Deck 18: Income Recognition and Measurement of Net Assets

Question 1

The installment method is usually associated with

A)revenue recognition in the period of sale
B)revenue recognition prior to the period of sale
C)revenue recognition after the period of sale
D)revenue recognition delayed until a future event occurs

Answer 1

C

Question 2

Under the completed-contract method of revenue recognition, Partial Billings could be reported on the balance sheet as a $\begin{array}{lll}& \text { Contra Asset}& \text { Current Liability}\\\text { I. } & \text { Yes } & \text { Yes } \\\text { II. } & \text { Yes } & \text { No } \\\text { III. } & \text { No } & \text { Yes } \\\text { IVI } & \text { No } & \text { No }\end{array}$

A)I
B)II
C)III
D)IV

Answer 2

I

Question 3

Net assets increase from cost to selling price when revenue is recognized $\begin{array}{llll}&\text { During } & \text { At Time } & \text { At Time of } \\&\text { Production } & \text { of Sale } & \text { Cash Recein }\\ \text { I. } & \text { Yes } & \text { Yes } & \text { Yes } \\\text { II. } & \text { Yes } & \text { Yes } & \text { No } \\\text { III. } & \text { Yes } & \text { No } & \text { No } \\\text { IV. } & \text { No } & \text { No } & \text { No }\end{array}$

A)I
B)II
C)III
D)IV

Answer 3

I

Question 4

Under the completed-contract method of revenue recognition, the partial billings account is closed out against the

A)construction in progress account
B)construction revenue account
C)income summary account
D)construction expense account

Question 5

Anticipated losses are recognized immediately under which of the following methods of recognizing revenue? $\begin{array}{lll}& \text {Percentage of}& \text {Completed}\\& \text {Completion}& \text {Contract}\\\text { I. } & \text { Yes } & \text { No } \\\text { II. } & \text { No } & \text { No } \\\text { III. } & \text { Yes } & \text { Yes } \\\text { IV } & \text { No } & \text { Yes } \end{array}$

A)I
B)II
C)III
D)IV

Question 6

Inventory is reported at cost plus gross profit recognized to date under which of the following revenue recognition methods?

A)completed contract
B)installment method
C)cost recovery
D)percentage of completion

Question 7

Which of the following revenue recognition methods can be used by long-term construction companies in all circumstances? $\begin{array}{lll}& \text {Percentage of}& \text {Completed}\\& \text {Completion}& \text {Contract}\\\text { I. } & \text { Yes } & \text { No } \\\text { II. } & \text { No } & \text { Yes } \\\text { III. } & \text { No } & \text { No } \\\text { IV } & \text { Yes } & \text { Yes }\end{array}$

A)I
B)II
C)III
D)IV

Question 8

Inventory is increased from cost to selling price when revenue is recognized $\begin{array}{llll}&\text { During } & \text { At Time } & \text { At Time of } \\&\text { Production } & \text { of Sale } & \text { Cash Receipt } \\ \text { I. } & \text { No } & \text { No } & \text { No } \\\text { II. } & \text { Yes } & \text { No } & \text { Yes } \\\text { III. } & \text { No } & \text { No } & \text { Yes } \\\text { IV } & \text { Yes } & \text { No } & \text { No }\end{array}$

A)I
B)II
C)III
D)IV

Question 9

Theoretically, for revenue to be recognized the risks and benefits of ownership must have been transferred to the buyer.This refers to

A)expected cash flows being recognized
B)benefits being the expected net cash flows and the risks being the likelihood of another amount of cash being received
C)benefits being properly recorded revenue and the risks being the likelihood of expenses being greater than expected
D)expected revenue being realized

Question 10

Revenue recognition issues are studied because

A)there is both an income statement and balance sheet impact
B)gross revenues must be accurate
C)estimates should not compromise the quality of reported net income
D)it is important to properly state expenses incurred each operating period

Question 11

In selecting the appropriate method of recognizing revenue, which of the following qualitative characteristics of useful accounting information is paramount to the decision?

A)understandability
B)decision usefulness
C)relevance
D)reliability

Question 12

Which of the following situations would require the recognition of revenue to be deferred?

A)when the economic reality of a transaction represents a sale, even though title has not passed to the buyer
B)when the realizability of the receivable from a sale is not reasonably assured
C)when the risks of ownership have been transferred to the buyer
D)when the benefits of ownership have been transferred to the buyer

Question 13

Accrual accounting is usually associated with

A)revenue recognition in the period of sale
B)revenue recognition prior to the period of sale
C)revenue recognition after the period of sale
D)revenue recognition delayed until a future event occurs

Question 14

The proportional performance method is usually associated with

A)revenue recognition in the period of sale
B)revenue recognition prior to the period of sale
C)revenue recognition after the period of sale
D)revenue recognition delayed until a future event occurs

Question 15

When Partial Billings exceeds Construction in Progress, under the completed-contract method the two accounts are reported together on the balance sheet in the

A)current assets section
B)long-term assets section
C)current liabilities section
D)long-term liabilities section

Question 16

Realization occurs when

A)revenues have been earned
B)noncash resources are converted to cash or rights to cash
C)an item is formally recorded in the books
D)an item is reported in a company's financial statements

Question 17

When a company uses the percentage-of-completion method for revenue recognition, the most difficult approach to determine the percentage completed is using

A)output measures
B)cost-to-cost method
C)efforts-expended method
D)input measures

Question 18

The deposit method is usually associated with

A)revenue recognition in the period of sale
B)revenue recognition prior to the period of sale
C)revenue recognition after the period of sale
D)revenue recognition delayed until a future event occurs

Question 19

If revenue is not recognized at the time of sale, which of the following accounts may be affected at the time of sale? $\begin{array}{lll}&\text { Accounts } & \text { Deferred } \\&\text { Receivable } & \text { GrossProfit }\\ \text {I.}&\text { No } & \text { No } \\\text {II.}&\text { Yes } & \text { Yes } \\\text {III.}&\text { No } & \text { Yes } \\\text {IV.}&\text { Yes } & \text { No }\end{array}$

A)I
B)II
C)III
D)IV

Question 20

The importance the economic substance of an event taking precedence over the legal form refers to revenue being

A)earned and recognized
B)earned and realizable
C)earned and realized
D)realized and recognized

Question 21

Exhibit 18-2 The following information relates to a project of the Sarasota Construction Company:
$\begin{array}{llll}&2010&2011&2012\\\text { Construction costs incurred } & \$ 136,000 & \$ 546,500 & \$ 200,000 \\\text { Estimated costs to complete } & 714,000 & 227,500 & --\end{array}$

The contract price was $1, 000, 000.Sarasota used the percentage-of-completion method of revenue recognition.

-
Refer to Exhibit 18-2.What amount of gross profit was recognized in 2012?

A)$ 29, 375
B)$ 50, 000
C)$117, 500
D)$150, 000

Question 22

Which one of the following types of cost is not a typical service cost involved with long-term service contracts?

A)initial direct costs
B)direct costs
C)initial indirect costs
D)indirect costs

Question 23

Exhibit 18-3 On January 1, 2010, Dunedin Co.sold 100 contracts at $500 each.Each contract permitted the buyer to use a repair bay six times and a paint bay nine times.
Additional information:
$\begin{array} { l l l } \text { Initial direct costs } & \$ 5,000 & \\\text { Annual indirect costs } & 1,000 & \\\text { Direct cost per service act: } & & \\& \text { Repair } & 30 \\& \text { Paint } & 20\end{array}$
In 2010, the repair bay was used 180 times and the paint bay was used 162 times.

-
Refer to Exhibit 18-3.What net income (loss)should be recognized by Dunedin in 2010?

A)$2, 590 loss
B)$1, 160 income
C)$1, 210 income
D)$2, 640 loss

Question 24

Exhibit 18-1 In 2010, Alpha Construction began work on a contract with a price of $850, 000 and estimated costs of $595, 000.Data for each year of the contract are as follows:
$\begin{array}{llll}&2010&2011&2012\\\text { Costs incurred chring the year } & \$ 238,000 & \$ 319,600 & \$ 105,000 \\\text { Estimated costs to complete } & 357,000 & 139,400 & -0- \\\text { Partial billings } & 260,000 & 210,000 & 380,000 \\\text { Collections } & 240,000 & 200,000 & 410,000\end{array}$



-Refer to Exhibit 18-1.Under the percentage-of-completion method of revenue recognition, the net amount reported for construction in progress inventory at the end of 2011 would be

A)$ 87, 600
B)$189, 600
C)$210, 000
D)$312, 000

Question 25

Exhibit 18-3 On January 1, 2010, Dunedin Co.sold 100 contracts at $500 each.Each contract permitted the buyer to use a repair bay six times and a paint bay nine times.
Additional information:
$\begin{array} { l l l } \text { Initial direct costs } & \$ 5,000 & \\\text { Annual indirect costs } & 1,000 & \\\text { Direct cost per service act: } & & \\& \text { Repair } & 30 \\& \text { Paint } & 20\end{array}$
In 2010, the repair bay was used 180 times and the paint bay was used 162 times.

-
Refer to Exhibit 18-3.How much revenue should be recognized by Dunedin in 2010?

A)$12, 000
B)$17, 100
C)$25, 000
D)$50, 000

Question 26

A company may recognize revenue in full at the time of a sale if

A)the probability of collection is not reasonably assured
B)there is a very high degree of uncertainty about the collectibility of the sales price
C)the collection of the sales price is improbable
D)the collectibility of the sales price is not an issue

Question 27

The percentage-of-completion method does not

A)recognize profit each period during the life of the contract in proportion to the portion of the contract completed during the period
B)value the inventory at cost less any partial billings
C)give precedence to economic substance over legal form
D)value the inventory at the costs incurred plus the profit recognized to date less any partial billings

Question 28

Exhibit 18-1 In 2010, Alpha Construction began work on a contract with a price of $850, 000 and estimated costs of $595, 000.Data for each year of the contract are as follows:
$\begin{array}{llll}&2010&2011&2012\\\text { Costs incurred chring the year } & \$ 238,000 & \$ 319,600 & \$ 105,000 \\\text { Estimated costs to complete } & 357,000 & 139,400 & -0- \\\text { Partial billings } & 260,000 & 210,000 & 380,000 \\\text { Collections } & 240,000 & 200,000 & 410,000\end{array}$



-Refer to Exhibit 18-1.Under the percentage-of-completion method of revenue recognition, the balance in Construction in Progress at the end of 2011 would be

A)$557, 600
B)$659, 600
C)$680, 000
D)$782, 000

Question 29

When there is not assurance that the buyer can be expected to satisfy its obligations under a contract, which of the following revenue recognition methods is preferable?

A)percentage-of-completion method
B)installment method
C)deposit method
D)completed-contract method

Question 30

Which one of the following types of service costs are deferred and expensed only when the related service revenue is recognized?

A)initial indirect costs
B)direct costs
C)indirect costs
D)initial direct costs

Question 31

The Key Largo Company uses the percentage-of-completion method to recognize profits on long-term contracts.At the end of the second year of the contract, a project was 70% complete and an overall loss of $100, 000 was expected.A $20, 000 profit had been recognized in the first year of the contract.The loss to be recognized in the second year is

A)$ 70, 000
B)$ 80, 000
C)$100, 000
D)$120, 000
E)none of these

Question 32

In early 2010, the Miami Company signed a contract for construction of an industrial park to be completed in three years.At that time, estimated total costs were $2, 250, 000, and estimated total revenues were $4, 000, 000.During 2010, Miami incurred costs of $960, 000 and collected $1, 100, 000.In December 2010, Miami recalculated total costs for the project to be $3, 200, 000 while estimated total revenues remained unchanged.What amount of profit (loss)should be recognized by Miami for 2010, using the percentage-of-completion method?

A)$266, 667 profit
B)$ 55, 000 loss
C)$240, 000 profit
D)$285, 000 loss

Question 33

The Naples Company uses the percentage-of-completion method and the cost-to-cost method for its long-term construction contracts.On one such contract, Naples expects total revenues of $260, 000 and total costs of $200, 000.During the first year, Naples incurred costs of $50, 000 and billed the customer $30, 000 under the contract.At what net amount should Naples' Construction in Progress for this contract be reported at the end of the first year?

A)$30, 000
B)$35, 000
C)$50, 000
D)$65, 000

Question 34

An excess of Construction in Progress over Partial Billings for long-term contracts accounted for on the percentage-of-completion method should be shown as a

A)current asset
B)current liability
C)long-term asset
D)long-term liability

Question 35

Exhibit 18-1 In 2010, Alpha Construction began work on a contract with a price of $850, 000 and estimated costs of $595, 000.Data for each year of the contract are as follows:
$\begin{array}{llll}&2010&2011&2012\\\text { Costs incurred chring the year } & \$ 238,000 & \$ 319,600 & \$ 105,000 \\\text { Estimated costs to complete } & 357,000 & 139,400 & -0- \\\text { Partial billings } & 260,000 & 210,000 & 380,000 \\\text { Collections } & 240,000 & 200,000 & 410,000\end{array}$


- Refer to Exhibit 18-1.Under the percentage-of-completion method of revenue recognition, gross profit in 2010 would be

A)$102, 000
B)$260, 000
C)$255, 000
D)$425, 000

Question 36

When merchandise previously sold under an installment contract is repossessed, it is recorded at

A)cost
B)fair value
C)net realizable value
D)cost plus deferred gross profit

Question 37

The deferred gross profit on installment sales is reported on the balance sheet as a

A)current asset
B)current liability
C)contra-asset
D)long-term liability

Question 38

Which one of the following entries would you probably not see if an entity used the percentage-of-completion method?

A)
Partial Billings $\quad \mathrm { XX }$
Construction Revenue $\quad \mathrm { XX }$
B)
$\begin{array} { c c } \text { Construction Expense } & \text { XX } \\\text { Construction in Progress } & \mathrm { XX } \\\text { Construction Revenue } & \mathrm { XX }\end{array}$
C)
$\begin{array} { c c } \text { Accounts Receivable } & \text { XX } \\\text { Partial Billings } & \text { XX }\end{array}$
D)Partial Billings $\quad \mathrm { XX }$
Construction in Progress $\mathrm { XX }$

Question 39

Exhibit 18-2 The following information relates to a project of the Sarasota Construction Company:
$\begin{array}{llll}&2010&2011&2012\\\text { Construction costs incurred } & \$ 136,000 & \$ 546,500 & \$ 200,000 \\\text { Estimated costs to complete } & 714,000 & 227,500 & --\end{array}$
The contract price was $1, 000, 000.Sarasota used the percentage-of-completion method of revenue recognition.

-
Refer to Exhibit 18-2.What amount of gross profit was recognized in 2010?

A)$150, 000
B)$ 28, 571
C)$ 24, 000
D)$ 20, 400

Question 40

A Provision for Loss on Contract is reported in the financial statements as a(n)

A)contra-asset account
B)other expense account
C)operational expense account
D)contra-liability account

Question 41

Which of the following methods could not be used to recognize revenue on a real estate sale?

A)completed contract
B)deposit method
C)installment method
D)cost recovery method

Question 42

Which one of the following statements is not true?

A)The use of the installment method of recognizing revenue is generally unacceptable.
B)When the installment method of recognizing revenue is in use, operating expenses are not deferred and recognized in the future.
C)Deferred gross profit should be disclosed as a current liability on the balance sheet.
D)A company may use the installment method of revenue recognition for a sales transaction that is not an installment sale.

Question 43

In real estate sales, what method of revenue recognition must be used if the sale is not consummated?

A)deposit method
B)cost recovery method
C)installment method
D)completed-contract method

Question 44

If the consignment-in account has a credit balance, it is reported on the consignee's balance sheet as a(n)

A)contra-asset account
B)revenue account
C)liability account
D)equity account

Question 45

French Company sells its subsidiary, Spanish Company, to Italian, Inc.French has net assets of $50 million and Spanish has net assets of $5 million.The sales price is $2 million down and a 10% note for $4 million.Italian has the right to cancel over the next year and uses the deposit method.The proper accounting for this transaction by French Company is

A)
$\begin{array} { l c } \text { Cash } & 2,000,000 \\\text { Notes Receivable } & 4,000,000 \\\text { Spanish } & 5,000,000 \\\text { Gain } & 1,000,000\end{array}$
B)
Cash $\quad2,000,000$
Deposit from Purchaser $\quad2,000,000$

C)
$\begin{array} { l c } \text { Cash } & 2,000,000 \\\text { Notes Receivable } & 4,000,000 \\\text { Spanish } & 5,000,000 \\\text { Deposit from Purchaser } & 1,000,000\end{array}$
D)
$\begin{array} { l c } \text { Cash } & 2,000,000 \\\text { Notes Receivable } & 4,000,000 \\\text { Spanish } & 5,000,000 \\\text { Deferred Gain } & 1,000,000\end{array}$

Question 46

If a company had an agreement to deliver software that requires significant production, modification, or customization, which method of revenue recognition should it use?

A)percentage-of-completion method
B)deposit method
C)installment method
D)cost recovery method

Question 47

Exhibit 18-5 Morris Co.sold a franchise at an initial franchise fee of $5, 000.A down payment of $800 was received with the balance covered by the issuance of a $4, 200, 6% note, payable by the franchisee in four equal annual installments.The refund period has expired and the collectibility of the note is reasonably assured.

-
Refer to Exhibit 18-5.If all material services have not been substantially performed, which entry to record the franchise is correct?

A)
$\begin{array} { l c r } \text { Cash } & 800 & \\\text { Notes Receivable } & 4,200 & \\\quad \text { Unearned Franchise Fees } & 5,000\end{array}$
B)
$\begin{array} { l c c } \text { Cash } & 800 & \\\text { Notes Receivable } & 4,200 & \\\text { Unearned Franchise Fees } & 4,200 \\\text { Franchise Revenue } & 800\end{array}$
C)
$\begin{array} { l l } \text { Cash } & 800 \\\text { Unearned Franchise Fees } & 800\end{array}$
D)
$\begin{array} { l r l } \text { Cash } & 800 & \\\text { Notes Receivable } & 4,200 & \\\text { Franchise Revenue } & & 5,000\end{array}$

Question 48

Exhibit 18-4 The following information is provided for Tampa Company:


-
Refer to Exhibit 18-4.How much gross profit did Tampa Company report in 2011?

A)$1, 300
B)$1, 500
C)$1, 700
D)$2, 000

Question 49

When there is a very high degree of uncertainty about the collectibility of the sales price in a sale, the preferred method of revenue recognition is the

A)cost recovery method
B)installment method
C)deposit method
D)proportional performance method

Question 50

When a sufficient transfer of the risks and benefits of ownership does not exist in a sales transaction, the preferred revenue recognition method is the

A)proportional performance method
B)installment method
C)cost recovery method
D)deposit method

Question 51

The entry that the consignee makes to record the commission earned on a sale of goods held on consignment is

A) $\begin{array} { l } \text { Cash } &XX\\\text { Consignment-in }&&XX\end{array}$
B) $\begin{array} { l } \text { Consignment-in }&XX \\\text { Commissions Earned }&&XX\end{array}$
C) $\begin{array} { l l } \text { Cash } & \mathrm { XX } \\\text { Commissions Earned } & &\mathrm { XX }\end{array}$
D) $\begin{array} { l l } \text { Consignment-in } & \mathrm { XX } \\\text { Cash } & \mathrm { XX }\end{array}$

Question 52

Exhibit 18-4 The following information is provided for Tampa Company:


-
Refer to Exhibit 18-4.How much deferred gross profit is still on the books at the end of 2011?

A)$ 0
B)$2, 500
C)$2, 700
D)$3, 000

Question 53

If Consignment-out has a debit balance, the account should be disclosed on the balance sheet as a(n)

A)expense account
B)receivable account
C)inventory account
D)intangible account

Question 54

Givens, Inc.repossessed an item it sold in 2010 with a gross profit of 40%.The fair value of the repossessed item was $140.The remaining receivable amounted to $400.What account had the smallest amount debited to it?

A)Allowance for Doubtful Installment Accounts Receivable
B)Accounts Receivable
C)Repossessed Inventory
D)Deferred Gross Profit

Question 55

If a company has an agreement to deliver software that does not require significant production, modification, or customization, it recognizes revenue when persuasive evidence of an agreement exists and

A)delivery has occurred
B)the seller's fee is fixed or determinable
C)collectibility is probable
D)all of these

Question 56

When a down payment is received, the deposit from purchaser account used under the deposit method is reported on the balance sheet of the seller as a(n)

A)revenue
B)liability
C)asset
D)contra asset

Question 57

Exhibit 18-4 The following information is provided for Tampa Company:


-
Refer to Exhibit 18-4.How much gross profit did Tampa Company report in 2010?

A)$ 800
B)$2, 000
C)$3, 200
D)$4, 000
E)none of these

Question 58

Exhibit 18-5 Morris Co.sold a franchise at an initial franchise fee of $5, 000.A down payment of $800 was received with the balance covered by the issuance of a $4, 200, 6% note, payable by the franchisee in four equal annual installments.The refund period has expired and the collectibility of the note is reasonably assured.

-
Refer to Exhibit 18-5.If all material services have been substantially performed, which entry to record the franchise is correct?

A)
$\begin{array} { l r r } \text { Cash } & 800 & \\\text { Notes Receivable } & 4,200 & \\\quad \text { Franchise Revenue } & & 5,000\end{array}$
B)
$\begin{array} { l c c } \text { Cash } & 800 & \\\text { Notes Receivable } & 4,200 & \\\text { Unearned Franchise Fees } & 4,200 \\\text { Franchise Revenue } & 800\end{array}$
C) $\begin{array} { l l l } \text { Cash } & 800 & \\\text { Unearned Franchise Fees } & 800\end{array}$
D) $\begin{array} { l c c } \text { Cash } & 800 & \\\text { Notes Receivable } & 4,200 & \\\quad \text { Unearned Franchise Fees } & 5,000\end{array}$

Question 59

In 2010, Rogers Company offered its goods to retailers on a consignment basis.The following information is provided regarding Rogers Company's 2010 operations: $\begin{array}{ll}\text { Beginning inventory } & \$ 102,000 \\\text { Purchases } & 560,000 \\\text { Freight in } & 10,000\\\text { Transportation to consignees } & 5,000 \\\text { Freight out } & 35,000 \\\text { Ending inventory-Held by Rogers } & 45,000 \\\text { Ending inventory-Held by consigneess } & 20,000 \end{array}$
What is Rogers' cost of goods sold for 2010?

A)$507, 000
B)$512, 000
C)$527, 000
D)$547, 000

Question 60

On January 1, 2010, Walters, Inc.purchased a risky investment for $100.It was decided to use the cost recovery method of revenue recognition.Cash collections on accounts receivable related to the asset were as follows: $\begin{array}{ll}2010 & \$ 70 \\2011 & 40 \\2012 & 30\end{array}$
Which of the following represent the realized gross profit that Walters should recognize for each year?
$\begin{array}{llll}&2010&2011&2012\\\text { I. } & \$ 0 & \$ 10 & \$ 30 \\\text { II. } & \$ 70 & \$ 40 & \$ 30 \\\text { III. } & \$ 0 & \$ 30 & \$ 30 \\\text { IV } & \$ 0 & \$ 110 & \$ 30\end{array}$

A)I
B)II
C)III
D)IV

Question 61

Smith sells computer software to Miller that requires significant construction.When recognizing revenue, Smith

A)allocates the associated discounts to all the customization efforts, including upgrades
B)can use percentage of completion to recognize revenue
C)can recognize revenue upon delivery of the software
D)must use the fair value of the software delivered in determining realizable revenue

Question 62

IFRS and GAAP will sometimes differ in the method of revenue recognition applied to construction contracts.Three different methods are involved: percentage of completion, cost recovery, and completed contract.The fastest to slowest revenue recognition among the methods is

A)percentage of completion; completed contract; cost recovery
B)completed contract; percentage of completion; cost recovery
C)percentage of completion; cost recovery; completed contract
D)cost recovery; percentage of completion; completed contract

Question 63

A client in the software industry comes to you for an explanation of how to recognize revenue from the sale of software.The company does not provide any services related to the software, but has agreements to deliver software.
Required:
Explain how the presence or absence of significant production, modification, or customization affects revenue recognition for agreements to deliver software.

Question 64

A client in the retail industry has come to you for an explanation.The client's company offers installment sales contracts to some of its customers, and the client believes that the installment method of revenue recognition must be the only way to account for such contracts.
Required:
Explain the difference between installment sales contracts and the installment method of revenue recognition.

Question 65

Gainesville Gym sold 300 contracts at $230 each.Each contract permitted the buyer to use a tanning bed 12 times and a whirlpool 16 times.Cost information follows:
$\begin{array} { l l l } \text { Initial direct costs } & \$ 1,000 \\\text { Annual indirect costs } & 600 \\\text { Direct cost per service use: } & & \\& \text { Tanning bed } & 7 \\& \text { Whirlpool } & 3\end{array}$
In the first year, customers used the tanning bed 2, 160 times and the whirlpool 900 times.
Required:
Compute the amount of revenue that should be recognized in the first year.

Question 66

A new construction company owner comes to you for advice on how to account for the first long-term construction project his company has been awarded.He is under the impression that he can use either the completed-contract or the percentage-of-completion methods in all circumstances.
Required:
Explain to your client when each method is required.

Question 67

Specific industry guidance regarding revenue recognition is prevalent in $\begin{array}{lll}&\text { GAAP }&\text { IFRS}\\\text { I. } & \text { Yes } & \text { Yes } \\\text { II. } & \text { Yes } & \text { No } \\\text { III. } & \text { No } & \text { Yes } \\\text { IV. } & \text { No } & \text { No }\end{array}$

A)I
B)II
C)III
D)IV

Question 68

IFRS provide guidance that differs from GAAP regarding the procedures to use in construction contracts' future costs estimates.Discuss how the treatments differ.

Question 69

Lake City, Inc.sold 800 contracts at $400 each.Each contract permitted the buyer to use a tin pincher 16 times and a glass finisher 20 times.Cost information follows:
$\begin{array} { l l l } \text { Initial direct costs } & \$ 8,000 & \\\text { Annual indirect costs } & 5,000 & \\\text { Direct cost per service use: } & \\& \text { Tin pincher } & 4 \\&\text { Glass finisher }& 60\end{array}$
In the first year, the tin pincher was used 4, 500 times and the glass finisher was used 4, 800 times.
Required:
Fill in the lines below.

Question 70

Which method of revenue recognition do IFRS require for construction contracts when the percentage-of-completion method cannot be applied?

A)completed contract
B)installment sales
C)completed contract
D)cost recovery

Question 71

Your friend, a college marketing major, has started a marketing research consulting firm.He has already started working for his first client.When setting up his accounting system he wants to fully understand the theoretical issues associated with recording revenue.What do you advise?