Accounting Chapter 4 & 5 Multiple Choice

The Compton Press Company reported income before taxes of $250,000. This amount included a $50,000 loss on discontinued operation. The amount reported as income from continuing operations, assuming a tax rate of 40%, is:

$180,000 [$250,000 (income before income taxes) + $50,000 (loss on discontinued operations)] x [1.0 - 0.4 (tax rate)] = $180,000.

Winchell wrote a contract that involves two separate performance obligations. Winchell cannot estimate the stand-alone selling price of product A. Product B has a stand-alone selling price of $100. The price for the combined product is $120. How much of the transaction price would be allocated to the performance obligation for delivering product A?

$20. Winchell would use the residual method. $120 - 100 = $20.

Using the information in question 10, Dunn's should report net cash outflows from investing activities of:

$23,000 $5,000 (proceeds from sale of equipment) - $8,000 (cost of furniture purchased for cash) - $20,000 (purchase of stock of another corporation as an investment) = $23,000.

In its 2016 statement of cash flows, Dunn's should report net cash inflows from financing activities of:

$260,000 $100,000 (proceeds from bank loan) - $40,000 (repayment of bank loan principal) + $200,000 (common stock issued for cash) = $260,000

Winchell wrote a contract that involves two performance obligations. Product A has a stand-alone selling price of $50, and product B has a stand-alone selling price of $100. The price for the combined product is $120. How much of the transaction price would be allocated to the performance obligation for delivering product A?

$40. ($50 ÷ ($100 + 50)) × $120 = $40.

Income tax expense has not yet been accrued. The company's income tax rate is 40%. What amount should be reported in the company's year 2016 income statement as income from continuing operations? revenue= C $600,000 operating expenses= D $420,000 Income on discontinued operations= C$200,000 restructuring costs= D $100,000 Interest exp= C$20,000 gain on sale of investments== C$30,000

$54,000 [$600,000 (revenues) - $420,000 (operating expenses) - $100,000 (restructuring costs) - $20,000 (interest expense) + $30,000 (gain on sale of investments)] x [1.0 - 0.40 (income tax rate)] = $54,000.

Lewis is selling a product with some of the transaction price depending on the outcome of a future event. There is a 75% chance that the event will result in $100,000 of consideration to Lewis, and a 25% chance that the event will result in $40,000 of consideration to Lewis. Which of the following is not an appropriate estimate of the amount of uncertain consideration for purposes of Lewis estimating the transaction price?

$70,000. $85,000 = 75% × $100,000 + 25% × $40,000, which is answer b. The most likely amount is $100,000, which is answer a. $70,000, answer c, is not an acceptable estimate.

On May 31, 2016, the Arlene Corporation adopted a plan to sell its cosmetics line of business, considered a component of the entity. The assets of the component were sold on October 13, 2016, for $1,120,000. The component generated operating income from January 1, 2016, through disposal of $300,000. In its income statement for the year ended December 31, 2016, the company reported before-tax income from operations of a discontinued component of $620,000. What was the book value of the assets of the cosmetics component?

$800,000 Of the $620,000 income from discontinued operations, $300,000 was from income from operations. The remaining $320,000 was therefore gain on sale of the assets. If the assets were sold for $1,120,000, their book value must have been $800,000.

The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of:

A change in accounting principle.

Which of the following is a separate performance obligation?

An extended warranty.

For profitable long-term contracts, income is recognized in each year when revenue is recognized:

At a point in time upon contract completion: NO Over time according to percentage of completion: YES

Which of the following is not an indicator that the seller may need to constrain recognition of variable consideration?

Based on much experience with the customer, the seller anticipates a more-than-remote chance that the receivable will prove uncollectible.

Which of the following is not an indicator that control of a good has passed from the seller to the buyer?

Buyer has scheduled delivery.

Which of the following is true about revenue recognition under ASU 2014-09?

Collectibility of the receivable is considered when determining whether revenue can be recognized.

When accounting for a long-term construction contract for which revenue is recognized over time according to the percentage of completion, gross profit is recognized in any year is debited to:

Construction in progress.

In a statement of cash flows, International Financial Reporting Standards allow companies to report interest paid as:

Either an operating or a financing cash flow.

For a manufacturing company, each of the following items would be considered nonoperating income for income statement purposes except:

cost of goods sold

The application of intraperiod income taxes requires that income taxes be apportioned to each of the following items except:

operating income

Which of the following captions would more likely be found in a multiple step income statement?

operating income

An item typically included in the income from continuing operations section of the income statement is:

restructuring costs

Assume a prepayment is made six months in advance of delivery of a product. The seller is likely to do which of the following with respect to the time value of money over the life of the contract?

Ignore the time value of money.

Bad debts:

Must be recognized as an expense.

Earnings per share should be reported for each of the following income statement captions except:

Operating income.

Which of the following items would not be included as a cash flow from operating activities in a statement of cash flows?

Purchase of equipment.

Which of the following is not one of the characteristics of a contract for purposes of revenue recognition?

Reasonable profit margin.

Which of the following is not an indicator that revenue for a service can be recognized over time?

The seller has significant experience with the customer and anticipates fulfillment of the contract.

Which of the following is an indicator that revenue for a service can be recognized over time?

The seller is enhancing an asset that the buyer controls as the service is performed.

Which of the following is consistent with goods and services being distinct for purposes of identifying separate performance obligations?

The seller regularly sells the good or service separately. The buyer could use the good or service on its own. The buyer could use the good or service in combination with goods or services the buyer could obtain elsewhere. All of the above.

Which of the following is not one of the steps for recognizing revenue?

Estimate the total transaction price of the contract based on the sum of the stand-alone selling prices of the goods and services in the contract.

Which of the following is an acceptable way to estimate uncertain consideration?

Expected value of the amount to be received. Most likely amount to be received.

Allocation of the transaction price to performance obligations:

Is based on relative standalone selling prices.