Global ACCT Ch 18 21 22

A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change should include a a. credit to Accumulated Depreciation. b. debit to Retained Earnings in the amount of the difference on prior years. c. debit to Deferred Tax Asset. d. credit to Deferred Tax Liability.

A

A lessee with a finance lease containing a bargain purchase option should depreciate the leased asset over the a. asset's remaining economic life. b. term of the lease. c. life of the asset or the term of the lease, whichever is shorter. d. life of the asset or the term of the lease, whichever is longer.

A

Continuing franchise fees should be recorded by the franchisor a. as revenue when uncertainty related to the variable consideration is resolved. b. as revenue when received. c. in accordance with the accounting procedures specified in the franchise agreement. d. as revenue only after the balance of the initial franchise fee has been collected.

A

Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be a. recognized in the current period, regardless of whether the percentage-of-completion or cost-recovery method is employed. b. recognized in the current period under the percentage-of-completion method, but the cost-recovery method defers recognition of the loss to the time when the contract is completed. c. recognized in the current period under the cost-recovery method, but the percentage-of-completion method defers the loss until the contract is completed. d. deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or cost-recovery method is employed.

A

If a contract involves a significant financing component, a. the time value of money is used to determine the fair value of the transaction. b. the time value of money is not required to determine transaction price, if the payment is more than a year. c. the transaction amount should be based on the current sales price of goods or services. d. interest is not accrued as a result of the financing component.

A

If the residual value of a leased asset is guaranteed by a third party a. it is treated by the lessee as no residual value. b. the third party is also liable for any lease payments not paid by the lessee. c. the net investment to be recovered by the lessor is reduced. d. it is treated by the lessee as an additional payment and by the lessor as realized at the end of the lease term.

A

In a lease that is appropriately recorded as a direct-financing lease by the lessor, unearned income a. should be amortized over the period of the lease using the effective interest method. b. should be amortized over the period of the lease using the straight-line method. c. does not arise. d. should be recognized at the lease's expiration.

A

In computing depreciation of a leased asset, the lessee should subtract a. a guaranteed residual value and depreciate over the term of the lease. b. an unguaranteed residual value and depreciate over the term of the lease. c. a guaranteed residual value and depreciate over the life of the asset. d. an unguaranteed residual value and depreciate over the life of the asset.

A

Revenue for sales-based royalty payments should be recognized a. when the amount of sales can be determined. b. on the date payment is received by the franchisor. c. on the date the performance obligation is satisfied. d. on the date the contract was signed.

A

Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software. The total transaction price is $350,000. Based on standalone values, the company estimates the consulting services and support have a value of $100,000 and the software license has a value of $250,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes a. a credit to Sales Revenue for $250,000 and a credit to Unearned Service Revenue of $100,000. b. a credit to Service Revenue of $100,000. c. a credit to Unearned Service Revenue of $100,000. d. a credit to Sales Revenue of $350,000.

A

Signing of the contract by the two parties is a. not recorded until one or both parties perform under the contract. b. recorded at the time the contract is approved by both parties. c. not recorded until both parties perform under the contract. d. recorded immediately after the contract is signed.

A

The IASB has declared, as part of its conceptual framework, that it will assess the merits of proposed standards a. from a position of neutrality. b. from a position of materiality. c. based on the possible impact on behavior. d. based on lobbyist arguments.

A

The cost-to-cost basis measures progress towards completion by a. comparing costs incurred to date with total costs to complete the contract. b. tracking results of work completed to date; it is an output measure. c. tracking floors of a building completed versus floors still to be completed. d. tracking miles of a highway completed versus miles of highway still to be completed.

A

The methods of accounting for a lease by the lessee are a. operating and finance lease methods. b. operating, sales, and finance lease methods. c. operating and leveraged lease methods. d. None of these answer choices are correct

A

The percentage-of-completion method a. recognizes revenue and gross profit each period based upon progress. b. is used primarily for short-term contracts. c. accumulates construction costs in the Billings on Construction in Progress account. d. recognizes revenue and gross profits only when contract is completed.

A

The principal advantage of the cost-recovery method is that a. reported revenue is based on final results rather than estimates of unperformed work. b. it reflects current performance when the period of a contract extends into more than one accounting period. c. it is not necessary to recognize revenue at the point of sale. d. a greater amount of gross profit and net income is reported than is the case when the percentage-of-completion method is used.

A

The role of the agent in a Principal-Agent relationship is to a. arrange for the principal to provide goods or services to a customer. b. provide the goods or services for a customer. c. market the principal goods and services to prospective customers. d. develop and maintain goodwill of the principal's customers.

A

The third step in the process for revenue recognition is to a. determine the transaction price. b. identify the separate performance obligations in the contract. c. allocate transaction price to the separate performance obligations. d. recognize revenue when each performance obligation is satisfied

A

Unconditional rights to receive consideration because a performance obligation has been satisfied are a. reported as a receivable on the statement of financial position. b. reported as a contract asset on the statement of financial position. c. reported as a contract liability on the statement of financial position. d. are not reported on the balance sheet.

A

When lessors account for residual values related to leased assets, they a. always include the residual value because they always assume the residual value will be realized. b. include the unguaranteed residual value in sales revenue. c. recognize more gross profit on a sales-type lease with a guaranteed residual value than on a sales-type lease with an unguaranteed residual value. d. All of these answer choices are true with regard to lessors and residual values.

A

When multiple performance obligations exists in a contract, they should be accounted for as a single performance obligation when a. each service is interdependent and interrelated. b. the performance obligations are distinct but interdependent. c. the product is distinct within the contract d. determination cannot be made.

A

When the bundle price is less than the sum of the standalone prices, the discount should be allocated to a. the product (or products) associated with the discount. b. the entire bundle of products or services. c. the product cost, thereby increasing product margin. d. the selling price of product or services provided.

A

Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate? a. Current period and prospectively b. Current period and retrospectively c. Retrospectively only d. Current period only

A

Which of the following is true regarding the deferral of sale profits on a sale-leaseback using IFRS? a. Both profits and losses on a sale followed by an operating lease leaseback are recognized immediately if the transaction is established at fair value b. Profit from the sale should be amortized in proportion to the rental payments it an operating lease results from the sale-leaseback. c. Any profit on a sale-leaseback resulting in an operating lease is deferred and recognized over the subsequent lease period, whereas any loss is recognized immediately. d. Profit from the sale should be deferred and amortized in proportion to the amortization of the leased asset if a capital lease results from the sale-leaseback.

A

Why does IASB prohibit retrospective treatment of changes in accounting estimates? a. The IASB view changes in estimates as normal recurring corrections and adjustments, which are the natural result of the accounting process. b. The IASB does not allow the retrospective treatment for any type of presentation. c. The IASB prohibits retrospective treatment of changes in accounting estimates because IFRS requires it. d. IASB does not prohibit retrospective treatment of changes in accounting estimates, but is silent on this issue

A

If a particular transaction is not specifically addressed by IFRS, where should an accountant turn to find a hierarchy of guidance to be considered in the selection of an accounting policy? a. accounting standards from other countries b. IAS 8 c. the company's board of directors d. the company's external auditors

B

A contract a. must be in writing to be an enforceable contract. b. is an agreement that creates enforceable rights and obligations. c. is enforceable if each party can unilaterally terminate the contract. d. does not need to have commercial substance

B

Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of the accounting concept of a. materiality. b. consistency. c. prudence. d. objectivity

B

Contract liability is a company's obligations to transfer goods or services to a customer for which the company has received consideration from the customer. An example of a contract liability is a. Prepaid subscription. b. Unearned magazine subscription. c. Mortgage Payable. d. Service Revenue.

B

Counterbalancing errors do not include a. errors that correct themselves in two years. b. errors that correct themselves in three years. c. an understatement of purchases. d. an overstatement of unearned revenue

B

Franchise revenue are recognized over time if a. franchise rights are transferred at a point in time. b. the franchisor is providing access to the right rather than transferring control. c. performance obligations regarding franchise rights are completed when the franchise opens. d. the franchisee fee is payable upon signing of contract.

B

IASB requires companies to use which method for reporting changes in accounting policies? a. cumulative effect approach b. retrospective approach c. prospective approach d. averaging approach

B

If companies want to disqualify a lease as a finance lease to the lessee, while having the same lease qualify as a finance (sales or financing) lease to the lessor, which of the following are true? a. It cannot be done b. They must make information about the implicit rate unavailable to the lessee and use of the incremental borrowing rate by the lessee when it is higher than the implicit interest rate of the lessor. c. They must include a bargain purchase option. d. They must specify the transfer of the property to the lessee.

B

In a sale-leaseback transaction where none of the four leasing criteria are satisfied, which of the following is false? a. The seller-lessee removes the asset from its books. b. The purchaser-lessor records a gain. c. The seller-lessee records the lease as an operating lease. d. All of these answers are false statements

B

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 percentage of the costs incurred during the year to the a. total costs incurred to date. b. total estimated cost. c. unbilled portion of the contract price. d. total contract price.

B

In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be a. the terms of payment in the contract. b. the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable. c. the method commonly used by the contractor to account for other long-term construction contracts. d. the inherent nature of the contractor's technical facilities used in construction

B

In the earlier years of a lease, from the lessee's perspective, the use of the a. finance method will enable the lessee to report higher income, compared to the operating method. b. finance method will cause debt to increase, compared to the operating method. c. operating method will cause income to decrease, compared to the finance method. d. operating method will cause debt to increase, compared to the finance method.

B

Occasionally a franchise agreement grants the franchisee the right to make future bargain purchases of equipment or supplies. When recording the initial franchise fee, the franchisor should a. increase revenue recognized from the initial franchise fee by the amount of the expected future purchases. b. record a portion of the initial franchise fee as unearned revenue which will increase the selling price when the franchisee subsequently makes the bargain purchases. c. defer recognition of any revenue from the initial franchise fee until the bargain purchases are made. d. None of these answer choices are correct.

B

The amount to be recorded as the cost of an asset under a finance lease is equal to the a. present value of the minimum lease payments. b. present value of the minimum lease payments or the fair value of the asset, whichever is lower. c. present value of the minimum lease payments plus the present value of any unguaranteed residual value. d. carrying value of the asset on the lessor's books.

B

The estimated life of a building that has been depreciated 30 years of an originally estimated life of 50 years has been revised to a remaining life of 10 years. Based on this information, the accountant should a. continue to depreciate the building over the original 50-year life. b. depreciate the remaining book value over the remaining life of the asset. c. adjust accumulated depreciation to its appropriate balance, through net income, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years. d. adjust accumulated depreciation to its appropriate balance through retained earnings, based on a 40-year life, and then depreciate the adjusted book value as though the estimated life had always been 40 years

B

The first step in the process for revenue recognition is to a. determine the transaction price. b. identify the contract with the customer. c. allocate the transaction price to the separate performance obligations. d. identify the separate performance obligations in the contract.

B

The last step in the process for revenue recognition is to a. allocate transaction price to the separate performance obligations. b. recognize revenue when each performance obligation is satisfied. c. determine the transaction price. d. identify the contract with customers.

B

The most popular input measure used to determine the progress toward completion is a. units-of-delivery method. b. cost-to-cost basis. c. labor hours worked. d. tons produced

B

The transaction price a. excludes discounts, volume rebates, coupons and free products, or services. b. is the amount of consideration that a company expects to receive from a customer c. excludes time value of money if the contract involves a significant financing component. d. does not consider noncash consideration such as donations, gifts, equipment or labor.

B

The transaction price for multiple performance obligations should be allocated a. based on selling price from the company's competitors. b. based on what the company could sell the goods for on a standalone basis. c. based on forecasted cost of satisfying performance obligation. d. based on total transaction price less residual value.

B

The use of the net method of recognizing revenue by an agent a. is appropriate as long as both revenue and costs are included. b. is the correct method in a principal-agent relationship. c. could result in an overstatement of the agent's revenue. d. could result in an understatement of the agent's revenue.

B

Types of franchising arrangements include all of the following except a. service sponsor-retailer. b. wholesaler-service sponsor. c. manufacturer-wholesaler. d. wholesaler-retailer.

B

Under IFRS, when a company prepares financial statements on a new basis, how many years of comparative data are reported? a. One b. Two c. Three d. Five

B

A performance obligation exists when a. a company receives the right to receive consideration. b. a contract is approved and signed. c. a company provides a distinct product or service. d. a company provides interdependent product or service.

C

A company has satisfied its performance obligation when the a. company has received payment for goods or services. b. company has significant risks and rewards of ownership. c. company has legal title to the asset. d. company has transferred physical possession of the asset.

D

What impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee? a. No impact as the option does not enter into the transaction until the end of the lease term. b. The lessee must increase the present value of the minimum lease payments by the present value of the option price. c. The lessee must decrease the present value of the minimum lease payments by the present value of the option price. d. The minimum lease payments would be increased by the present value of the option price if, at the time of the lease agreement, it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price.

B

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a a. change in accounting policy. b. change in accounting estimate. c. prior period adjustment. d. correction of an error.

B

When a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price, the transaction should be treated as a a. outright sale. b. financing transaction. c. repurchase transaction. d. put option.

B

When a contract modification does not result in a separate performance obligation, the additional products are priced at the a. standalone price of the product. b. blended price of original contract and contract modification. c. average selling price of original selling price and standalone price. d. selling price specified in contract modification

B

When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct? a. Under both the percentage-of-completion and the cost-recovery methods, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods. b. Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods. c. Under the cost-recovery method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods. d. No current period adjustment is required.

B

Which of the following best describes current practice in accounting for leases? a. Leases are not capitalized. b. Leases similar to installment purchases are capitalized. c. All long-term leases are capitalized. d. All leases are capitalized.

B

Which of the following is not treated as a change in accounting policy? a. A change from average cost to FIFO for inventory valuation b. A change to a different method of depreciation for plant assets c. A change from full-cost to successful efforts in the extractive industry d. A change from cost-recovery to percentage-of-completion

B

Which of the following is the best explanation for why IASB has classified accounting changes into different categories? a. IASB established categories based on the materiality of the changes involved. b. IASB classifies changes in the categories because each category involves different method of recognizing changes in the financial statements. c. IASB established categories based on the fact that some treatment are consider GAAP and some are not. d. IASB established the categories based on a survey of managers and their need to provide a favorable profit picture.

B

Which of the following would be a reason where IASB would permit companies to change accounting policy? a. The change would allow the company to present a more favorable profit picture. b. The change would result in the financial statements providing more reliable and relevant information about a company`s financial position, financial performance, and cash flows. c. The change is made by the internal auditor. d. The change will be long-term.

B

A company changes from percentage-of-completion to cost-recovery, which is the method used for tax purposes. The entry to record this change should include a a. debit to Construction in Process. b. debit to Loss on Long-term Contracts in the amount of the difference on prior years, net of tax. c. debit to Retained Earnings in the amount of the difference on prior years, net of tax. d. credit to Deferred Tax Liability.

C

A company using a perpetual inventory system neglected to record a purchase of merchandise on account at year end. This merchandise was omitted from the year-end physical count. How will these errors affect assets, liabilities, and equity at year end and net income for the year? Assets|Liabilities|Equity|Net Income a.Noeffect|Understate|Overstate| Overstate. b.Noeffect|Overstate|Understate Understate. c.Understate|Understate|No effect|No effect. d.Understate|No effect|Understate|Understate

C

A warranty provided when a customer exercises an option to purchase a warranty is recorded as a. an expense in the period the goods or services are sold. b. a warranty liability for all costs incurred after sale due to correction of defects. c. revenue in the period that the service-type warranty is in effect. d. an assurance type warranty which is included in the sales price of the product.

C

All of the following statements are true regarding IASB's guideline that companies must demonstrate change in accounting policy as preferable or as an improvement, except a. Diversity in situations and characteristics of the items encountered in practice require the use of professional judgment. b. Changes in accounting policy are appropriate only when a company demonstrates that the newly adopted generally accepted accounting policy is more relevant and reliable than the existing one. c. Changes in accounting policy are appropriate only when a company demonstrates an improved income tax effect alone. d. All of these statements are true.

C

All of the followings are ways in which companies avoid leased assets capitalization in devising lease agreements, except: a. Ensure that the lease does not specify the transfer of title of the property to the lessee. b. Do not write in a bargain-purchase option. c. Arrange for the present value of the minimum lease payments to be sufficiently more than the fair value of the leased property. d. Set the lease term sufficiently below the estimated economic life of the leased property such that the economic life test is not met.

C

All revenue for franchise companies is derived from a. assistance for site selection and negotiating lease. b. bookkeeping and advisory services. c. sale of initial franchise and continuing fees. d. advertising and promotion

C

An example of a correction of an error in previously issued financial statements is a change a. from the FIFO method of inventory valuation to the average cost method. b. in the service life of plant assets, based on changes in the economic environment. c. from the cash basis of accounting to the accrual basis of accounting. d. in the tax assessment related to a prior period.

C

Consideration paid or payable to customers a. includes volume rebates which increases the cost to the customer. b. includes discounts which reduces the cost of purchases to the company. c. reduces the consideration received and the revenue to be recognized. d. includes prompt settlement discount which increases revenues.

C

Cost estimates at the end of the second year indicate that a loss will result on completion of the entire contract. Which of the following statements is correct? a. Under the cost-recovery method, the loss is not recognized until the year the construction is completed. b. Under the percentage-of-completion method, the gross profit recognized in the first year does not affect the computation of loss for the second year. c. Under the cost-recovery method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability. d. Under the cost-recovery method, when the Construction in Process balance exceeds the billings, the estimated loss is added to the accumulated costs.

C

Disclosure related to revenue a. does not require capitalized costs to obtain and fulfill a contract. b. does not require judgments that affect amount and timing of revenues from contracts. c. requires disclosure of remaining performance obligations. d. requires disclosure of average balance of contract assets.

C

Each of the following errors will overstate 2016 net income except a. Equipment purchased in 2015 was expensed. b. Wages payable were not recorded at 12/31/16. c. Equipment purchased in 2016 was expensed. d. 2016 ending inventory was overstated

C

For a sales-type lease, a. the sales price includes the present value of the unguaranteed residual value. b. the present value of the guaranteed residual value is deducted to determine the cost of goods sold. c. the gross profit will be the same whether the residual value is guaranteed or unguaranteed. d. None of these answer choices are correct

C

How should the balances of progress billings and construction in process be shown at reporting dates prior to the completion of a long-term contract? a. Progress billings as deferred income, construction in progress as a deferred expense. b. Progress billings as income, construction in process as inventory. c. Net balance, as a current asset if debit balance, and current liability if credit balance. d. Net balance, as income from construction if credit balance, and loss from construction if debit balance

C

If, at the end of a period, a company erroneously excluded some goods from its ending inventory and also erroneously did not record the purchase of these goods in its accounting records, these errors would cause a. the ending inventory and retained earnings to be understated. b. the ending inventory, cost of goods sold, and retained earnings to be understated. c. no effect on net income, working capital, and retained earnings. d. cost of goods sold and net income to be understated.

C

In computing the present value of the minimum lease payments, the lessee should a. use its incremental borrowing rate in all cases. b. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee. c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee. d. None of these answer choices are correct.

C

In order to properly record a direct-financing lease, the lessor needs to know how to calculate the lease receivable. The lease receivable in a direct-financing lease is best defined as a. the amount of funds the lessor has tied up in the asset which is the subject of the direct-financing lease. b. the difference between the lease payments receivable and the fair value of the leased property. c. the present value of minimum lease payments. d. the total book value of the asset less any accumulated depreciation recorded by the lessor prior to the lease agreement.

C

Which type of accounting change should always be accounted for in current and future periods? a. Change in accounting policy b. Change in reporting entity c. Change in accounting estimate d. Correction of an error

C

Mika company leases telecommunication equipment. Assume the following data for equipment leased from Phlash Company. The lease term is 5 years and requires equal rental payments of ¥3,150,000 at the beginning of each year. The present value of the payments was ¥13,135,059.The equipment has a fair value at the inception of the lease of ¥13,900,000, an estimated useful life of 8 years, and no residual value. Mika pays all executory costs directly to third parties. Phlash set the annual rental to earn a rate of return of 10%, and this fact is known to Mika. The lease does not transfer title or contain a bargain-purchase option. Based on this information, which of the following statement is true? a. The lease should be classified as an operating lease. b. The lease meets the economic life test to be classified as a finance lease. c. The lease should be classified as a finance lease based on passing the recovery of investment test. d. The lease is classified as an operating lease for Mika and a finance lease for Phlash

C

Noncash consideration should be a. recognized on the basis of fair value of what is given up. b. recognized on the basis of original cost paid by customer. c. recognized on the basis of fair value of what is received. d. recognized on the basis of fair value of equivalent goods or services

C

On January 15, 2015, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. This contract should be a. recorded on January 15, 2015. b. recorded on March 1, 2015. c. recorded on March 31, 2015. d. recorded on April 30, 2015.

C

Partial satisfaction of a multiple performance obligation is reported on the statement of financial position as a. contract liability. b. receivable. c. contract asset. d. unearned service revenue

C

The Billings on Construction in Progress account is a(n) a. contract revenue account. b. inventory account. c. contra-inventory account. d. construction expense account.

C

The Lease Liability account should be disclosed as a. all current liabilities. b. all non-current liabilities. c. current portions in current liabilities and the remainder in non-current liabilities. d. deferred credits

C

The converged standard on revenue recognition a. reduces the number of disclosures required for revenue reporting. b. increases the complexity of financial statement preparation. c. recognizes and measures revenue based on changes in assets and liabilities. d. simplifies revenue recognition practices across entities and industries

C

The fourth step in the process for revenue recognition is to a. recognize revenue when each performance obligation is satisfied. b. identify the separate performance obligations in the contract. c. allocate transaction price to the separate performance obligations. d. determine the transaction price.

C

The initial direct costs of leasing a. are generally borne by the lessee. b. include internal direct and indirect costs. c. are expensed in the period of the sale under a sales-type lease. d. All of these answer choices are true with regard to the initial direct costs of leasing.

C

The primary difference between a direct-financing lease and a sales-type lease is the a. manner in which rental receipts are recorded as rental income. b. amount of the depreciation recorded each year by the lessor. c. recognition of the manufacturer's or dealer's profit at the inception of the lease. d. allocation of initial direct costs by the lessor to periods benefited by the lease arrangements.

C

To avoid leased asset capitalization, companies can devise lease agreements that fail to satisfy any of the four leasing criteria. Which of the following is not one of the ways to accomplish this goal? a. Lessee uses a higher interest rate than that used by lessor. b. Set the lease term at something less than 75% of the estimated useful life of the property. c. Write in a bargain purchase option. d. Use a third party to guarantee the asset's residual value

C

Under the cost-recovery method a. revenue, cost, and gross profit are recognized during the production cycle. b. revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed. c. revenue, cost, and gross profit are recognized at the time the contract is completed. d. None of these answers are correct.

C

When sales are made with a right of return, the company a. should not recognize any revenue. b. should recognize revenue for the full sales price. c. records the returned asset in a separate inventory account. d. record the estimated returns in the Sales Returns account.

C

Which of the following disclosures is required for a change from sum-of-the-years-digits to straight-line? a. The cumulative effect on prior years, net of tax, in the current retained earnings statement b. Restatement of prior years' income statements c. Recalculation of current and future years' depreciation d. All of these answer choices are required

C

Which of the following is a correct statement of one of the capitalization criteria? a. The lease transfers ownership of the property to the lessor. b. The lease contains a purchase option. c. The lease term is equal to or more than 75% of the estimated economic life of the leased property. d. The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property.

C

Which of the following is not a retrospective-type accounting change? a. Cost-recovery method to the percentage-of-completion method for long-term contracts b. Cost-recovery method to the FIFO method for inventory valuation c. Sum-of-the-years'-digits method to the straight-line method d. "Full cost" method to another method in the extractive industry

C

Which of the following is not classified as an accounting change by IASB? a. Change in the accounting policy b. Change in accounting estimate c. Errors in the financial statements d. All of these are classified as an accounting change

C

Which of the following statements is correct? a. Changes in accounting policy are always handled in the current or prospective period. b. Prior statements should be restated for changes in accounting estimates. c. A change from expensing certain costs to capitalizing these costs due to a change in the period benefited, should be handled as a change in accounting estimate. d. Correction of an error related to a prior period should be considered as an adjustment to current year net income

C

A company must account for a contract modification as a new contract if a. Goods or services are interdependent on each other. b. The promised goods or services are distinct. c. The company has the right to receive consideration equal to standalone price. d. Goods or services are distinct and company has right to receive the standalone price.

D

A lessor with a sales-type lease involving an unguaranteed residual value available to the lessor at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts? a. The minimum lease payments plus the unguaranteed residual value. b. The present value of the minimum lease payments. c. The cost of the asset to the lessor, less the present value of any unguaranteed residual value. d. The present value of the minimum lease payments less the present value of the unguaranteed residual value.

D

All of the following statements are true regarding the circumvention of accounting rules for leases when determining whether a lease qualifies as an operating or capital lease except a. the residual value guarantee is a device used by lessees and lessors by transferring some of the risk to a third party to convert financing leases to operating leases. b. the lessee who does not know exactly the lessor`s implicit interest rate might use a different (higher) incremental borrowing rate. c. lessors typically try to avoid having lease arrangement classified as operating leases. d. lessors typically try to avoid having lease arrangement classified as finance leases.

D

All of the following statements are true with regard to how the statement of financial position will be similarly affected by leasing the assets as opposed to issuing bonds and purchasing the assets, except which statement? a. Since a long-term, non-cancelable lease which is used as a financing device generally results in the capitalization of the leased assets and recognition of the lease commitment in the statement of financial position, the comparative effect is not very different from purchase and ownership. b. Assets leased under finance leases would be capitalized at the present value of the future lease payment, which is somewhat equivalent to the purchase price of the assets. c. Bonds sold at par would be nearly equivalent to the present value of the future lease payments. d. The specific accounts affected by the transactions would be the same.

D

Companies can use the expected value to estimate variable consideration when a. the contract has only two possible outcomes. b. a company has a small number of contracts with similar characteristics. c. a company can use the most likely amount in a range of possible outcomes. d. a company has a large number of contracts with similar characteristics.

D

Consigned goods are recognized as revenues by the a. consignor when a sale to a third party has occurred. b. consignor when the merchandise has been shipped to a consignee. c. consignee when a sale to a third party has occurred. d. consignor when it receives payment from consignee for goods sold

D

Consignments are a specialized marketing method whereby the a. Consignee purchases goods for sale and sends payment when goods are sold. b. Consignee (agent) holds title to the product. c. Consignee pays for good up front and is paid when merchandise is sold. d. Consignee takes possession of merchandise but title remains with manufacturer.

D

Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the first 90 days. Entertainment Tonight also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,300 and $800, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty will include a a. debit to Warranty Expense, $800. b. debit to Warranty Liability, $350 c. credit to Warranty Liability, $800 d. credit to Unearned Warranty Revenue, $800

D

Executory costs include a. maintenance. b. property taxes. c. insurance. d. All of these answer choices are correct.

D

Franchise fees should be recognized a. on the date the contract was signed. b. on the date the franchise is opened for business. c. on the date the franchise fee is paid to franchisor. d. when performance obligations are satisfied.

D

Franchise revenues are recognized over time if a. franchise rights are transferred at a point in time. b. the franchisee fee is payable upon signing of contract. c. performance obligations regarding franchise rights are completed when the franchise opens. d. None of these answer choices are correct.

D

If the lease in a sale-leaseback transaction meets one of the four leasing criteria and is therefore accounted for as a finance lease, who records the asset on its books and which party records interest expense during the lease period? Party record Party record asset on book interest expens a.Seller-lessee Purchaser-lessor b.Purchaser-lessor Seller-lessee c.Purchaser-lessor Purchaser-lessor d.Seller-lessee Seller-lessee

D

Minimum lease payments may include a a. penalty for failure to renew. b. bargain purchase option. c. guaranteed residual value. d. any of these answer choices.

D

New Age Computers manufactures and sells pagers and radio paging systems which include a 180 day warranty on product defects. It also sells an extended warranty which provides an additional two years of protection. On May 10, it sold a paging system for $3,850 and an extended warranty for another $1,200. The journal entry to record this transaction would include a. a credit to Service Revenue of $5,050. b. a credit to Service Revenue of $1,200 c. a credit to Sales of $3,850 and a credit to Service Revenue of $1,200 d. a credit to Unearned Service Revenue of $1,200.

D

Nonrefundable upfront fees a. should be recognized immediately upon receipt of payment. b. such as activation fees for cable should be recognized as revenue immediately. c. such as a one-time initiation fee in a health club should be recognized immediately. d. should not be recorded as revenue at the time of payment if they are for future delivery of products and services.

D

On July 31, O'Malley Company contracted to have two products built by Taylor Manufacturing for a total of $185,000. The contract specifies that payment will only occur after both products have been transferred to O'Malley Company. O'Malley determines that the standalone prices are $100,000 for Product 1 and $85,000 for Product 2. On August 1, when Product 1 has been transferred, the journal entry to record this event include a a. debit to Accounts Receivable for $100,000. b. debit to Accounts Receivable for $85,000. c. debit to Contract Assets for $85,000. d. debit to Contract Assets for $100,000.

D

Revenue from a contract with a customer a. is recognized when the customer receive the rights to receive consideration. b. is recognized even if the contract is still wholly unperformed. c. can be recognized even when a contract is still pending. d. cannot be recognized until a contract exists.

D

Stone Company changed its method of pricing inventories from average cost to FIFO. What type of accounting change does this represent? a. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. b. A change in accounting policy for which the financial statements for prior periods included for comparative purposes should be presented as previously reported. c. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated. d. A change in accounting policy for which the financial statements for prior periods included for comparative purposes should be restated

D

The second step in the process for revenue recognition is to a. allocate transaction price to the separate performance obligations. b. determine the transaction price. c. identify the contract with customers. d. identify the separate performance obligations in the contract.

D

To address inconsistencies and weaknesses, a comprehensive revenue recognition model was developed entitled the a. Revenue Recognition Principle. b. Principle-based Revenue Accounting. c. Rules-based Revenue Accounting. d. Revenue from Contracts with Customers.

D

When a company sells property and then leases it back, any gain on the sale should usually be a. recognized in the current year. b. recognized as a prior period adjustment. c. recognized at the end of the lease. d. deferred and recognized as income over the term of the lease.

D

When a customer purchases a product but is not yet ready to accept delivery, this is referred to as a. a repurchase agreement. b. a consignment. c. a principal-agent relationship. d. a bill-and-hold arrangement

D

Which of the following disclosures is not required for a change from average cost to FIFO? a. Basic and diluted earnings per share for the current period and each prior period presented b. The nature of the change in accounting policy c. The amount of the adjustment relating to periods before those presented d. All of these answer choices are required.

D

Which of the following is accounted for as a change in accounting policy? a. A change in the estimated useful life of plant assets. b. A change from the cash basis of accounting to the accrual basis of accounting. c. A change from expensing immaterial expenditures to deferring and amortizing them as they become material. d. A change in inventory valuation from average cost to FIFO.

D

Which of the following is not an advantage of leasing? a. Off-balance-sheet financing b. Less costly financing c. 100% financing at fixed rates d. All of these answer choices are advantages.

D

Which of the following is true regarding footnote disclosure of operating lease payments under IFRS and U.S. GAAP? a. U.S. GAAP does not require as much detail as IFRS. b. It is more difficult to estimate the impact of the off-balance sheet liabilities for companies that use U.S. GAAP, as compared with IFRS companies. c. Extensive disclosure of future noncancelable lease payment is required for the next five years and the years thereafter under IFRS. d. IFRS typically has no detail on the year-by-year breakout of lease payment due.

D

Which of the following is true regarding whether IFRS specifically addresses the accounting and reporting for effects of changes in accounting policies? Direct effects Indirect effects a. YES YES b. NO NO c. NO YES d. YES NO

D

Which of the following statements is correct? a. In a direct-financing lease, initial direct costs are added to the net investment in the lease. b. In a sales-type lease, initial direct costs are expensed in the year of incurrence. c. For operating leases, initial direct costs are deferred and allocated over the lease term. d. All of these answer choices are correct.

D

Which of the following would not be included in the Lease Receivable account? a. Guaranteed residual value b. Unguaranteed residual value c. A bargain purchase option d. All of these answer choices would be included

D

Yee Construction Co. had followed the practice of expensing all materials assigned to a construction job without recognizing any residual inventory. On December 31, 2016, it was determined that residual inventory should be valued at ¥56,000. Of this amount, ¥23,000 arose during the current year. Based on this information, all of the following statements are true regarding the effect on the financial statements to be prepared at the end of 2016 except a. ¥23,000 should be reported in the 2016 statements as a reduction of materials cost. b. ¥33,000 should be reported as an adjustment to the beginning balance of retained earnings in the 2016 financial statements. c. This change should be handled as a correction of an error. d. This change should be handled as a change in accounting estimate.

D