TB Ch18 - Revenue Recognition by Kieso PDF

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Test Bank for Chapter 18-Revenue Recognition by Kieso...

Description

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

TRUE-FALSE—Conceptual Answer F T T F T F T T F F T F F T F F T T F T

No.

Description

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Recognition 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.

No.

Description

MULTIPLE CHOICE—Conceptual Answer c b a b d b d d c d b c b c b a b

21. 22. 23. S 24. P 25. P 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37.

Revenue 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.

18 - 2 d

Test Bank for Intermediate Accounting, Fourteenth Edition S

38.

Percentage-of-completion input measures.

MULTIPLE CHOICE—Conceptual (cont.) Answer a c a c d a d b c c b b c d b b d b d b d d a b a d

No. S

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.

Description Advantage 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.

P

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. S

MULTIPLE CHOICE—Computational Answer c d b c b c c c b d c b c

No.

Description

65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77.

Computation 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.

MULTIPLE CHOICE—Computational (cont.) Answer b 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.

Description Profit 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 repossession—installment 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 CHOICE—CPA Adapted Answer a b d d c b c c c c a

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

Description FASB'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 profit—installment sales. Calculate deferred gross profit—installment sales. Balance of deferred gross profit—installment sales. Reporting deferred gross profit—installment sales. Effect of collections received on service contracts.

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18 - 4

Test Bank for Intermediate Accounting, Fourteenth Edition

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

Description Revenue recognition (essay). Revenue recognition (essay). Long-term contracts (essay). Journal entries—percentage-of-completion. Percentage-of-completion method. Percentage-of-completion method. Percentage-of-completion and completed-contract methods. Installment sales. Installment sales. Installment sales. Franchises.

PROBLEMS Item P18-132 P18-133 P18-134 P18-135

Description Long-term construction project accounting. Accounting for long-term construction contracts. Long-term contract accounting—completed-contract. Installment sales.

CHAPTER LEARNING OBJECTIVES 1.

Apply the revenue recognition principle.

2.

Describe accounting issues for revenue recognition at point of sale.

3.

Apply the percentage-of-completion method for long-term contracts.

4.

Apply the completed-contract method for long-term contracts.

5.

Identify the proper accounting for losses on long-term contracts.

6.

Describe the installment-sales method of accounting.

7.

Explain the cost-recovery method of accounting.

*8.

Explain revenue recognition for franchises and consignment sales.

Revenue Recognition

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SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Ite

Ty

Ite

Ty

Ite

1. 2.

TF TF

3. 21.

TF MC

22. 23.

4. 5.

TF TF

6. 27.

TF MC

28. 29.

7. 8. 9. 31. 32. 33.

TF TF TF MC MC MC

34. 35. 36. 37. S 38. 65.

MC MC MC MC MC MC

66. 67. 68. 69. 70. 71.

10. 11. S 39.

TF TF MC

40. 77. 79.

MC MC MC

81. 85. 86.

Ty

Ite

Ty

Ite

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.

Ty

Ite

Ty

Ite

Typ

MC MC

121. 122.

E E

MC MC MC MC MC MC

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

E E E E E P

133.

P

E E P

134.

P

MC MC

114. 132.

MC P

133.

P

MC MC MC MC MC

118. 119. 120. 128. 129.

MC MC MC E E

130. 135.

E P

108. 109.

MC MC

131.

E

Learning Objective 5 12. 13.

TF TF

14. 15.

TF TF

41. 42.

16. 17. 18. 47. 48.

TF TF TF MC MC

49. 50. S 51. 89. 90.

MC MC MC MC MC

91. 92. 93. 94. 95.

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.

19. 20.

TF TF

P

MC MC

58. 59.

MC MC

MC MC

52. 53.

MC MC

54. 55.

Learning Objective 7 MC 56. MC 103. MC 57. MC 104.

60. 61.

MC MC

62. 63.

Learning Objective 8* MC 64. MC 106. MC 105. MC 107.

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

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Test Bank for Intermediate Accounting, Fourteenth Edition

TRUE-FALSE—Conceptual 1.

Companies should recognize revenue when it is realized and when cash is received.

2.

Revenues are realized when a company exchanges goods and services for cash or claims to cash.

3.

Delayed recognition of revenue is appropriate if the sale does not represent substantial completion of the earnings process.

4.

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.

5.

Companies can recognize revenue prior to completion and delivery of the product under certain circumstances.

6.

Companies must use the percentage-of-completion method when estimates of progress toward completion are reasonably dependable.

7.

The most popular input measure used to determine the progress toward completion is the cost-to-cost basis.

8.

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.

9.

The Construction in Process account includes only construction costs under the percentage-of-completion method.

10.

Under the completed-contract method, companies recognize revenue and costs only when the contract is completed.

11.

The principal advantage of the completed-contract method is that reported revenue reflects final results rather than estimates.

12.

Companies must recognize a loss on an unprofitable contract under the percentage-ofcompletion method but not the completed-contract method.

13.

A loss in the current period on a profitable contract must be recognized under both the percentage-of-completion and completed-contract method.

14.

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.

15.

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.

16.

Under the installment-sales method, companies defer revenue and income recognition until the period of cash collection.

Revenue Recognition

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17.

The installment-sales method defers only the gross profit instead of both the sales price and cost of goods sold.

18.

Deferred gross profit is generally treated as an unearned revenue and classified as a current liability.

19.

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.

20.

Companies recognize profit under the cost-recovery method only when cash collections exceed the total cost of the goods sold.

True-False Answers—Conceptual Item 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 CHOICE—Conceptual 21.

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.

22.

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.

23.

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.

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Test Bank for Intermediate Accounting, Fourteenth Edition

S

24.

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.

P

25.

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.

P

26.

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.

27.

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.

28.

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 future periods. b. not recording a sale until all return privileges have expired. c. recording the sale, but reducing sales by an estimate of future returns. d. all of these.

29.

A sale should not be recognized as revenue by the seller at the time of sale if a. payment was made by check. b. the selling price is less than the normal selling price. c. the buyer has a right to return the product and the amount of future returns cannot be reasonably estimated. d. none of these.

Revenue Recognition

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30.

The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions? a. The amount of future returns can be reasonably estimated. b. The seller's price is substantially fixed or determinable at time of sale. c. The buyer's obligation to the seller would not be changed in the event of theft or damage of the product. d. The buyer is obligated to pay the seller upon resale of the product.

31.

In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be a. the terms of payment in the contract. b. the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable. c. the method commonly used by the contractor to account for other long-term construction contracts. d. the inherent nature of the contractor's technical facilities used in construction.

32.

The percentage-of-completion method must be used when certain conditions exist. Which of the following is not one of those necessary conditions? a. Estimates of progress toward completion, revenues, and costs are reasonably dependable. b. The contractor can be expected to perform the contractual obligation. c. The buyer can be expected to satisfy some of the obligations under the contract. d. The contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged, and the manner and terms of settlement.

33.

When work to be done and costs to be incurred on a long-term contract can be estimated dependably, which of the following methods of revenue recognition is preferable? a. Installment-sales method b. Percentage-of-completion method c. Completed-contract method d. None of these

34.

How should the balances of progress billings and construction in process be shown at reporting dates prior to the completion of a long-term contra...