Intermediate chapter 5 chapter 6
Monetary Liabilities
Obligations to pay amounts of cash
Simple interst
Based on initial investment only
Which of the following items require time value of money concepts? (Select all that apply.) bonds payable inventory pensions capital leases
Bonds payable Pensions Capital leases
Which of the following likely will lead to revenue recognition at a point in time? (Select all that apply.) Seller has legal title to the asset Seller has possession of the asset Buyer has legal title to the asset Buyer has accepted the asset
Buyer has accepted the asset Buyer has legal title to asset
Which of the following must a seller recognize as separate line items on the balance sheet? Contract assets Accounts receivable Bad debt expense Contract liabilities
contract liabilities, contract assets, accounts receivable
Long-term contracts require careful consideration in identifying performance obligations because these type of contracts typically include many products and services that
could be viewed as separate performance obligations.
For a particular contract, the timing of revenue recognition is determined
individually for each performance obligation.
Methods that can be used to estimate progress toward completion are referred to as __________-based and __________-based methods. (Enter one word per blank.)
input and output
To solve for the present value of a single sum, you need to know the future value, the number of compounding periods, and the ________ __________
interest rate
An essential characteristic of a contract is that all parties to the contract are committed to
performing their obligations and enforcing their rights
Most monetary assets are valued at the __________ value of ___________ cash flows.
present and future
$1,000 invested today at 10% compounded annually will grow to $1,100 at the end of one year or $1,210 at the end of two years. What is the initial $1,000 referred to as?
present value
The core revenue recognition principle stipulates that companies recognize revenue when goods or services are
transferred to customers
The stand-alone price of a good or service may be estimated using the adjusted market assessment approach, the expected cost plus margin approach, or the _______ approach.
residual
The amount the seller expects to be entitled to receive from the customer in exchange for providing goods or services is referred to as the
transaction price
Interest
Amount of money paid/received in excess of amount borrowed/lent
present value of a single amount
Amount today equivalent to a specific future amount
What does the "3" represent in the Excel function =−FV(.08,3,0,1000,0)
Number of periods
Time value of money
A dollar now is worth more than a dollar later
Prepayments by customers for future goods or services should initially be recorded as
deferred revenue
A seller recognizes contract liabilities, contract assets, and accounts receivable on separate lines of its
balance sheet
Jean expects to receive $5,000 at the end of each year for 4 years. The annuity has an interest rate of 7%. The present value of this annuity at Time Zero, the inception of the annuity (rounded to the nearest dollar) is
$16,936
Carol expects to receive $1,000 at the end of each year for 5 years. The annuity has an interest rate of 10%. The present value of this annuity at Time Zero, the inception of the annuity (rounded to the nearest dollar) is
$3,791
Rhonda expects to receive an annuity that pays $500 at the beginning of each year for 10 years. Assuming the interest rate is 6%, what is the present value of this annuity? Round your answer to the nearest dollar.
$3,901
Kate expects to receive an annuity that pays $5,000 at the beginning of each year for 10 years. Assuming the interest rate is 5%, what is the present value of this annuity? Round your answer to the nearest dollar.
$40,539 Reason: Using the PVAD factor of 5% for 10 periods, 8.10782 x $5,000 = $40,539.
annuity
A series of equal periodic payments
Future Value
Accumulation for an amount with interest
Which methods may be used to estimate the stand-alone prices of goods and services? (Select all that apply.) Multiple select question. Adjusted market assessment approach Expected cost plus margin approach Current replacement cost approach Residual approach
Adjusted market assessment approach Expected cost plus margin approach Residual approach
Which of the following items require time value of money concepts? (Select all that apply.)
Capital leases Pensions Bonds payable
Goods or services that are not distinct are Blank______ and treated as (a) Blank______ performance obligation(s).
Combined and single
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
Present Value of an Ordinary Annuity
Current worth of a series of a equal payments received at the end of a period
Present Value (PV)
Current worth of future cash flows
Present value of a annuity due
Current worth of series of equal payments received at the beginning of a period
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 signed a legally enforceable contract Customer has an obligation to pay
Customer accepts the risk and reward of ownership Customer has legal title to the asset Customer has an obligation to pay
What journal entry should be made to recognize accounts receivable for long-term construction projects?
Debit Accounts Receivable and Credit Billings on Construction Contract
A(n) __________. annuity exists when the first cash flow occurs more than one period after the date the agreement begins. (Enter only one word.)
Deferred
Valuing defined benefit pension obligation typically requires the calculation of the present value of a _____ _____.
Deferred annuity
Valuing defined benefit pension obligation typically requires the calculation of the present value of a(n) __________ ____________
Deferred annuity
An annuity due and an ordinary annuity have payments that begin in the first period after the date of the agreement, whereas a(n) __________ annuity has cash flows that begin more than one period after the date of the agreement.
Deffered
Jones Company receives a prepayment from a customer consistent with a promise to deliver 20 new office printers to Smith Inc. The prepayment (Select all that apply.) Does not create a separate performance obligation should be recorded as deferred revenue represents a separate performance obligation should be recognized as revenue when received
Does not create a separate performance obligation Should be recorded as deferred revenue
Which methods may be used to estimate the stand-alone prices of goods and services?
Expected cost plus margin approach Residual approach Adjusted market assessment approach
True or false: A prepayment from a customer typically creates a performance obligation.
False
True or false: At the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond.
False
Which of the following services are commonly performed over time? (Select all that apply.)
Financial statement audits Consulting engagements Lending of money
Which of the following is a deferred annuity?
First payment begins at the beginning of year 3.
When is a loss recognized on a long-term contract?
In the first period in which the loss become evident.
monetary assets
Include money to claims to money
What method(s) can be used to estimate progress toward completion for the purpose of recognizing revenue over time? (Select all that apply.)
Input method Output method
Licenses typically allow customers to use the seller's Blank______ property. Multiple choice question.
Intellectual
compound interest
Interest accumulates on interest
What does the ".05" represent in the Excel function =−FV(.05,6,100,0,0)
Interest rate
Which of the following are required to compute the present value of a known future amount? (Select all that apply.)interest rate number of compounding periods market value date future value
Interest rate Number of compounding periods Future vale
Which of the following are indicators that a company is a principal? (Select all that apply.) It has primary responsibility for providing the product or service it contracts with the buyer it owns the inventory prior to delivery It receives a commission for facilitating the transfer of goods or services. it sets the sales price
It has primary responsibility for providing the product or service it owns the inventory prior to delivery it sets the sales price
Bond sells for discount
Market rate higher that stated rate
Bond sells for premium
Market rate less than stated rate
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 does the "100" represent in the Excel function =−PV(.05, 4, 100,0,0)
Payment amount each period
Berta Company owns inventory prior to a customer ordering it from Norman Company. If a customer returns the merchandise, Berta Company owns the returned inventory. Berta Company is a(n)
Principle
Which of the following support the conceptual basis for separating contractual promises into several performance obligations? (Select all that apply.) separated Simplifies revenue recognition Large contracts can be broken into manageable parts Financial statements better reflect timing of transfer of goods and services
Promises that can be viewed on a stand-alone basis should be separated Financial statements better reflect timing of transfer of goods and services
=-FV(rate,nper,pmt,[pv],[type])
Rate- interst rate per period Nper-the total number of periods Pmt- payment amount each period enter 0 for single amount Pv- the present value or the lump-sum amount today Type- the number 0 or 1 to indicate whether annuity payments are made at the end or beginning of each period( if type is omitted it is presumed to be 0)
Zero coupon bond
Requires no cash outflow before maturity
Which method provides a better measure of a company's economic activity each period?
Revenue recognition over time
The _________ - __________ selling price is the amount at which the good or service is sold separately under similar circumstance. (Enter one word per blank.)
Stand alone
effective interest rate
The rate a5 which money will actually grow during a full year
Which statements are true regarding revenue recognition over time and upon completion? (Select all that apply.)
The same total amount of gross profit is recognized under both methods. Revenue recognition over time provides a more realistic measure of a project's periodic performance.
The ___________ ____________of money concept means that money invested today will grow to a larger amount in the future.
Time Value
True or false: A lease is an annuity when it requires equal payments at the same interval.
True
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: Present value calculations are used in calculating pension contributions for defined benefit plans.
True Pension contributions require the calculation of the present value of the pension annuity.
Which of the following is an example of a monetary asset?
accounts receivable
A fixed payment at fixed intervals is called a(n)
annuity
A series of payments in the same amount is referred to as
annuity
Jenson rents equipment by signing a contract to pay $1,000 per month at the beginning of each month. The first payment is due upon signing the contract. The lease is a(n)
annuity due
The transaction price is the amount the seller expects to ______ from the customer in exchange for providing goods and services
be entitled to receive
Which of the following are included in the journal entry required to record construction costs for a long-term construction contract? (Select all that apply.) Multiple select question. debit construction in progress credit billings on construction contract debit cash credit raw materials
debit construction in progress credit raw materials
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.
$1,000 invested today at 10% compounded annually will grow to $1,210 at the end of two years. What is the $1,210 value referred to as?
future value
Which of the following are indicators that a company is a principal? (Select all that apply.) it owns the inventory prior to delivery It receives a commission for facilitating the transfer of goods or services. It has primary responsibility for providing the product or service it contracts with the buyer it sets the sales price
it owns the inventory prior to delivery It has primary responsibility for providing the product or service it sets the sales price
Agreements that allow customers to use the seller's intellectual property are referred to as
licenses
Which of the following accounts uses time value of money concepts to value the account?
long term bonds
Which of the following agreements may qualify as contracts? (Select all that apply.) Multiple select question. voidable agreements oral agreements implicit agreements written documents
oral agreements implicit agreements written documents
Revenue recognition for services such as lending money and performing financial statement audits is typically
over time
Revenue related to a company providing cleaning services to a customer for a period of time should be recognized
over time
Xavier Inc. is adding two more floors to Tamara Company's existing office building. Revenue related to this service likely should be recognized
over time
The inflow of cash or other assets that a business receives when it provides goods or services to customers is referred to as
revenues
What account tracks the inflow of net assets that occurs when a business provides goods or services to its customers?
revenues
The amount at which a good or service is sold separately under similar circumstances is referred to as the
stand-alone selling price.
The rate of interest printed on the face of a bond is referred to as the ___________ interest rate.
stated, nominal, coupon, or face
The ______ rate of interest on a bond is the interest rate printed on the bond; the ______ rate of interest is the current rate of interest being paid on investments with similar characteristics. (Enter one word per blank)
stated; market
Arthur Inc. provides services to consulting clients. Arthur should recognize the related revenue when
the related performance obligation is satisfied.
The difference between $100 invested now and $105 at the end of year 1 represents the
time value of money
Jim borrows $1,000 and has to repay $1,100 at the end of the year. The $100 payment is referred to as .
to interest
The amount of money paid or received in excess of the amount of money borrowed or lent is referred to as what?
to interest