting the cost of goods sold from the revenue. The revenue is given as $1,000,000 and the cost of goods sold is calculated as follows:
Beginning inventory + purchases - ending inventory
= $200,000 + $800,000 - $690,000
= $310,000
Therefore, the realized gross profit is:
$1,000,000 - $310,000 = $690,000
So, the correct answer is C.

Question 16

In its December 31,2016,balance sheet,Rigsby would report:

Accepted Answer

Installment receivables (net) are reported at the net amount of the receivable, which is the gross amount of the receivable minus any contra-revenue accounts, such as sales discounts and sales returns and allowances. In this case, the gross amount of the receivable is $4,000,000 and the contra-revenue account is sales discounts of $800,000. Therefore, the net amount of the receivable is $3,200,000.

Question 17

In its December 31,2016,balance sheet,Lake would report:

Accepted Answer

Installment receivables (net) is the amount of the installment receivables less the deferred gross profit. The deferred gross profit is the amount of the gross profit that has not yet been recognized. In this case, the deferred gross profit is $300,000 ($1,050,000 - $750,000). Therefore, the installment receivables (net) is $750,000.

Question 18

In its 2016 year-end balance sheet,Reliable would report installment receivables (net)of:

Accepted Answer

The answer of In its 2016 year-end balance sheet,Reliable would...

Question 19

In its 2015 year-end balance sheet,Reliable would report installment receivables (net)of:

Accepted Answer

The answer of In its 2015 year-end balance sheet,Reliable would...

Question 20

In 2015,Reliable would recognize gross profit of:

Accepted Answer

Reliable would recognize $0 gross profit in 2015 because the question implies that the revenue recognition criteria have not been met, possibly due to the lack of delivery or completion of the earnings process.

Quiz 5: Income Measurement