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     41.     Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be
a.     recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed.
b.     recognized in the current period under the percentage-of-completion method, but the completed-contract method should defer recognition of the loss to the time when the contract is completed.
c.     recognized in the current period under the completed-contract method, but the percentage-of-completion method should defer the loss until the contract is completed.
d.     deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or completed-contract method is employed.


     42.     Cost estimates at the end of the second year indicate a loss will result on completion of the entire contract. Which of the following statements is correct?
a.     Under the completed-contract method, the loss is not recognized until the year the construction is completed.
b.     Under the percentage-of-completion method, the gross profit recognized in the first year must not be changed.
c.     Under the completed-contract method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability.
d.     Under the completed-contract method, when the Construction in Process balance exceeds the billings, the estimated loss is added to the accumulated costs.

     43.     The criteria for recognition of revenue at the completion of production of precious metals and farm products include
a.     an established market with quoted prices.
b.     low additional costs of completion and selling.
c.     units are interchangeable.
d.     all of these.

     44.     In certain cases, revenue is recognized at the completion of production even though no sale has been made. Which of the following statements is not true?
a.     Examples involve precious metals or farm equipment.
b.     The products possess immediate marketability at quoted prices.
c.     No significant costs are involved in selling the product.
d.     All of these statements are true.

     S45.     For which of the following products is it appropriate to recognize revenue at the completion of production even though no sale has been made?
a.     Automobiles
b.     Large appliances
c.     Single family residential units
d.     Precious metals

     S46.     When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct?
a.     Under both the percentage-of-completion and the completed-contract methods, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
b.     Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
c.     Under the completed-contract method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods.
d.     No current period adjustment is required.

     47.     Deferred gross profit on installment sales is generally treated as a(n)
a.     deduction from installment accounts receivable.
b.     deduction from installment sales.
c.     unearned revenue and classified as a current liability.
d.     deduction from gross profit on sales.


     48.     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.

     49.     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.

     50.     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.

     S51.     The realization of income on installment sales transactions involves
a.     recognition of the difference between the cash collected on installment sales and the cash expenses incurred.
b.     deferring the net income related to installment sales and recognizing the income as cash is collected.
c.     deferring gross profit while recognizing operating or financial expenses in the period incurred.
d.     deferring gross profit and all additional expenses related to installment sales until cash is ultimately collected.

     P52.     A manufacturer of large equipment sells on an installment basis to customers with questionable credit ratings. Which of the following methods of revenue recognition is least likely to overstate the amount of gross profit reported?
a.     At the time of completion of the equipment (completion of production method)
b.     At the date of delivery (sales method)
c.     The installment-sales method
d.     The cost–recovery method

     53.     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.


     54.     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.

     55.     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.

     *56.     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.

     *57.     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.

     *58.     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.

     *59.     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.


     *60.     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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