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Bella Company purchased debt securities with a face amount of $500,000 for $480,000 and classifies them as trading securities. During the first year, the company amortized $2,000 of the associated discount. At the end of the period, the fair value is $504,000. Bella should recognize a fair value adjustment of

$22,000.

To date, Gunter Construction completed 89% of a construction project with a contract price of $1 million. Consistent with the contract provisions, at this time, Gunter may bill 80% of the agreed-upon price. Gunter will report an accounts receivable of

$800,000

The discount on bond investment (Select all that apply.)

-is a contra-asset account -reduces the carrying value of the bond to its cost at date of purchase

When should the initial franchise fee be recognized by the franchisor?

After substantial performance of the initial services by the franchisor.

Rosa Company purchases debt securities and classifies them as "available-for-sale" securities. How should Rosa recognize changes in the value of the investment?

As unrealized holding gain or loss in other comprehensive income.

True or false: If a project qualifies for revenue recognition over time and the project as a whole is expected to be profitable, a loss should not ever be recognized in a given period along the way.

False

Which of the following differs between revenue recognized over time and revenue recognized at completion?

The timing of recognition

Which of the following will not differ between revenue recognized over time and revenue recognized at completion? (Select all that apply.)

Total expense Total revenue Total profit

Which of the following types of debt investments are reported at fair value?

Trading Available-for-sale

Porter Company classified its debt investment in Bailey Company as an available-for-sale security. Subsequent to the purchase, the fair value of the investment increased by $5,000. The result of this increase in value will be

an increase in other comprehensive income.

Porter Company classified its investment in the bonds of Bailey Company as a trading security. Subsequent to the investment, the fair value of the investment increased by $5,000. The result of this increase in value will

be an increase in net income.

In a consignment, the ______ owns the goods; the ______ holds the goods in order to sell them to a buyer.

consignor; consignee

If a seller satisfies a performance obligation but the payment depends on something other than the passage of time, the seller should recognize a(n)

contract asset.

The closing entry for a long-term construction project when revenue is recognized either over time or upon completion includes which of the following? (Select all that apply.)

credit construction in progress debit billings on construction contract

On December 31, 2021, Gardner Company holds debt securities classified as HTM with a face amount of $100,000 and a carrying value of $95,000. The bonds have an effective interest rate of 6% and pay interest of $2,500 semi-annually on June 30 and December 31. The journal entry to record the interest payment on December 31, 2021 includes

credit interest revenue $2,850 debit cash $2,500 debit discount on bond investment $350

Margot Company purchases $100,000 face amount, 6% semi-annual bonds for $110,000 when the market interest rate is 5%. The journal entry to record the interest for the first 6-month period includes (Select all that apply.)

credit premium on bond investment $250 debit cash $3,000 credit interest revenue $2,750

Jones signs a three-year contract to construct a new office building for Smith. The contract price is $3 million and estimated cost $2 million. For year one, Jones recognizes $1 million of revenue and $800,000 of cost. During year 2, Jones incurs $1.2 million in cost and estimates that during year 3 an additional $1.1 million will be necessary to complete the project. Jones will recognize a loss on the project by:

crediting construction in progress

Northern Company has bonds with an amortized cost of $600,000. At the end of the first reporting period, the bonds had a fair value of $675,000. 2 days after the end of the first reporting period, the bonds have a fair value of $680,000 and Northern decides to sell the bonds. Northern properly classifies these bonds as AFS securities. Prior to recording the sale, the journal entry to adjust the bonds to fair value includes

debit to fair value adjustment $5,000. credit to unrealized holding gain on AFS securities - OCI $5,000

Northern Company has bonds with an amortized cost of $600,000. At the end of the first reporting period, the bonds had a fair value of $675,000. 2 days after the end of the first reporting period, the bonds have a fair value of $680,000 and Northern decides to sell the bonds. Northern properly classifies these bonds as trading securities. Prior to recording the sale, the journal entry to adjust the bonds to fair value includes (Select all that apply.)

debit to fair value adjustment $5,000. credit to unrealized holding gain on trading securities - net income $5,000

A contract liability is a term that refers to a ______ revenue account

deferred

Lucky Company invested in debt securities and classified them as HTM. At the end of the accounting period, the value of the investment appreciated by $10,500. The company should

disclose the fair market value in the notes.

When bonds sell for less than their face value, they are selling at a

discount

When revenue is recognized over time in a long-term contract, a loss may have to be recognized in at least one period

even if the project as a whole is expected to be profitable.

Debt securities that are classified as available-for-sale or trading are valued at

fair market value.

Debt investments in available-for-sale securities are reported at

fair value.

For a contract that qualifies for revenue recognition over time, revenue and cost of construction are reported in the

income statement.

The premium on bond investment (Select all that apply.)

increases the carrying value of the bond to its cost at date of purchase

The primary reasons why holding gains and losses relating to held-to-maturity securities are not recognized even though they are recognized for trading and AFS securities probably is that the information is

less relevant.

If the interest rate paid on a bond is lower than the market interest rate, the bond will sell for an amount that is

less than its maturity value.

Deferred revenue from the sale of gift cards is classified as

liability

Deferred revenue from the sale of gift cards is classified as a(n):

liability

Revenue is typically recognized _____ for a license that provides the customer with the right of access to the seller's intellectual property.

over the license period

Consistent with IFRS, the fair value option is:

permitted only in specific circumstances

The price of a bond is equal to the

present value of future cash receipts.

The price of a bond is equal to

present value of future interest payments plus present value of principal

Which of the following fundamental concepts or principles supports the use of the fair value method

relevance

revenue is recognized on long-term

the contract does not qualify for revenue recognition over time

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.

If a contract doesn't qualify for revenue recognition over time, revenue is recognized

upon completion

If a long-term contract doesn't qualify for revenue recognition over time, revenue is recognized ____.

upon completion

Jones signs a three-year contract to construct a new office building for Smith. The contract price is $3 million and estimated cost $2 million. For year one, Jones recognizes $1 million of revenue and $800,000 of cost. During year 2, Jones incurs $1.2 million in cost and estimates that during year 3 an additional $1.1 million will be necessary to complete the project. For year 2, Jones will recognize revenue of: (round to whole percent)

$950,000

Held-to-maturity Trading Available-for-sale

- Carried at amortized cost and unrealized holding gains and losses are not recognized - Carried at fair value and unrealized holding gains and losses are recognized in net income - Carried at fair value and unrealized holding gains and losses are recognized in other comprehensive income

If a contract qualifies for revenue recognition over time, the income statement for each year reports related: (Select all that apply.)

- cost of construction - revenue

Margot Company purchases $100,000 face amount, 6% semi-annual bonds for $110,000 when the market interest rate is 5%. Margot should recognize the following interest received for the first 6-month period:

3,000

Otto Company purchases $200,000 face amount, 8% semi-annual bonds when the market rate is 7%. The rate used to determine interest revenue for the first 6 months on the investment is

3.5%.

Palmer Company purchases bonds with a face amount of $500,000 for $480,000 and properly classifies them as "held-to-maturity." On the maturity date of the bonds, the book value of bonds will be:

500,000

Which of the following events is of little importance if an investment in debt securities is held to maturity.

Changes in fair value during the holding period

In a consignment, who retains the risks and rewards of ownership of the property?

Consignor

Which of the following is most commonly used to estimate progress toward completion of a long-term contract?

Cost-to-cost ratio

Southland Construction. has entered into a three year contract to construct an office plaza for Northville Company for $300,000,000. Southland agrees to bill Northville 50% at the end of the first year, 30% at the end of the second year, and 20% at the end of the third year. At the end of year 1, Southland estimates it has completed 35% of the building and has incurred $55 million in construction costs. Which of the following is the correct entry to record billings for Southland Construction?

Dr. Accounts receivable $150 million; Cr. Billings on construction contract $150 million

What is the journal entry to recognize a loss on a long-term contract?

Dr. Cost of construction; Cr. Revenue from long-term contracts, Cr. Construction in progress (CIP)

Deferred revenue from the sale of gift cards is classified as a(n) _____ on the balance sheet.

Liability

When should ongoing franchise fees be recognized by the franchisor?

Over time in the periods the services are performed by the franchisor.

How are available-for-sale debt securities reported

Realized gains and losses are reported in net income in the period the investment is sold. Unrealized gains and losses are reported as part of other comprehensive income when they occur.

True or false: An estimated overall loss on a long-term contract is fully recognized in the first period the loss becomes evident, regardless of the revenue recognition method used.

True

True or false: The account descriptions used in the journal entry to close out the billings and construction in progress accounts are the same whether revenue is recognized upon completion or over time.

True

The fair value option can be applied to

financial liabilities financial assets

During the current period, Muenster Company amortized $5,000 of discount relating to its investment in debt securities. The company's amortization next period should be ______ the current period.

higher than

When a construction contract is closed upon completion of a construction project, the journal entry will include which of the following? (Select all that apply.)

- debit to billings on construction contract. - credit to construction in progress.

For held-to-maturity debt instruments, the difference between fair value and amortized cost must be ___ in a ___ to the financial statements.

- disclosed - notes

Jones signs a three-year contract to construct a new office building for Smith. The contract price is $3 million and estimated cost $2 million. For year one, Jones recognizes $1 million of revenue and $800,000 of cost. During year 2, Jones incurs $1.2 million in cost and estimates that during year 3 an additional $1.1 million will be necessary to complete the project. Actual costs incurred during the third year were $1.2 million. For year 3, Jones should recognize a loss of:

100,000

A license for symbolic intellectual property

provides the customer with the right of access to the intellectual property does not have significant standalone functionality