Deck 9: OL: Revenue Recognition

Question 1

GAAP and IFRS both allow a company to report service revenue using the percentage of completion method.

Answer 1

False

Question 2

A consignment sale is an example of a principal-agent arrangement.

Answer 2

True

Question 3

List the four criteria specified by the Securities and Exchange Commission for determining whether revenue should be reported on the income statement.

Answer 3

1.There is persuasive evidence that an arrangement exists.
2.Delivery has occurred or services have been rendered.
3.The seller's price to the buyer is fixed or determinable.
4.Collectability is reasonably assured.

Question 4

Revenue received in advance is recorded as an asset on the provider's balance sheet.

Question 5

IFRS does not require persuasive evidence of an arrangement in order for revenue to be recognized.

Question 6

Which of the following is not a major condition for revenue recognition under IFRS?

A)Persuasive evidence of an arrangement.
B)Risks and rewards have transferred to the buyer.
C)Revenues and costs can be reliably measured.
D)Probable that economic benefits will flow to the seller.

Question 7

Transactions where a buyer accepts title and billings but delays receipt of the goods is a bill-and-hold arrangement.

Question 8

Able sells a piece of equipment to Smythe for $1,800 on August 1.The equipment cost $1,000.The equipment is picked up by Smythe on August 10.How is this transaction accounted for under a perpetual system of inventory?

A)
B)
C)

D)

Question 9

What is a major difference between GAAP and IFRS with regard to recognition of revenue?

A)Under IFRS,the seller does not have to transfer risks and rewards of ownership to the buyer.
B)IFRS does not require delivery of goods for revenue to be recognized.
C)Under IFRS,the price of the goods does not have to be fixed or determinable.
D)Under IFRS,the seller may retain managerial involvement over the goods after sale.

Question 10

List the five conditions specified by IFRS for revenue recognition from the sale of goods.

Question 11

A seller recognizes the right to return sales as a/an ________.

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

Question 12

Charleston Yacht Club sells annual passes to its facilities.An annual pass costs $12,000 and is good for year-round use.On January 1,the company sells 10 passes and collects the cash.The entry on March 31 to record revenue is ________.

A)
B)
C)
D)

Question 13

Revenue recognition deals with the issues of timing and measurement.

Question 14

According to the FASB,revenue is recognized when it is realized or realizable and has been earned.

Question 15

Which one of the following is not an indicator of a consignment arrangement?

A)Consignor controls product until a specific event occurs.
B)Consignor can require the goods be returned.
C)Consignee does not have an unconditional obligation to pay.
D)Consignor cannot require goods to be returned.

Question 16

According to the FASB,when a seller has collected cash,the earnings process is virtually complete.

Question 17

When a firm delivers merchandise to a buyer,it has met both criteria for revenue recognition.

Question 18

According to the FASB,when a seller has collected cash,the earnings process is complete.

Question 19

The right of return represents a separate performance obligation.

Question 20

According to the FASB,revenue is defined as inflows that result from delivering or producing goods or providing services connected to a company's major business operations.

Question 21

Louise paints seascapes and landscapes.In 2017 she placed nine of her most prized paintings with the Wainwright Studio Gallery.The paintings each carried a price of $1,000,and Louise made a deal with the Gallery to pay them a 40% commission on all paintings sold.At the end of the year three paintings had been sold.How much revenue will Louise recognize on the consignment sales?

A)$3,000
B)$1,800
C)$1,200
D)$0

Question 22

The percentage-of-completion method and completed-contract method are interchangeable alternatives for revenue recognition.

Question 23

The method of reporting gross profit for long term contracts that does a better job of providing relevant information on the income statement is the ________.

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

Question 24

What are the three steps in the process for determining the amount and timing of revenue recognition for multiple-element arrangements?

Question 25

Explain the similarities and differences between the two methods of accounting for long-term contracts.

Question 26

The completed-contract method recognizes gross profit over the life of the contract.

Question 27

The percentage-of-completion method may utilize a cost-to-cost approach or an output measure approach.

Question 28

Refer to Fare Jewelry.How much revenue should Tomko recognize for 2017 on this transaction?

A)$0
B)$40,000
C)$60,000
D)$500,000

Question 29

The total profit recognized on a contract using the completed-contract method is different than the total profit recognized under the percentage-of-completion method.

Question 30

The cumulative percentage of completion is found by dividing the total costs incurred to date by the estimated total cost of the project.

Question 31

Refer to Fare Jewelry.How much revenue should Fare recognize for 2017 on this transaction?

A)$0
B)$125,000
C)$200,000
D)$500,000

Question 32

Two methods used to account for revenue recognition for long term contracts are the percentage-of-completion method and the ________.

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

Question 33

Explain a bill-and-hold arrangement.

Question 34

Another name for channel stuffing is ________.

A)trade stuffing
B)trade loading
C)channel loading
D)trade disclosure

Question 35

It is sometimes necessary to recognize revenue before delivery to maintain the predictive value of financial information.

Question 36

The two methods for recognizing revenue from long-term contracts are the percentage-of-completion method and the point-of-sale method.

Question 37

What is a consignment sale?

Question 38

The percentage-of-completion method recognizes gross profit ________.

A)over the life of the contract
B)at the end of the contract
C)at the beginning of the contract
D)one year after completion of contract

Question 39

The percentage-of-completion method conforms to the matching principle.

Question 40

ABC Company is holding goods with a selling price of $100,000 which cost them $60,000.On December 3,2017,ABC sold the goods to Timmons under a bill-and-hold arrangement.At the end of 2017,ABC still holds the goods.How much revenue should ABC recognize for 2017?

A)$100,000
B)$60,000
C)$40,000
D)$0

Question 41

Billings in excess of costs and profits are carried on the balance sheet as a/an ________.

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

Question 42

The percentage of-completion method accounting should not be used if ________.

A)completion rates are determinable
B)completion time on projects exceeds four years
C)profits are low
D)it is not possible to make dependable estimates of progress

Question 43

Billings in excess of costs and profits are carried on the balance sheet as a/an ________.

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

Question 44

Refer to Craft Construction.Assume Craft uses the percentage-of-completion method for revenue recognition.Prepare all journal entries to record costs,billings,collections and profit recognition.

Question 45

Refer to Tullis Construction.How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the percentage-of-completion method?

A)asset of $0
B)liability of $250,000
C)asset of $3,000,000
D)liability of $4,000,000

Question 46

Refer to Camey Construction.How much gross profit should Camey recognize in Year 1 assuming the use of the percentage-of-completion method?

A)$375,000
B)$750,000
C)$937,500
D)$5,000,000

Question 47

The percentage-of-completion method violates the general rule for revenue recognition that the earnings process is complete.

Question 48

The Construction in Progress account is what type of account?

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

Question 49

Refer to Tullis Construction.What would be the journal entry in Year 1 to record revenue?

A)
B)
C)
D)

Question 50

The Billings on Construction in Progress is a/an ________.

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

Question 51

What conditions are necessary for a company to use the percentage-of-completion method?

Question 52

Refer to Camey Construction.How should Camey report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the percentage-of-completion method?

A)asset of $0
B)liability of $120,000
C)asset of $1,500,000
D)liability of $2,000,000

Question 53

Refer to Tullis Construction.How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the percentage-of-completion method?

A)$500,000
B)$3,500,000
C)$4,000,000
D)$5,000,000

Question 54

When using the percentage-of-completion method to account for a long-term contract,the percentage used to recognize gross profit in the first year is determined by dividing ________.

A)costs incurred in the first year by estimated total costs of the project
B)costs incurred in the first year by estimated remaining costs of the project
C)costs in the first year by contract price
D)estimated total profit by contract price

Question 55

Refer to Craft Construction.Assume Craft uses the percentage-of-completion method for revenue recognition.Compute the amount of gross profit for 2016 and 2017.

Question 56

Refer to Camey Construction.What would be the journal entry in Year 1 to record revenue?

A)
B)
C)
D)

Question 57

Journal entries for the percentage-of-completion method are only made at the completion of the project.

Question 58

Refer to Camey Construction.How much should Camey recognize as Accounts Receivable at the end of Year 1 assuming the use of the percentage-of-completion method?

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

Question 59

Construction costs and profits in excess of billings are carried on the balance sheet as a/an ________.

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

Question 60

Refer to Tullis Construction.How much gross profit should Tullis recognize in Year 1 assuming the use of the percentage-of-completion method?

A)$0
B)$750,000
C)$2,000,000
D)$2,500,000

Question 61

Refer to Tullis Corporation.How much gross profit should Tullis recognize in Year 1 assuming the use of the completed-contract method?

A)$0
B)$1,000,000
C)$2,000,000
D)$8,000,000

Question 62

Under what conditions must a company use the completed-contract method?

Question 63

Under GAAP,when a company uses the completed-contract method of accounting,________.

A)estimated losses are recognized in full prior to completion of the contract
B)estimated losses are recognized ratably based upon the degree of contract completion
C)neither profits nor losses are recognized until the contract is completed
D)expenses are recorded each period,but revenue is not recognized until the contract is completed

Question 64

Gleason Construction enters into a long-term fixed price contract to build an office building for $20,000,000.In the first year of the contract,Gleason incurs $6,000,000 of cost and the engineers determined that the remaining costs to complete are $10,000,000.How much revenue should Gleason recognize in Year 1 assuming the use of the zero-gross -profit approach?

A)$0
B)$6,000,000
C)$7,500,000
D)$10,000,000

Question 65

Under the completed-contract method,the firm only reports profit in the final year of the contract.

Question 66

Under the completed-contract method,revenues are only reported in the last year.

Question 67

Under IFRS,if a firm cannot reliably estimate the outcome of a construction contract,it uses the zero-gross profit approach.

Question 68

Refer to Craft Construction.Assume Craft uses the completed-contract method for revenue recognition.Compute the amount of gross profit for 2016 and 2017.

Question 69

The major difference between the percentage-of-completion method and the completed-contract method is the timing of ________.

A)revenue and cost recognition
B)revenue and billing recognition
C)revenue and gross profit recognition
D)revenue and net profit recognition

Question 70

Refer to Tullis Corporation.How much should revenue should Tullis recognize at the end of Year 1 assuming the use of the zero-gross-profit approach?

A)$0
B)$3,000,000
C)$4,000,000
D)$5,000,000

Question 71

Companies may use the completed-contract method only if the contract ________.

A)is for less than two years
B)exceeds five years
C)does not meet criteria for percentage-of-completion method
D)does not meet criteria for installment sales method

Question 72

Gleason Construction enters into a long-term fixed price contract to build an office building for $20,000,000.In the first year of the contract Camey incurs $6,000,000 of cost and the engineers determined that the remaining costs to complete are $10,000,000.How much gross profit or loss should Gleason recognize in Year 1 assuming the use of the completed-contract method?

A)$0
B)$4,000,000 profit
C)$4,000,000 loss
D)$375,000 profit

Question 73

When GAAP is used,revenue is recognized under the completed-contract method ________.

A)each year of the contract
B)only the first year of the contract
C)only the last year of the contract
D)only when there is a loss on the contract

Question 74

Companies may use the completed-contract method for all long term contracts.

Question 75

When using the IFRS zero-gross-profit approach,________.

A)expenses in excess of revenues are recorded each year
B)an equal amount of revenue and expense is recorded each year
C)neither revenue nor expenses are reported
D)expenses are recorded each year

Question 76

When using the IFRS zero-gross profit approach,revenue is recognized ________.

A)each year of the contract
B)only the first year of the contract
C)only the last year of the contract
D)only when there is a loss on the contract

Question 77

Under the zero-gross profit approach,the firm only reports profit in the final year of the contract.

Question 78

Refer to Tullis Corporation.How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the completed-contract method?

A)liability of $1,000,000
B)asset of $1,000,000
C)asset of $500,000
D)liability of $500,000

Question 79

Refer to Tullis Corporation.How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the completed-contract method?

A)$0
B)$500,000
C)$4,000,000
D)$5,000,000

Question 80

Under the zero-gross profit approach,revenues are only reported in the last year.