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     21.     The installment-sales method of recognizing profit for accounting purposes is acceptable if
          a.     collections in the year of sale do not exceed 30% of the total sales price.
          b.     an unrealized profit account is credited.
          c.     collection of the sales price is not reasonably assured.
          d.     the method is consistently used for all sales of similar merchandise.

     22.     The method most commonly used to report defaults and repossessions is:
          a.     provide no basis for the repossessed asset thereby recognizing a loss.
b.     record the repossessed merchandise at fair value, recording a gain or loss if appropriate.
          c.     record the repossessed merchandise at book value, recording no gain or loss.
          d.     none of these.

     23.     Under the installment-sales method,
a.     revenue, costs, and gross profit are recognized proportionate to the cash that is received from the sale of the product.
b.     gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale.
c.     gross profit is not recognized until the amount of cash received exceeds the cost of the item sold.
d.     revenues and costs are recognized proportionate to the cash received from the sale of the product, but gross profit is deferred until all cash is received.
     24.     A seller is properly using the cost-recovery method for a sale. Interest will be earned on the future payments. Which of the following statements is not correct?
a.     After all costs have been recovered, any additional cash collections are included in income.
b.     Interest revenue may be recognized before all costs have been recovered.
c.     The deferred gross profit is offset against the related receivable on the balance sheet.
d.     Subsequent income statements report the gross profit as a separate item of revenue when it is recognized as earned.

     25.     Under the cost-recovery method of revenue recognition,
a.     income is recognized on a proportionate basis as the cash is received on the sale of the product.
b.     income is recognized when the cash received from the sale of the product is greater than the cost of the product.
          c.     income is recognized immediately.
          d.     none of these.

     26.     Winser, Inc. is engaged in extensive exploration for water in Utah. If, upon discovery of water, Winser 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.     cost recovery basis.

     *27.     Some of the initial franchise fee may be allocated to
          a.     continuing franchise fees.
          b.     interest revenue on the future installments.
          c.     options to purchase the franchisee's business.
d.     All of these may reduce the amount of the initial franchise fee that is recognized as revenue.

     *28.     Continuing franchise fees should be recorded by the franchisor
          a.     as revenue when earned and receivable from the franchisee.
          b.     as revenue when received.
          c.     in accordance with the accounting procedures specified in the franchise agreement.
          d.     as revenue only after the balance of the initial franchise fee has been collected.

     *29.     Occasionally a franchise agreement grants the franchisee the right to make future bargain purchases of equipment or supplies. When recording the initial franchise fee, the franchisor should
a.     increase revenue recognized from the initial franchise fee by the amount of the expected future purchases.
b.     record a portion of the initial franchise fee as unearned revenue which will increase the selling price when the franchisee subsequently makes the bargain purchases.
c.     defer recognition of any revenue from the initial franchise fee until the bargain purchases are made.
          d.     None of these.


     *30.     A franchise agreement grants the franchisor an option to purchase the franchisee's business. It is probable that the option will be exercised. When recording the initial franchise fee, the franchisor should
a.     record the entire initial franchise fee as a deferred credit which will reduce the franchisor's investment in the purchased outlet when the option is exercised.
b.     record the entire initial franchise fee as unearned revenue which will reduce the amount of cash paid when the option is exercised.
c.     record the portion of the initial franchise fee which is attributable to the bargain purchase option as a reduction of the future amounts receivable from the franchisee.
d.     None of these.

     *31.     Revenue is recognized by the consignor when the
          a.     goods are shipped to the consignee.
          b.     consignee receives the goods.
          c.     consignor receives an advance from the consignee.
          d.     consignor receives an account sales from the consignee.

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