EXAM 2 REVIEW

Prior period adjustments are reported in current-year financial statements as:

an addition to (or deduction from) the ending balance of retained earnings.

Step 4 of Revenue Recognition

Allocate the transaction price to the separate performance obligations

method

Change in accounting principle

Which of the following is true of accounting for changes in estimates?

Changes in estimates are not carried back to adjust prior years' financial statements.

Change in estimate

Changes its computation

Which limitation of an income statement occurs when one company uses an accelerated depreciation method while another company uses straight-line depreciation?

Income numbers are affected by the accounting methods employed.

step 3 of revenue recognition

Determine the transaction price

Which of the following items will not appear in the statement of stockholders' equity?

Discontinued operations

Correction of an error

Forgot to record

Which of the following occur from peripheral or incidental transactions?

Gain on the sale of equipment.

How does the single-step income statement differ from the multiple-step income statement?

It does not indicate that one type of revenue or expense has priority over another.

Which of the following is not true about the information provided in the income statement?

It helps in evaluating working capital.

Which of the following is true about intraperiod tax allocation?

Its purpose is to relate the income tax expense to the items that give rise to the amount of income tax provision.

Which of the following items may increase retained earnings?

Net income. Changes in accounting principle. Prior period adjustments.

variable consideration

Part of the transaction price depends on the outcome of some future event

Bad Debt Expense

Reported as operating expense in income statement

Expected value

The probability-weighted average of the possible outcomes of a random variable.

Collectibility

The risk that a customer will be unable to pay the amount of consideration in accordance with the contract.

Chelsea sells equipment to a customer. The total selling price includes installation and training services. Companies other than Chelsea also provide installation and training services, but the customer has chosen to have Chelsea perform these tasks. What is (are) Chelsea's performance obligation(s)?

Three separate performance obligations: the sale of the equipment, the sale of its installation and the sale of training services.

Which of the following is not an acceptable way of displaying the types of other comprehensive income (OCI)?

Using the combined statement of stockholders' equity

Which of the following should be reported as a prior period adjustment?

a mistakes in the application of accounting principles

The standard, Revenue from Contracts with Customers,

adopts an asset-liability approach for revenue recognition.

The third step in the process for revenue recognition is to

allocate the transaction price to the separate performance obligations.

Income taxes are allocated to each of the following except

balance sheet adjustments.

Revenue from a contract with a customer

cannot be recognized until a contract exists.

A change in the method of inventory pricing from FIFO to average-cost would be accounted for as a (an):

change in accounting principle.

Companies use intraperiod tax allocation for all of the following items except

changes in accounting estimates.

The Billings on Construction in Progress account is a(n)

contra inventory account.

A contract should be treated as having multiple performance obligations if

each performance obligation is not highly dependent on other promises in the contract.

The seller of a good or service should recognize revenue when

each performance obligation is satisfied.

Classification as an unusual item on the income statement would be appropriate for all of the following except:

gain or loss on disposal of a component of the business.

Step 1 of Revenue Recognition

identify the contract with customers

Step 2 of Revenue Recognition

identify the separate performance obligations in the contract 1) the distinct products sold in the contract are available to be sold separately 2) the sale of the distinct products sold are not interdependent

The second step in the process for revenue recognition is to

identify the separate performance obligations in the contract.

Companies use intraperiod tax allocation on the income statement for

income from continuing operations and discontinued operations.

A contract

is an agreement that creates enforceable rights and obligations.

Earnings per share

measures the number of dollars earned by each share of common stock.

Earnings per share is computed as net income:

minus preferred dividends divided by the weighted average of common shares outstanding.

A correction of an error in prior periods' income will be reported

net of tax

Gains and losses that bypass net income but affect stockholders' equity are referred to as:

other comprehensive income.

Completed Contract Method

recognition of revenue for a long-term contract when the project is complete.

The fifth (last) step in the process for revenue recognition is to

recognize revenue when each performance obligation is satisfied.

Under the cost-recovery (i.e. zero-profit) method

revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until all costs are incurred.

The income statement provides investors and creditors with information to predict all of the following except the

sources of future cash flows.

An indication that the customer has not taken control of the good or service is

the customer has no significant risks or rewards of ownership.

In calculating earnings per share, companies deduct preferred dividends from net income if

the dividends are declared.

An indication that the customer has taken control of the good or service is that

the selling company has transferred legal title to the asset.

most likely amount

the single most likely amount in a range of possible consideration outcomes

In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract multiplied by the costs incurred during the year divided by...

total estimated cost of the contract..