Deck 5: Income Concepts, Revenue Recognition and Matching

Question 1

The basic accounting concept that refers to the tendency of accountants to resolve uncertainty in favor of understating assets and revenues and overstating liabilities and expenses is known as

A)the doctrine of conservatism.
B)the materiality constraint.
C)the substance over form principle.
D)the industry practices constraint.

Answer 1

A

Question 2

Income is equal to the difference between the present value of the net assets at the end of the period and their present value at the beginning of the period,excluding the effects of investments by owners and distributions to owners is the definition of which of the following current value concepts?

A)Replacement cost
B)Selling price
C)Exit value
D)Discounted present value

Answer 2

D

Question 3

The definition of the economic concept of income is usually attributed to which of the following economists?

A)J.R.Hicks
B)Paul Samuelson
C)Ben Bernanke
D)Adam Smith

Answer 3

A

Question 4

Which of the following is not a concept of income identified by Bedford?

A)Psychic
B)Real
C)Investment
D)Money

Question 5

The principal disadvantage of using the percentage of completion method of recognizing revenue from long-term contracts is that it

A)Is unacceptable for income tax purposes
B)May require that intraperiod tax allocation procedures be used
C)Gives results bases upon estimates that may be subject to considerable uncertainty
D)Is likely to assign a small amount of revenue to a period during which much revenue was actually earned

Question 6

In the transactions approach to income determination,income is measured by subtracting the expenses resulting from specific transactions during the period from revenues of the period also resulting from transactions.Under a strict transactions approach to income measurement,which of the following would not be considered a transaction?

A)Sale of goods on account at 20 percent markup
B)Exchange of inventory at a regular selling price for equipment
C)Adjustment of inventory in lower of cost or market inventory valuations when market is below cost.
D)Payment of salaries

Question 7

Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur.This explanation pertains to

A)Disclosure
B)Accrual accounting
C)Materiality
D)The matching concept

Question 8

One concept of income suggests that income be measured by determining the net change over time in the discounted present value of net cash flow expected to be received by the firm.Under this concept of income,which of the following,ignoring income taxes would not affect the amount of income for a period?

A)Providing services to outsiders and investments of the funds received
B)Production of goods or services not yet sold not yet delivered to customers or clients.
C)Windfall gains and losses due to external causes.
D)The method used to depreciate property,plant and equipment.

Question 9

Which of the following is an argument against using historical cost in accounting?

A)Fair values are more relevant.
B)Historical costs are based on an exchange transaction.
C)Historical costs are reliable.
D)Fair values are subjective

Question 10

Each asset-inventory,plant,equipment,and so on-would be valued based on the selling price that would be realized if the firm chose to dispose of it is the definition of which of the following current value concepts?

A)Replacement cost
B)Entry price
C)Exit value
D)Discounted present value

Question 11

Which of the following is not an approach to determining current value?

A)Replacement cost
B)Thrift value
C)Selling price
D)Discounting present value

Question 12

One of the basic features of financing accounting is the

A)Direct measurement of economic resources and obligations and changes in them in terms of money and sociological and psychological impact
B)Direct measurement of economic resources and obligations and changes in them in terms of money
C)Direct measurement of economic resources and obligations and changes in them in terms of money and sociological impact
D)Direct measurement of economic resources and obligations and changes in them in terms of money and psychological impact

Question 13

Which of the following is not a criteria outlined in SEC Staff Accounting Bulletin No.101 for the recognition of revenue?

A)Persuasive evidence of an arrangement exists.
B)Delivery has not occurred.
C)The vendor's fee is fixed or determinable.
D)Collectability is probable.

Question 14

Which of the following accounting theorists called of conservatism the most influential principle of valuation in accounting?

A)Henry Sweeney
B)Robert Sprouse
C)Robert Sterling
D)Edgar Edwards

Question 15

The cost to replace assets with similar assets in a similar condition is the definition of which of the following current value concepts?

A)Replacement cost
B)Selling price
C)Exit value
D)Discounted present value

Question 16

The term revenue recognition conventionally refers to

A)The process of identifying transactions to be recorded as revenue in an accounting period.
B)The process of measuring and relating revenue and expenses of an enterprise for an accounting period.
C)The earning process that gives rise to revenue realization.
D)The process of identifying those transactions that result in an inflow of assets from customers.

Question 17

Uncertainty and risks inherent in business situations should be adequately considered in financial reporting.This statement is an example of the concept of

A)Conservatism
B)Completeness
C)Neutrality
D)Representational faithfulness

Question 18

The installment method of recognizing revenue is not acceptable for financial reporting if

A)The collectability of the sales price is reasonably assured
B)The installment period is less than 12 months
C)The method is applied to only a portion of the total
D)Collection expenses can be reasonably predicted

Question 19

Arid Lands,Inc.is engaged in extensive exploration for water in the Caprock Desert.If upon discovery of water the corporation does not recognize any revenue from water sales until the sales exceed the costs of exploration,the basis of revenue recognition being employed is the

A)Production basis
B)Cash or collection)basis
C)Sales or accrual)basis
D)Sunk cost or cost recovery)basis

Question 20

Conventionally accountants measure income

A)By applying a value added concept
B)By using a transactions approach
C)As a change in the value of owners' equity
D)As a change in the purchasing power of owners' equity

Question 21

According to FASB ASC 606,a company must account for a contract modification as a new contract if the

A)Goods or services are interdependent on each other
B)Promised goods or services are distinct
C)Company has the right to receive consideration equal to standalone price
D)Goods or services are distinct and company has right to receive the standalone price

Question 22

Under FASB ASC 606,the second step in the revenue recognition process is to

A)Allocate transaction price to the separate performance obligations
B)Determine the transaction price
C)Identify the contract with customers
D)Identify the separate performance obligations in the contract

Question 23

Under FASB ASC 606,when multiple performance obligations exist in a contract,they should be accounted for as a single performance obligation when

A)Each service is interdependent and interrelated
B)Both performance obligations are distinct but interdependent
C)The product is distinct within the contract
D)Determination cannot be made

Question 24

Phoenix Music Company manufactures and sells stereo systems that include an assurance-type warranty for the first 120 days.Phoenix also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty.The total transaction price for the sale of the stereo system and the extended warranty is $2,000.The standalone price of each is $1,600 and $400,respectively.The estimated cost of the assurance-warranty is $200.The amount assigned to the assurance warranty as unearned warranty revenue should be

A)$2,000
B)$1,600
C)$400
D)$200

Question 25

Under FASB ASC 606,the third step in the revenue recognition process is to

A)Determine the transaction price
B)Identify the separate performance obligations in the contract
C)Allocate transaction price to the separate performance obligations
D)Recognize revenue when each performance obligation is satisfied

Question 26

Under the provisions of FASB ASC 606,when a customer purchases a product but is not yet ready for delivery,this is referred to as

A)A repurchase agreement
B)A consignment
C)A principal-agent relationship
D)A bill-and-hold arrangement

Question 27

Consignments are a specialized marketing method whereby the

A)Consignee purchases goods for sale and sends payment when goods are sold
B)Consignee agent)holds title to the product
C)Consignee pays for good up front and is paid when merchandise is sold
D)Consignee takes possession of merchandise but title remains with manufacturer

Question 28

According to FASB ASC 606,the transaction price

A)Excludes discounts,volume rebates,coupons and free products,or services
B)Is the amount of consideration that a company expects to receive from a customer
C)Excludes time value of money if the contract involves a significant financing component
D)Does not consider noncash consideration such as donations,gifts,equipment or labor

Question 29

Under FASB ASC 606,the last step in the revenue recognition process is to

A)Allocate transaction price to the separate performance obligations
B)Recognize revenue when each performance obligation is satisfied
C)Determine the transaction price
D)Identify the contract with customers

Question 30

Under the provisions of FASB ASC 606 A company has satisfied its performance obligation when the

A)The company has transferred physical possession of the asset
B)The company has received payment for goods or services
C)The company has significant risks and rewards of ownership
D)The company has legal title to the asset

Question 31

According to FASB ASC 606,a transaction price for multiple performance obligations should be allocated

A)Based on selling price from the company's competitors
B)Based on what the company could sell the goods for on a standalone basis
C)Based on forecasted cost of satisfying performance obligation
D)Based on total transaction price less residual value

Question 32

Under FASB ASC 606,the first step in the revenue recognition process is to

A)Determine the transaction price
B)Identify the contract with customers
C)Allocate transaction price to the separate performance obligations
D)Identify the separate performance obligations in the contract

Question 33

Under FASB ASC 606,when a contract modification does not result in a separate performance obligation,the additional products are priced at the

A)Standalone price of the product
B)Blended price of original contract and contract modification
C)Average selling price of original selling price and standalone price
D)Selling price specified in contract modification

Question 34

According to FASB ASC 606,a performance obligation exists when

A)A company receives the right to receive consideration
B)A contract is approved and signed
C)A company provides a distinct product or service
D)A company provides interdependent product or service

Question 35

Under FASB ASC 606,the fourth step in the revenue recognition process is to

A)Recognize revenue when each performance obligation is satisfied
B)Identify the separate performance obligations in the contract
C)Allocate transaction price to the separate performance obligations
D)Determine the transaction price

Question 36

Overstating sales returns or warranty costs in good times and using these overstatements in bad times to reduce similar charges,is the definition of which of the following earnings management techniques?

A)Taking a bath
B)Creative acquisition accounting
C)Creasing "cookie jar" reserves
D)Abusing the materiality concept

Question 37

Deliberately recording errors or ignoring mistakes in the financial statements under the assumption that their impact is not significant,is the definition of which of the following earnings management techniques?

A)Taking a bath
B)Creative acquisition accounting
C)Creasing "cookie jar" reserves
D)Abusing the materiality concept

Question 38

The one-time overstatement of restructuring charges to reduce assets,which reduces future expenses,is the definition of which of the following earnings management techniques?

A)Taking a bath
B)Creative acquisition accounting
C)Creasing "cookie jar" reserves
D)Abusing the materiality concept