ch.18 accounting homework exam

On January 1, 2017, Fullbright Company sold goods to Blue Dirt Company for $400,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of $629,406 (imputed rate of 12%). The goods have an inventory cost on Fullbright's books of $240,000. What amount of Interest Revenue should Fullbright recognize in 2017? $ 48,000 $229,406 $ 57,352 $ 75,529

$ 48,000

Bret Company sold 3,000 Holsks during 2017 at a total price of $12,000,000, with a warranty guarantee that the product was free of any defects. The cost of Holsks sold is $7,200,000. The term of the assurance warranty is two years, with an estimated cost of $80,000. In addition, Bret sold extended warranties related to 1,100 Holsks for 3 years beyond the 2-year period for $110,000. Bret should recognize Unearned Warranty Revenue in 2017 of $190,000 $110,000 $ 80,000 $ 0

$110,000

On January 1, 2017, Fullbright Company sold goods to Blue Dirt Company for $400,000 in exchange for a 4-year, zero-interest-bearing note with a face amount of $629,406 (imputed rate of 12%). The goods have an inventory cost on Fullbright's books of $240,000. What amount of Sales Revenue should Fullbright recognize in 2017? $229,406 $629,406 $240,000 $400,000

$400,000

Sufjan Company has a contract to sell 200 units to a customer for $14,000. After 140 units have been delivered, Sufjan modifies the contact by promising to deliver 30 more units for an additional $60 per unit (the standalone selling price at the time of the contract modification). What is the additional revenue to be earned after the modification? $6,000 $6,300 $1,800 $5,400

$6,000

Under the percentage-of-completion method, how should the balances of Billings on Construction in Process and Construction in Process be reported prior to the completion of a long-term contract? -Billings on Construction in Process as revenue and Construction in Process as inventory. -Net, as a current asset if a debit balance, and as a current liability if a credit balance. -Net, as revenue from construction if a credit balance, and as a loss from construction if debit balance. -Billings on Construction in Process as a deferred revenue and Construction in Process as a deferred expense.

-Net, as a current asset if a debit balance, and as a current liability if a credit balance.

In a bill-and-hold arrangement, which of the following is not one of the criteria which must be met for the customer to have obtained control of the product? -The product must be physically located in the seller's warehouse. -The product currently must be ready for physical transfer to the customer. -The seller cannot have the ability to use the product or to direct it to another customer. -The reason for the bill-and-hold arrangement must be substantive.

-The product must be physically located in the seller's warehouse.

Hendrix Inc., an equipment dealer, sells equipment on January 1, 2016, to Jimi Company for $200,000. Also, on January 1, 2016, Hendrix agrees to repurchase this equipment from Jimi Company on December 31, 2017, for a price of $233,280. At 1/1/16, Hendrix should record -sales revenue of $200,000 and a liability of $33,280. -sales revenue of $200,000 and interest expense of $33,280. -sales revenue of $200,000. -a liability of $200,000.

-a liability of $200,000.

The new standard, Revenue from Contracts with Customers, -adopts a revenue-gain approach for revenue recognition. -adopts criteria that de-emphasize the importance of contracts with customers. -adopts "earned and realized" criteria. -adopts an asset-liability approach for revenue recognition.

-adopts an asset-liability approach for revenue recognition.

One criteria that indicates that a company should disregard revenue guidance for contracts is when -each party can unilaterally terminate the contract without compensation. -the contract has commercial substance. -each party's rights regarding the goods or services to be transferred can be identified. -the payment terms for the goods and services to be transferred can be identified.

-each party can unilaterally terminate the contract without compensation.

The seller of a good or service should recognize revenue when -they identify the separate performance obligations in the contract. -they identify the contract with customers. -they determine the transaction price. -each performance obligation is satisfied.

-each performance obligation is satisfied.

The Billings on Construction in Process account is reported: -in the current asset section only. -in the current liability section only. -as a revenue on the income statement. -in either the current asset or current liability section.

-in either the current asset or current liability section.

A loss in the current period on a contract expected to be profitable upon completion in a later year is: -recognized under both the completed-contract method and the percentage-of-completion method. -recognized only under the completed-contract method. -not recognized under either the completed-contract method or the percentage-of-completion method. -recognized only under the percentage-of-completion method.

-recognized only under the percentage-of-completion method.

When using the percentage of completion method, the company -recognizes revenues and gross profit only when the contract is completed. -accumulates construction costs only in an inventory account (Construction in Process). -recognizes revenues and gross profit each period during the contract. -accumulates progress billings in an inventory account (Construction in Process).

-recognizes revenues and gross profit each period during the contract.

In a consignment sale, the consignee -recognizes both commission revenue and sales revenue. -records a payable when consigned merchandise is sold. -makes a journal entry when the consigned merchandise is received. -records advertising paid for the consignment as an expense.

-records a payable when consigned merchandise is sold.

An indication that the customer has not taken control of the good or service is -the selling company has transferred legal title to the asset. -the customer has physical possession of the asset. -the customer has no significant risks or rewards of ownership. -the selling company has right to payment for the good or service.

-the customer has no significant risks or rewards of ownership.

Companies should use the percentage-of completion method to account for long-term construction contracts -when the company has primarily short-term contracts. -unless required to use the completed-contract method. -when estimates of progress towards satisfaction of the performance obligation (completion) are not dependable. -when there are inherent hazards in the contract beyond the normal, recurring business risks.

-unless required to use the completed-contract method.

In determining the transaction price, the company must consider: -variable consideration, non-cash consideration, time value of money, and consideration payable. -non-cash consideration, but not the time value of money. -variable consideration, but not non-cash consideration. -the time value of money, but not consideration payable.

-variable consideration, non-cash consideration, time value of money, and consideration payable.

A nonrefundable upfront fee is generally recorded as revenue when received. True False

False

Franchise companies derive their revenue primarily from the sale of initial franchises. True False

False

Which type of revenue or gain is generally recognized with the passage of time? Revenue from sales. Long-term construction contracts. Gain or loss from disposition. Revenue from fees or services.

Long-term construction contracts.

A performance obligation may be based on customary business practice. True False

True

Most revenue transactions pose few problems for revenue recognition because often the transaction is initiated and completed at the same time. True False

True

Under the completed contract method, the Construction in Process account balance will consist of construction costs and billings. construction costs and gross profit. construction costs only. gross profit only.

construction costs only.

Companies expense incremental costs if these costs are incurred to obtain a contract with a customer. True False

false

Conditional rights should be reported separately on the balance sheet as contract liabilities. True False

false

In a principal-agent relationship, the agent should use the gross method to recognize revenue. True False

false

The principal advantage of the completed-contract method is that reported revenue reflects estimates rather than waiting for final results. True False

false

Which method of measuring the fair value of a performance obligation is dependent on the standalone selling prices of other goods or services promised in the contract? adjusted market assessment. expected cost plus a margin. standalone selling price. residual value.

residual value.

A contract is an agreement between two parties that creates enforceable rights or obligations. True False

true

Companies recognize revenue over a period of time if (1) the customer controls the asset as it is created or (2) the company does not have an alternative use for the asset, with the following conditions: (a) the customer receives benefits as the company performs, and (b) the company has a right to payment. True False

true

In situations where the franchisor provides access to the rights rather than transferring control of the franchise rights, the franchise rights' revenue is recognized over a period of time rather than at a point in time. True False

true