Question 1

If a company uses the completed contract method rather than the percentage of completion method, the total proﬁt the company recognizes from the beginning of the project throughout its completion will be which of the following?

Accepted Answer

The total profit recognized over the life of the project will be the same for both the completed contract method and the percentage of completion method. The difference between the two methods lies in the timing of when the profit is recognized, not the total amount of profit recognized.

Question 2

Bank errors

Accepted Answer

The answer of Bank errors
...

Question 3

The following information was available to the accountant of Midland Company when preparing the monthly bank reconciliation: $$\begin{array} { | l | r | } 
\hline \text { Outstanding cheques: } & \begin{array} { r } 
\# 643 \text { for } \$ 502 \
\# 651 \text { for } \$ 43
\end{array} \
\hline \text { Bank service charges } & \$ 25 \
\hline \text { Deposits in transit } & \$ 190 \
\hline \text { Customer note receivable collected by bank } & \$500\
\hline \text { Cash balance per bank statement } & \$ 975  \
\hline \text { Cash balance per books (prior to reconciliation) } & \$ 145\
\hline
\end{array}$$ What is the corrected cash balance per books following completion of the reconciliation?

Accepted Answer

The corrected cash balance per books is calculated by adjusting the book balance for bank service charges and the note receivable collected by the bank: $145 (initial book balance) - $25 (bank service charges) + $500 (note receivable) = $620.

Question 4

When is revenue recognized under the completed contract method?

Accepted Answer

Revenue is recognized under the completed contract method when the project is complete. This method waits until all or a significant portion of the work is finished before recognizing any of the revenue from the contract.

Question 5

Under the completed contract method, revenue is recognized

Accepted Answer

Under the completed contract method, revenue is recognized only when the contract is fully completed and the product is delivered to the customer.

Question 6

When the outcome of a construction contract cannot be estimated reliably, but it is probable that the costs can be collected, the amount of revenue recognized each period is calculated based on

Accepted Answer

When the outcome of a construction contract cannot be estimated reliably, but it is probable that the costs incurred will be recoverable, the zero profit method is used. This method recognizes revenue only to the extent of contract costs incurred that are likely to be recoverable, ensuring that no profit is recognized until a reliable estimate of the outcome can be made.

Question 7

Under the percentage of completion method, the amount of work completed in a particular year is typically determined by comparing which of the following?

Accepted Answer

The percentage of completion method calculates the amount of work completed in a particular year by comparing the costs incurred that year to the estimated total costs of the project. This method helps in recognizing revenue and expenses in proportion to the work completed.

Question 8

A credit card discount will normally attract more customers

Accepted Answer

The answer of A credit card discount will normally attract...

Question 9

For service companies, revenue is recognized the time at which services are provided.

Accepted Answer

Revenue recognition for service companies is generally based on the time at which services are provided. This is in contrast to product companies, which may recognize revenue at the point of sale or upon delivery of the product.

Question 10

For most merchandisers and manufacturers, the required revenue recognition point is the time of shipment or delivery of goods.

Accepted Answer

Generally, for most merchandisers and manufacturers, the revenue recognition point is at the time of shipment or delivery of goods. However, there may be exceptions where revenue is recognized at a different point, such as when the customer accepts the goods, or when certain performance obligations have been met.

Question 11

"FOB shipping point" means that title to the shipped goods passes to the buyer when they are delivered.

Accepted Answer

FOB shipping point means that title to the shipped goods passes to the buyer when they are shipped from the seller's location, not when they are delivered.

Question 12

Dobson Corporation gathered the following reconciling information in preparing its September bank reconciliation: $$\begin{array} { | l | r | } 
\hline \text { Cash balance per books, September 30 } & \$ 11,000 \
\hline \text { Note receivable collected by bank } & 6,000 \
\hline \text { Outstanding cheques } & 9,000 \
\hline \text { Deposits in transit } & 4,500 \
\hline \text { Bank service charge } & 75 \
\hline \text { NSF cheque } & 1,200 \
\hline
\end{array}$$ The adjusted cash balance per bank at September 30 is

Accepted Answer

The answer of Dobson Corporation gathered the following reconciling information...

Question 13

When preparing a bank reconciliation, which of the following would be deducted from the company's cash balance?

Accepted Answer

Bank service charges are deducted from the company's cash balance in a bank reconciliation because they represent amounts the bank has charged the company for its services, which decrease the company's book balance of cash.

Question 14

Albert Company agreed to build a bowling complex for Pins R Us for a price of $2,000,000. The project is expected to take three years to complete. Albert estimated that the total cost of the project would be $1,600,000. During the first year, construction costs amount to $600,000. If Albert uses the percentage of completion method, how much revenue will be recognized for the first year?

Accepted Answer

Calculation: $2,000,000 × $600,000/$1,600,000 = $750,000.

Question 15

The following information was available to the accountant of Dove Company when preparing the monthly bank reconciliation: $$\begin{array} { | l | r | } 
\hline \text { Cash balance per bank } & \$ 3,450 \
\hline \text { Outstanding cheques } & 972 \
\hline \text { NSF cheque returned with the bank statement } & 58 \
\hline \text { Deposits in transit } & 351 \
\hline \text { Bank service charges } & 33 \
\hline \text { Notes receivable from customer, collected by bank } & 575 \
\hline \begin{array} { l } 
\text { Error: cash payment of } \$ 532 \text { received from a customer was } \
\text { incorrectly recorded on the books as }
\end{array} & 523 \
\hline
\end{array}$$ What was the cash balance per books of Dove Company prior to beginning the bank reconciliation?

Accepted Answer

The cash balance per books is calculated by adjusting the bank balance for outstanding checks and deposits in transit, and then adjusting for errors and other items. Starting with the bank balance of $3,450, subtract outstanding checks ($972) and add deposits in transit ($351) to get $2,829. Then adjust for the NSF cheque ($58), bank service charges ($33), notes receivable ($575), and the error ($9 difference), resulting in a cash balance per books of $2,336.

Question 16

Credit terms "2/10, n/30" mean that if payment is made in two days, a 10% discount will be given; if not paid within two days, the full invoice price will be due in thirty days.

Accepted Answer

The terms "2/10, n/30" mean that a 2% discount is offered if payment is made within 10 days; otherwise, the net (full) amount is due within 30 days.

Question 17

A credit card discount means the sales revenue will be recorded at less than one hundred percent.

Accepted Answer

A credit card discount means the customer pays less than the full price and the sales revenue is reduced. Therefore, the revenue recorded will be less than 100%.

Question 18

When is revenue recognized under the percentage of completion method?

Accepted Answer

The percentage of completion method recognizes revenue throughout the project based on the progress or amount of work completed each year. This method is commonly used in long-term contracts and projects, allowing revenue and expenses to be recorded in the periods in which the work is performed.

Question 19

A merchant who accepts credit cards as payment exposes himself to greater risk of credit card fraud.

Accepted Answer

The answer of A merchant who accepts credit cards as...

Question 20

Sales revenue is measured as the market value of the consideration received, or the book value of the item sold, whichever is more reliable.

Accepted Answer

Sales revenue is measured as the market value of the consideration received or receivable from the sale of goods or services in the ordinary course of an entity's business. The book value of the item sold is not a factor in determining sales revenue.

Quiz 6: Merchandising Operations and the Multistep Income Statement