acct ch6

The core revenue recognition principle stipulates that companies recognize revenue when goods or services are

transferred to customers

Which of the following likely will lead to revenue recognition at a point in time? (Select all that apply.)

Buyer has legal title to the asset Buyer has accepted the asset

When revenue is recognized on long-term construction projects, a journal entry is recorded to recognize revenue and cost of goods sold. The difference between revenue and cost of goods sold (gross profit) is recognized in which account?

Construction in progress

Related to long-term construction contracts, at the end of the period which accounts are netted?

Construction in progress and billings on construction contracts.

The concept or principle that states that companies should recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for goods and services is referred to as the:

Core revenue recognition principle

Which of the following are key indicators that control of goods or services has been transferred to the customer? (Select all that apply.)

Customer has legal title to the asset Customer has an obligation to pay Customer accepted the risks and rewards of ownership

What journal entry should be made to recognize accounts receivable for long-term construction projects?

Debit Accounts Receivable and Credit Billings on Construction Contract

What is the correct journal entry to recognize profit for a long-term construction project for which revenue is recognized over time?

Debit construction in progress and debit cost of construction; credit revenue from long-term contracts

Margery sells 100 TV top boxes to customers for $90 each and credited sales revenue for $9,000. Margery estimates that six of the units will be returned for a full refund of $540. What additional journal entry should Margery make?

Debit sales returns and credit refund liability

Based on past experience, a seller can usually estimate the returns on a given volume of sales. Once estimated, these returns will ____________. (Select all that apply.)

Increase liabilities Reduce reported revenue

Which of the following services are commonly performed over time? (Select all that apply.)

Lending of money Financial statement audits Consulting engagements

Which of the following methods are appropriate for estimating variable consideration? (Select all that apply.)

Most likely amount that will be received Expected value

Munch Inc. delivers various types of construction materials to a customer's building site. Over an 18-month period, Munch's employees utilize Munch's machinery and tools to construct a new office building for the customer. Munch identifies only one performance obligation related to this contract because

Munch combines the materials, labor, and use of machinery and tools to construct a single complete building.

What method(s) can be used to estimate progress toward completion for the purpose of recognizing revenue over time? (Select all that apply.)

Output method Input method

Which of the following support(s) the conceptual basis for separating contractual promises into several performance obligations? (Select all that apply.)

Promises that can be viewed on a stand-alone basis should be separated Financial statements better reflect timing of transfer of goods and services

Which methods may be used to estimate the stand-alone prices of goods and services? (Select all that apply.)

Residual approach Expected cost plus margin approach Adjusted market assessment approach

Which of the following situations may make the contract price less apparent? (Select all that apply.)

Sales with right of return Determining whether the seller is acting as principal or agent Variable consideration provisions The time value of money Payment by the seller to the customer

The amount billed to customers on long-term construction project is recorded in the

billings on construction account.

The billings on construction contract account is classified as a(n)

contra asset.

At the end of the period, if construction in progress exceeds billings on construction contracts, it is recorded as a(n)

contract asset

Which of the following are included in the journal entry required to record the collection of cash from a customer related to a long-term construction contract? (Select all that apply.)

credit accounts receivable debit cash

Which of the following costs are included in a long-term construction contract? (Select all that apply.)

direct labor overhead direct material

For a promise to provide a good or service to be accounted for as a separate performance obligation, the good or service must be

distinct from other goods and services in the contract.

A contract is said to have variable consideration if the price depends on the outcome of

future events

When recognizing revenue from a construction type long term contract over time, the balance in the CIP account includes (Select all that apply.)

gross profit and losses costs of labor materials used

The construction in progress account represents the total construction costs (labor, material, overhead) and

gross profit recognized to date.

Prepayments for future goods or services should be (Select all that apply.)

included in the transaction price allocated to the various performance obligations in the contract

Which of the following are indicators that a company is a principal? (Select all that apply.)

it sets the sales price it owns the inventory prior to delivery It has primary responsibility for providing the product or service

Revenue recognition for services such as lending money and performing financial statement audits is typically

over time

An essential characteristic of a contract is that all parties to the contract are committed to

performing their obligations and enforcing their rights

The formula: total estimated revenue times percentage completed to date less revenue recognized in prior periods is used to measure:

revenue recognized for the current period

The inflow of cash or other assets that a business receives when it provides goods or services to customers is referred to as

revenues

nflows or other enhancements of assets or settlements of an entity's liabilities from delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations are ______.

revenues

The amount at which a good or service is sold separately under similar circumstances is referred to as the

stand-alone selling price

On a long-term construction project, the amount in the construction in progress account represents the costs of construction plus the gross profit recognized to date, and the billings on construction represents

the amounts billed to the customer.

Arthur Inc. provides services to consulting clients. Arthur should recognize the related revenue when

the related performance obligation is satisfied.

A long-term contract that includes many products and services that are capable of being distinct, may be accounted for as a single performance obligation because

the seller's role is to combine those products and services prior to delivery or completion

The journal entries used to recognize the costs of long-term construction contracts are identical when revenue is recognized upon completion and when it is recognized over time; however the two methods differ with respect

to the timing of revenue recognition