Exam 2 Acct Ch 18 multiple choice

The amount of gross profit recognized at the end of the first year using the percentageofcompletion method is:

$ 450,000.

Bretts Construction Company had a contract starting April 2017, to construct a $6,000,000 building that is expected to be completed in September 2018, at an estimated cost of $5,500,000. At the end of 2017, the costs to date were $2,530,000 and the estimated total costs to complete had not changed. The progress billings during 2017 were $1,200,000 and the cash collected during 2017 was $800,000. At December 31, 2017, Bretts would report Construction in Process in the amount of:

$2,760,000.

Bretts Construction Company had a contract starting April 2017, to construct a $6,000,000 building that is expected to be completed in September 2018, at an estimated cost of $5,500,000. At the end of 2017, the costs to date were $2,530,000 and the estimated total costs to complete had not changed. The progress billings during 2017 were $1,200,000 and the cash collected during 2017 was $800,000. For the year ended December 31, 2017, Bretts would recognize gross profit on the building of:

$230,000.

Bradley, Inc. a car dealer sells cars on January 1, 2017 to Stephens Company for $500,000. Bradley agrees to repurchase the cars (an unconditional obligation) from Stephens on December 31, 2017 for a price of $510,000. Which of the following is true regarding the transaction?

An imputed interest rate will have to be used to record interest expense by Bradley.

The new standard, Revenue from Contracts with Customers, recognizes revenue based on a(n):

AssetLiability approach.

At the end of the first year which of the following entries would be made to recognize revenue and gross profit on the contract?

Construction in Process Construction Expenses Revenue from LongTerm Contracts

Franiuk Hotdogs and Grill normally sells hotdogs for $2.00 but also tshirts with the name of the business and its logo prominently displayed for $10. The tshirts haven't been selling that well lately, so Franiuk has decided to sell a combination of the tshirt for $10 with a free hot dog. Donovan buys the combination of the tshirt and hot dog for $10 in cash. How should Franiuk account for the transaction?

Franiuk should recognize $10 revenue, comprised of $8.33 for the tshirt and $1.67 for the hot dog.

The converged standard on revenue recognition entitled Revenue from Contracts with Customers was developed because:

GAAP had numerous standards related to revenue recognition

Ringo Company sold 2,000 televisions on June 1, 2017 at a total price of $2,000,000, with a warranty guarantee that they were free of defects. The cost of the televisions is $1,200,000. The term of this assurance warranty is 3 years with an estimated cost of $100,000. In addition Ringo sold extended warranties related to 600 televisions for 2 years beyond the 3year period for $40,000. On December 12, 2017, Ringo incurred labor costs of $5,000 and part costs of $12,000 related to the assurance warranties. Ringo prepares financial statements on December 31, 2017. It estimates that the future assurance warranty costs will total $50,000 at December 31, 2017. Which of the following entries is correct?

On December 12, 2017 Ringo will make a debit to Warranty Expense of $17,000.

On January 1, 2017 Heybach Company sold goods to Barshinger Company for $400,000 in exchange for $100,000 in cash and a 5year zerointerest bearing note with a face amount of $401,468 and a present value of $300,000. Heybach also determined that the note has an imputed interest rate of 6%. The goods have an inventory cost on Heybach's books of $275,000. Which of the following will be part of a correct entry by Heybach?

On December 31, 2017 Heybach should record a credit to Interest Revenue of $18,000.

On February 1, 2017 Whitus Company sells 300 hard drives for $200 each on account to Walsh Company. Whitus allows Walsh to return any used hard drives within 30 days of purchase. The cost to Whitus of each hard drive is $120. On February 24, 2017 Walsh returns six hard drives because they are defective. On February 28, 2017, Whitus prepares financial statements and determines that it is likely that only two more hard drives will be returned. Which of the following will be part of a correct entry by Whitus?

On February 24, 2017 Whitus should record a credit to Accounts Receivable of $1,200.

Cain Company offers its customers a 2% volume discount if they purchase at least $600,000 of its product during the calendar year. On May 31, 2017 Cain has made sales of $400,000 to Kao Co. In the previous 2 years, Cain has made sales of on average of $800,000 to Kao Co. in the period June 1 to December 31. Which of the following will be part of a correct entry by Cain?

On May 31, 2017 Cain should recognize a credit to Sales Revenue of $392,000.

Ostro Company enters into a contract with Zelman Company to give financial advice for a one year term. Ostro will receive a weekly set fee and in addition will receive a performancebased incentive at the end of the year based on complicated formula but generally based on the investment profits Zelman Company receives related to the assets that Ostro manages. At what point should Ostro recognize the management fee and the performancebased incentive related to Zelman?

Ostro should recognize the weekly fee each week after Ostro performed its obligation, but should not recognize the performancebased incentive until at the end of the year.

The Nathan Company is involved in the construction of an asset under a longterm construction contract. At the end of the third year of the five year contract, the cost estimates indicate that a loss will result on the completion of the entire contract. In accounting for this contract, the entire expected loss must be recognized in the current period under the:

Percentage of completion method: Yes, Completed Contract Method: Yes

Which of the following best describes the current revenue recognition principle?

Recognize revenue in the accounting period when the performance obligation is satisfied.

To entice more customers into the store on Mondays, Strassberg Company is selling a slice of pizza for $1 less on Mondays. Normally a slice of pizza sells for $3. When Barbara buys a slice of pizza from Strassberg Company on a Monday with cash, how should Strassberg Company recognize the transaction?

Revenue of $2 should be recognized.

Under the completedcontract method of accounting for longterm construction contracts, interim charges and/or credits to the income statement are made for:

Revenues: no, Costs: no, Gross Profit: No

On April 4, Rudek Company enters into a contract to transfer a product to Gwinner Company on June 12. The contract is modified on May 6 with the price terms changing and transfer of the product changed to June 22. The modified contract is structured such that Gwinner is required to pay the full contract price of $3,500 on July 10. The cost of goods transferred is $2,700. Rudek delivers the product to Gwinner on June 22. When should Rudek recognize revenue on the transaction?

Rudek should recognize revenue on June 22.

Which of the following is not part of the criteria to determine when a company would recognize revenue over a period of time?

The company has no right to payment for its performance completed to date.

When the price of a good or service is dependent on future events (such as price increases, volume discounts, and rebates) companies estimate the amount of variable consideration using either the expected value method (probabilityweighted amount) or the most likely amount (in a range of possible amounts) method. Which of the following indicates that the most likely amount method should be used?

The contract has only two possible outcomes.

Which of the following is not a condition in the determination of when a valid contract exists:

The contract has to be in writing.

Green Co. ships merchandise costing $60,000 on consignment to Butters Company. Green pays $2,500 of freight costs, and Butters pays $3,200 for local advertising costs that are reimbursable from Green. By the end of the period, Butters has sold onefourth of the consigned merchandise for $80,000 cash. Butters notifies Green of the sales, retains a 20% commission, and remits the cash due Green. Which of the following entries is correct?

When Butters receives the consigned inventory from Green, no entry should be made by Butters because the goods are still considered an asset on Green's books.

Which of the following is false concerning the identification of separate performance obligations?

When two goods are not distinct within a contract, a company should still separate them into distinct performance obligations because products should never be combined and reported as one performance obligation.

The best measure of fair value is what the company could sell the good or service for on a standalone basis, referred to as the standalone selling price. If this information is not available, companies should use their best estimate of what the good or service might sell for as a standalone unit. The preferred allocation approach is the:

adjusted market assessment approach.