Intermediate Acct Test Bankch18

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CHAPTER 18REVENUE RECOGNITIONIFRS questions are available at the end of this chapter.

TRUE-FALSEConceptualAnswerF T T F T F T T F F T F F T F F T T F T

No.1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

DescriptionRecognition of revenue. Realization of revenue. Delayed recognition of revenue. Recognizing revenue when right of return exists. Recognizing revenue prior to product completion. Use of percentage-of-completion method. Input measure for contract progress. Reporting Construction in Process and Billings on Construction in Process. Construction in Process account balance. Recognition of revenue under completed-contract method. Principal advantage of completed-contract method. Recognizing loss on an unprofitable contract. Recognizing current period loss on a profitable contract. Recognizing revenue under completion-of-production basis. Recording a loss on an unprofitable contract. Deferring revenue under installment-sales method. Deferring gross profit under installment-sales method. Classification of deferred gross profit. Recognizing revenue under cost-recovery method. Recognizing profit under cost-recovery method.

MULTIPLE CHOICEConceptualAnswerc b a b d b d d c d b c b c b a b

No.21. 22. 23. S 24. P 25. P 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37.

DescriptionRevenue recognition principle. Definition of "realized." Definition of "earned." Revenue recognition representations. Definition of recognition. Revenue recognition principle. Recognizing revenue at point of sale. Recording sales when right of return exists. Revenue recognition when right of return exists. Revenue recognition when right of return exists. Appropriate accounting method for long-term contracts. Percentage-of-completion method. Percentage-of-completion method. Classification of progress billings and construction in process. Calculation of gross profit using percentage-of-completion. Disclosure of earned but unbilled revenues. Disadvantage of using percentage-of-completion.

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Test Bank for Intermediate Accounting, Fourteenth EditionS

38.

Percentage-of-completion input measures.

MULTIPLE CHOICEConceptual (cont.)Answera c a c d a d b c c b b c d b b d b d b d d a b a dP S

No.39. 40. 41. 42. 43. 44. S 45. S 46. 47. 48. 49. 50. S 51. P 52. 53. 54. 55. 56. 57. *58. *59. *60. *61. *62. *63. *64.S

DescriptionAdvantage of completed-contract method Revenue, cost, and gross profit under the completed-contract method. Loss recognition on a long-term contract. Accounting for long-term contract losses. Criteria for revenue recognition of completion of production. Completion-of-production basis. Revenue recognition of completion of production. Treatment of estimated contract cost increase. Presentation of deferred gross profit. Appropriate use of the installment-sales method. Valuing repossessed assets. Gross profit deferred under the installment-sales method. Income realization on installment sales. Conservative revenue recognition method. Income recognition under the cost-recovery method. Income recognition under the cost-recovery method. Cost recovery basis of revenue recognition. Deposit method of revenue recognition. Cost recovery method. Types of franchising arrangements. Accounting for consignment sales. Allocation of initial franchise fee. Recognition of continuing franchise fees. Future bargain purchase option. Option to purchase franchisee's business agreement. Revenue recognition by the consignor.

These questions also appear in the Problem-Solving Survival Guide. These questions also appear in the Study Guide. *This topic is dealt with in an Appendix to the chapter.

MULTIPLE CHOICEComputationalAnswerc d b c b c c c b d c b c

No.65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77.

DescriptionComputation of total revenue and accounts receivable. Computation of total construction expenses. Computation of costs and profits in excess of billings balance. Computation of total revenue and construction expenses. Gross profit recognized under percentage-of-completion. Computation of construction in process amount. Percentage-of-completion method. Percentage-of-completion method. Determine cash collected on long-term construction contract. Determine gross profit using percentage-of-completion. Gross profit to be recognized using percentage-of-completion. Gross profit to be recognized using percentage-of-completion. Profit to be recognized using completed-contract method.

Revenue Recognition a 78. Gross profit to be recognized using percentage-of-completion.

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MULTIPLE CHOICEComputational (cont.)Answerb a c b c a b c c a d b a b b b d d a d a d a c b a d c b d a

No.79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. *105. *106. *107. *108. *109.

DescriptionProfit to be recognized using completed-contract method. Gross profit to be recognized using percentage-of-completion. Gross profit to be recognized using completed-contract method. Computation of construction costs incurred. Gross profit recognized under percentage-of-completion. Computation of construction in process amount. Loss recognized using completed-contract method. Revenue recognition using completed-contract method. Reporting a current liability with completed-contract-method. Reporting inventory under completed-contract method. Gain recognized on repossessioninstallment sale. Calculate loss on repossessed merchandise. Calculate loss on repossessed merchandise. Interest recognized on installment sales. Calculation of deferred gross profit amount. Computation of realized gross profit amount. Computation of loss on repossession. Calculation of gross profit rate. Computation of net income from installment sales. Computation of realized and deferred gross profit. Calculation of gross profit rate. Computation of net income from installment sales. Computation of realized and deferred gross profit. Computation of realized gross profit amount. Computation of realized gross profit-cost recovery method. Revenue recognized under the cost-recovery method. Cancellation of franchise agreement. Accounting for initial and annual continuing franchise fees. Franchise fee with a bargain purchase option. Sales on consignment. Reporting inventory on consignment.

MULTIPLE CHOICECPA AdaptedAnswera b d d c b c c c c a

No.110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120.

DescriptionFASB's definition of "recognition." Determine contract costs incurred during year. Gross profit to be recognized using percentage-of-completion. Profit to be recognized using completed-contract method. Revenue recognized under completed-production method. Determine balance of installment accounts receivable. Calculate deferred gross profitinstallment sales. Calculate deferred gross profitinstallment sales. Balance of deferred gross profitinstallment sales. Reporting deferred gross profitinstallment sales. Effect of collections received on service contracts.

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Test Bank for Intermediate Accounting, Fourteenth Edition

EXERCISESItemE18-121 E18-122 E18-123 E18-124 E18-125 E18-126 E18-127 E18-128 E18-129 E18-130 *E18-131

DescriptionRevenue recognition (essay). Revenue recognition (essay). Long-term contracts (essay). Journal entriespercentage-of-completion. Percentage-of-completion method. Percentage-of-completion method. Percentage-of-completion and completed-contract methods. Installment sales. Installment sales. Installment sales. Franchises.

PROBLEMSItemP18-132 P18-133 P18-134 P18-135

DescriptionLong-term construction project accounting. Accounting for long-term construction contracts. Long-term contract accountingcompleted-contract. Installment sales.

CHAPTER LEARNING OBJECTIVES1. 2. 3. 4. 5. 6. 7. *8. Apply the revenue recognition principle. Describe accounting issues for revenue recognition at point of sale. Apply the percentage-of-completion method for long-term contracts. Apply the completed-contract method for long-term contracts. Identify the proper accounting for losses on long-term contracts. Describe the installment-sales method of accounting. Explain the cost-recovery method of accounting. Explain revenue recognition for franchises and consignment sales.

Revenue Recognition

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SUMMARY OF LEARNING OBJECTIVES BY QUESTIONSIte Typ Ite Typ Ite Typ Ite Typ Ite Ty Ite Typ Ite Typ

1. 2. 4. 5. 7. 8. 9. 31. 32. 33. 10. 11. S 39. 12. 13. 16. 17. 18. 47. 48. 19. 20. 58. 59.

TF TF TF TF TF TF TF MC MC MC TF TF MC TF TF TF TF TF MC MC TF TF MC MC

3. 21. 6. 27. 34. 35. 36. 37. S 38. 65. 40. 77. 79. 14. 15. 49. 50. S 51. 89. 90.P

TF MC TF MC MC MC MC MC MC MC MC MC MC TF TF MC MC MC MC MC MC MC MC MC

22. 23. 28. 29. 66. 67. 68. 69. 70. 71. 81. 85. 86. 41. 42. 91. 92. 93. 94. 95. 54. 55. 62. 63.

52. 53. 60. 61.

Learning Objective 1 S P MC 24. MC 26. P MC 25. MC 110. Learning Objective 2 MC 30. MC MC 122. E Learning Objective 3 MC 72. MC 80. MC 73. MC 82. MC 74. MC 83. MC 75. MC 84. MC 76. MC 111. MC 78. MC 112. Learning Objective 4 MC 87. MC 123. MC 88. MC 127. MC 113. MC 133. Learning Objective 5 S MC 43. MC 45. S MC 44. MC 46. Learning Objective 6 MC 96. MC 101. MC 97. MC 102. MC 98. MC 115. MC 99. MC 116. MC 100. MC 117. Learning Objective 7 MC 56. MC 103. MC 57. MC 104. Learning Objective 8* MC 64. MC 106. MC 105. MC 107.

MC MC

121. 122.

E E

MC MC MC MC MC MC E E P MC MC MC MC MC MC MC MC MC MC MC

123. 124. 125. 126. 127. 132. 134.

E E E E E P P

133.

P

114. 132. 118. 119. 120. 128. 129.

MC P MC MC MC E E

133.

P

130. 135.

E P

108. 109.

MC MC

131.

E

Note: TF = True-False MC = Multiple Choice E = Exercise P = Problem

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Test Bank for Intermediate Accounting, Fourteenth Edition

TRUE-FALSEConceptual1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Companies should recognize revenue when it is realized and when cash is received. Revenues are realized when a company exchanges goods and services for cash or claims to cash. Delayed recognition of revenue is appropriate if the sale does not represent substantial completion of the earnings process. If a company sells its product but gives the buyer the right to return it, the company should not recognize revenue until the sale is collected. Companies can recognize revenue prior to completion and delivery of the product under certain circumstances. Companies must use the percentage-of-completion method when estimates of progress toward completion are reasonably dependable. The most popular input measure used to determine the progress toward completion is the cost-to-cost basis. If the difference between the Construction in Process and the Billings on Construction in Process account balances is a debit, the difference is reported as a current asset. The Construction in Process account includes only construction costs under the percentage-of-completion method. Under the completed-contract method, companies recognize revenue and costs only when the contract is completed. The principal advantage of the completed-contract method is that reported revenue reflects final results rather than estimates. Companies must recognize a loss on an unprofitable contract under the percentage-ofcompletion method but not the completed-contract method. A loss in the current period on a profitable contract must be recognized under both the percentage-of-completion and completed-contract method. Under the completion-of-production basis, companies recognize revenue when agricultural crops are harvested since the sales price is reasonably assured and no significant costs are involved in product distribution. The provision for a loss on an unprofitable contract may be combined with the Construction in Process account balance under percentage-of-completion but not completed-contract. Under the installment-sales method, companies defer revenue and income recognition until the period of cash collection.

15. 16.

Revenue Recognition 17. 18. 19. 20.

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The installment-sales method defers only the gross profit instead of both the sales price and cost of goods sold. Deferred gross profit is generally treated as an unearned revenue and classified as a current liability. Under the cost-recovery method, a company recognizes no revenue or profit until cash payments by the buyer exceed the cost of the merchandise sold. Companies recognize profit under the cost-recovery method only when cash collections exceed the total cost of the goods sold.

True-False AnswersConceptualItem 1. 2. 3. 4. 5. Ans. F T T F T Item 6. 7. 8. 9. 10. Ans. F T T F F Item 11. 12. 13. 14. 15. Ans. T F F T F Item 16. 17. 18. 19. 20. Ans. F T T F T

MULTIPLE CHOICEConceptual21. The revenue recognition principle provides that revenue is recognized when a. it is realized. b. it is realizable. c. it is realized or realizable and it is earned. d. none of these. When goods or services are exchanged for cash or claims to cash (receivables), revenues are a. earned. b. realized. c. recognized. d. all of these. When the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, revenues are a. earned. b. realized. c. recognized. d. all of these.

22.

23.

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Test Bank for Intermediate Accounting, Fourteenth Edition Which of the following is not an accurate representation concerning revenue recognition? a. Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers. b. Revenue from services rendered is recognized when cash is received or when services have been performed. c. Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used. d. Revenue from disposing of assets other than products is recognized at the date of sale. The process of formally recording or incorporating an item in the financial statements of an entity is a. allocation. b. articulation. c. realization. d. recognition. Dot Point, Inc. is a retailer of washers and dryers and offers a three-year service contract on each appliance sold. Although Dot Point sells the appliances on an installment basis, all service contracts are cash sales at the time of purchase by the buyer. Collections received for service contracts should be recorded as a. service revenue. b. deferred service revenue. c. a reduction in installment accounts receivable. d. a direct addition to retained earnings. Which of the following is not a reason why revenue is recognized at time of sale? a. Realization has occurred. b. The sale is the critical event. c. Title legally passes from seller to buyer. d. All of these are reasons to recognize revenue at time of sale. An alternative available when the seller is exposed to continued risks of ownership through return of the product is a. recording the sale, and accounting for returns as they occur in...

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