Question 1

Imagine that the Ace Construction Company (ACC is going to switch from the percentage of completion method to the completed contract method. Assume that none of their construction projects are going to produce a loss. Is it possible that, in a particular year, ACC will show higher gross profit under the completed contract method than they would under the percentage-of-completion method? Explain.

Accepted Answer

Under POC a percentage of total profit i...

Question 2

The first disclosure note to the financial statements is typically the summary of significant accounting policies.

Accepted Answer

A) True 
 B)False

Question 3

EITF 00-21 covers revenue recognition for multiple-part arrangements, and requires that a seller recognize revenue for a particular part if:

Accepted Answer

A)  the part has value to the stand-alone basis.
B)  there is objective, reliable evidence as to the value of undelivered parts.
C)  the part constitutes at least a "preponderance of the fair value" of the total arrangement.
D)  Two of the above.E) A) and B)
F) All of the above

Question 4

When accounting for multiple-element software arrangements, the revenue for each element is based on the separate prices stated for each element in the software contract.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following was not a criterion for revenue recognition in SAB 101?

Accepted Answer

A)  Cash has been collected.
B)  Collectiblity is reasonably assured.
C)  Persuasive evidence of an arrangement exists.
D)  The seller's price to the buyer is fixed or determinable.E) C) and D)
F) A) and B)

Question 6

Assume that McCombs uses the completed contract method for revenue recognition.
Required: Compute the amount of gross profit recognized by McCombs during 2008 and 2009.

Accepted Answer

The answer of Assume that McCombs uses the completed contract...

Question 7

Required: Compute the average collection period for 2008.

Accepted Answer

365 / 8.0 ...

Question 8

Briefly explain how revenue is recorded under the installment sales method. Include in your answer an explanation of when use of the method would be appropriate.

Accepted Answer

Under the installment sales method, the ...

Question 9

Assume at March 15, 2008, the time of signing the contract, collectibility of the receivable was reasonably assured and there were no significant continuing obligations. The journal entry at signing would include a:

Accepted Answer

A)  Credit to franchise fee revenue for $36,000.
B)  Credit to franchise fee revenue for $9,000.
C)  Credit to unearned franchise fee revenue for $36,000.
D)  Credit to unearned franchise fee revenue for $27,000.E) All of the above
F) C) and D)

Question 10

Hulkster's 2009 return on shareholder's equity is:

Accepted Answer

A)  17.1%.
B)  14.0%.
C)  12.6%.
D)  7.1%.E) A) and C)
F) All of the above

Question 11

Dowling's average inventory balance for 2009 is:

Accepted Answer

A)  11.
B)  12.
C)  11.5.
D)  12.5.Inventory turnover = cost of goods sold / (avg inventory) , so average inventory = COGS/(inventory turnover)  = 60/5.22 = 11.5.E) All of the above
F) A) and D)

Question 12

Dowling's 2009 average collection period is:

Accepted Answer

A)  50 days.
B)  63 days.
C)  57 days.
D)  51 days.Avg.collection period = 365 / (accounts receivable turnover)  = 365 / (net sales / {avg A/R}) = 365 / (115 /{20 + 16} /2)  = 57.13 daysE) B) and C)
F) None of the above

Question 13

When accounting for multiple-deliverable arrangements, EITF 00-21 indicates that sellers can separately record revenue for a part of an arrangement even if the part does not have value to the customer on a stand-alone basis.

Accepted Answer

A) True 
 B)False

Question 14

The rationale for adoption of the percentage-of-completion method is that:

Accepted Answer

A)  Results are more conservative.
B)  It provides a measure of periodic accomplishment.
C)  It is a better match with legal ownership.
D)  It results in a lower income tax.E) All of the above
F) B) and C)

Question 15

Under the percentage-of-completion method, amounts billed and the cash actually received affect income recognition.

Accepted Answer

A) True 
 B)False

Question 16

In its December 31, 2009, balance sheet, Rigsby would report:

Accepted Answer

A)  Realized gross profit of $100,000.
B)  Deferred gross profit of $100,000.
C)  Installment receivables (net)  of $3,200,000.
D)  Installment receivables (net)  of $4,000,000.E) B) and D)
F) B) and C)

Question 17

The following information is provided in the 2008 annual report to shareholders of The BizStore:
Required: Compute U-Z in the table above.

Accepted Answer

 U: Profit margin = NI /...

Question 18

Boomerang Computer Company sells computers with an unconditional right to return the computer if the customer is not satisfied. Boomerang has a long history selling these computers under this returns policy, and can provide precise estimates of the amount of returns associated with each sale. Boomerang most likely should recognize revenue:

Accepted Answer

A)  When Boomerang delivers a computer to a customer.
B)  When Boomerang receives cash from the customer.
C)  When a customer returns a computer.
D)  Never, because the right of return is unconditional.Returns can be estimated at delivery, so an allowance can be created and revenue recognized at that point.E) A) and B)
F) C) and D)

Question 19

Emu and You, a new fast food chain, sells exclusive franchises for $25,000. For this fee, franchisees receive training, assistance on site selection, assistance during the construction phase, and promotional considerations for the grand opening, including a visit by Ernie Emu. There is also a $500 per month continuation fee for institutional advertising and accounting services after the store is open for business. On March 20 of the current year, Emu and You sold a franchise to I.M. Stuck for the standard fee. The franchisor received a 20% down payment and a 10%, four-year note for the balance. On June 15, Stuck had his grand opening and Emu and You had met all requirements for substantial performance. On July 15, Emu and You received $500 for the continuing fee.
Required: Prepare the appropriate journal entries for Emu and You at March 20, June 15, and July 15.

Accepted Answer

The answer of Emu and You, a new fast food...

Question 20

Initial franchise fees are always recognized on the date they are received.

Accepted Answer

A) True 
 B)False

Exam 5: Income Measurement

Correct Answer
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Correct Answer
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Under POC a percentage of total profit i...
View Answer

Assume that McCombs uses the completed contract method for revenue recognition. Required: Compute the amount of gross profit recognized by McCombs during 2008 and 2009.

Correct Answer
verified

Correct Answer
verified

The following information is provided in the 2008 annual report to shareholders of The BizStore: Required: Compute U-Z in the table above.

Correct Answer
verified
 U: Profit margin = NI /...
View Answer

EITF 00-21 covers revenue recognition for multiple-part arrangements, and requires that a seller recognize revenue for a particular part if:

Correct Answer
verified

Dowling's average inventory balance for 2009 is:

Correct Answer
verified

Dowling's 2009 average collection period is:

Correct Answer
verified

Hulkster's 2009 return on shareholder's equity is:

Correct Answer
verified

Initial franchise fees are always recognized on the date they are received.

Correct Answer
verified

Required: Compute the average collection period for 2008.

Correct Answer
verified
365 / 8.0 ...
View Answer

Which of the following was not a criterion for revenue recognition in SAB 101?

Correct Answer
verified

When accounting for multiple-element software arrangements, the revenue for each element is based on the separate prices stated for each element in the software contract.

Correct Answer
verified

When accounting for multiple-deliverable arrangements, EITF 00-21 indicates that sellers can separately record revenue for a part of an arrangement even if the part does not have value to the customer on a stand-alone basis.

Correct Answer
verified

Under the percentage-of-completion method, amounts billed and the cash actually received affect income recognition.

Correct Answer
verified

In its December 31, 2009, balance sheet, Rigsby would report:

Correct Answer
verified

The first disclosure note to the financial statements is typically the summary of significant accounting policies.

Correct Answer
verified

The rationale for adoption of the percentage-of-completion method is that:

Correct Answer
verified

Briefly explain how revenue is recorded under the installment sales method. Include in your answer an explanation of when use of the method would be appropriate.

Correct Answer
verified
Under the installment sales method, the ...
View Answer

Assume at March 15, 2008, the time of signing the contract, collectibility of the receivable was reasonably assured and there were no significant continuing obligations. The journal entry at signing would include a:

Correct Answer
verified

Exam 5: Income Measurement

Correct AnswerverifiedShow Answer

Correct AnswerverifiedUnder POC a percentage of total profit i...View AnswerShow Answer

Assume that McCombs uses the completed contract method for revenue recognition. Required: Compute the amount of gross profit recognized by McCombs during 2008 and 2009.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The following information is provided in the 2008 annual report to shareholders of The BizStore: Required: Compute U-Z in the table above.

Correct Answerverified U: Profit margin = NI /...View AnswerShow Answer

EITF 00-21 covers revenue recognition for multiple-part arrangements, and requires that a seller recognize revenue for a particular part if:

Correct AnswerverifiedShow Answer

Dowling's average inventory balance for 2009 is:

Correct AnswerverifiedShow Answer

Dowling's 2009 average collection period is:

Correct AnswerverifiedShow Answer

Hulkster's 2009 return on shareholder's equity is:

Correct AnswerverifiedShow Answer

Initial franchise fees are always recognized on the date they are received.

Correct AnswerverifiedShow Answer

Required: Compute the average collection period for 2008.

Correct Answerverified365 / 8.0 ...View AnswerShow Answer

Which of the following was not a criterion for revenue recognition in SAB 101?

Correct AnswerverifiedShow Answer

When accounting for multiple-element software arrangements, the revenue for each element is based on the separate prices stated for each element in the software contract.

Correct AnswerverifiedShow Answer

When accounting for multiple-deliverable arrangements, EITF 00-21 indicates that sellers can separately record revenue for a part of an arrangement even if the part does not have value to the customer on a stand-alone basis.

Correct AnswerverifiedShow Answer

Under the percentage-of-completion method, amounts billed and the cash actually received affect income recognition.

Correct AnswerverifiedShow Answer

In its December 31, 2009, balance sheet, Rigsby would report:

Correct AnswerverifiedShow Answer

The first disclosure note to the financial statements is typically the summary of significant accounting policies.

Correct AnswerverifiedShow Answer

The rationale for adoption of the percentage-of-completion method is that:

Correct AnswerverifiedShow Answer

Briefly explain how revenue is recorded under the installment sales method. Include in your answer an explanation of when use of the method would be appropriate.

Correct AnswerverifiedUnder the installment sales method, the ...View AnswerShow Answer

Assume at March 15, 2008, the time of signing the contract, collectibility of the receivable was reasonably assured and there were no significant continuing obligations. The journal entry at signing would include a:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
Under POC a percentage of total profit i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
 U: Profit margin = NI /...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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365 / 8.0 ...
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Under the installment sales method, the ...
View Answer

Correct Answer
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