Intermediate Accounting Ch 6

102) Rothbart Manufacturing agrees to manufacture bumper cars for 12 Banners Amusement Parks. Under the terms of the contract, 12 Banners will pay Rothbart a total of $60,000, and 12 Banners can cancel the contract if it so chooses but must pay Rothbart for work completed. Rothbart believes that, if 12 Banners cancelled the contract, Rothbart could sell the bumper cars to another amusement park and still make a profit. The manufacturing contract is expected to last six months, and as of December 31, 2021, the job is 80% complete. How much revenue should Rothbart recognize in 2021 for this contract? A) $0 B) $12,000 C) $48,000 D) $60,000

A

112) Which of the following is a characteristic of a contract for purposes of revenue recognition? A) Commercial substance. B) Nonverbal. C) Reasonable profit margin. D) Notarized within the company's state of incorporation.

A

245) "VSOE" stands for: A) "Vendor-specific objective evidence." B) "Vendor substantiation of earnings." C) "Value-specified operating earnings." D) "Variable set overhead earned."

A

93) Which of the following is not an indicator that the customer is likely to have control over a good? A) Asset warehoused by seller-affiliated third party B) Accepted the asset C) Legal title to the asset D) Physical possession of the asset

A

Under U.S. GAAP, how much revenue would Mary recognize in year 1 of the license? A) $0 B) $1,500 C) $3,000 D) $15,000

C

101) On February 1st, H&B Bank originated a loan for $50,000 at an interest rate of 7.2%. On March 15th, an interest payment of $300 was received. Which of the following best describes when interest revenue should be recognized? A) At a point in time (February 1st) B) At a point in time (March 15th) C) At a point in time (March 31st) D) Over time

D

139) Which of the following is not an approach for estimating stand-alone selling prices? A) Adjusted market assessment approach B) Expected cost plus margin approach C) Residual approach D) Fair market appraisal approach

D

114) What is the effect of bad debts on revenue recognition? A) The seller must believe it is probable it will collect the amounts it is entitled to collect. B) Bad debts must be of a remote likelihood in order to recognize revenue. C) Bad debts are deducted from revenue to calculate net revenue on the income statement, similar to sales returns. D) Bad debts are ignored when determining whether to recognize revenue, but recognized as an expense on the income statement.

A

121) Which of the following statement is most true? A) Variable consideration means that the transaction price is uncertain. B) Basing an estimate on the most likely amount is always superior to basing an estimate on the expected value. C) The most likely estimated amount is estimated by multiplying the possible amounts with their respective probability of occurrence. D) When the transaction price is uncertain, revenue should not be recognized.

A

123) Which of the following is correct about changes in estimated variable consideration? A) Changes in estimated variable consideration should be recognized as an adjustment to revenue in the period the change in estimate is made. B) Changes in estimated variable consideration should be applied retroactively to all periods affected. C) Changes in estimated variable consideration should be allocated retrospectively to all prior periods. D) Changes in estimated variable consideration are not recognized in periods after transaction price is first estimated.

A

130) On June 1, 2021, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2021. Under the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract. Assume Emmet estimates variable consideration as the most likely amount. How much revenue should Emmet recognize on this contract in 2021? A) $25,000 B) $26,125 C) $28,750 D) $50,000

A

133) On January 1, 2021, Elite Advertising was contracted to run a marketing campaign for Pharm King's new dieting pills. In addition to getting a base fee of $150,000 for the 3-year campaign, Elite also may get an additional 5% of the base fee as a bonus if a targeted sales level is reached at the end of three years. Elite currently lacks sufficient information to make an estimate of the likelihood of the expected bonus, with the marketing director indicating that "If you forced me to make an estimate, I'd say we have a 50/50 chance. But don't quote me on that - it's really too early to tell." Elite concludes this contract qualifies for revenue recognition over time, and estimates variable consideration using the most likely amount. How much revenue should Elite recognize as of December 31, 2021? A) $50,000 B) $51,250 C) $52,500 D) $57,500

A

136) When a seller offers a right of return, which of the following is true? A) Sales are shown net of estimated returns in the income statement. B) Sales are shown net of only actual returns in the income statement. C) Sales are shown gross of returns, as returns are treated as an expense. D) Sales are shown gross of returns, as returns are ignored for purposes of income statement presentation.

A

138) Under which of the following circumstances is it most appropriate to use the residual method to estimate stand-alone selling prices? A) The seller hasn't previously sold the product and hasn't determined a price for it. B) The seller provides the product bundled with other goods or services. C) The seller does not have competitors from which to observe market prices of similar products. D) The seller is unable to accurately estimate variable consideration associated with the contract.

A

142) Wilson Links Products sells a product that involves two separate performance obligations: the SwingRight golf club weight and the SwingCoach teaching software. SwingRight has a stand-alone selling price of $150. Wilson sells both the SwingRight and the SwingCoach as a package deal for $200. The SwingCoach software is not sold separately. Wilson is aware that other vendors charge $100 for similar software, and Wilson's prices are generally 10% lower than what is charged by those vendors. Wilson estimates that it incurs approximately $65 of cost per copy of the software, and usually charges 50% above cost on similar products. Estimate the stand-alone selling price of the software using the residual approach. A) $50 B) $80 C) $90 D) $97.50

A

145) Explodia.com sells fireworks over the Internet. Customers access Explodia's website and select particular products, and Explodia refers the customer order to a fireworks manufacturer who fulfills the order, ships to the customer, and pays Explodia a 20% commission. Which of the following is true about Explodia? A) Explodia is an agent in this transaction. B) Explodia is primarily responsible for providing the product to the customer. C) Explodia's income statement would report gross revenue and cost of sales associated with these transactions. D) Explodia warehouses inventory.

A

148) Assume a contract for the sale of goods specifies that payment is to be made 15 months prior to 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? A) Recognize interest expense. B) Recognize interest revenue. C) Recognize additional cost of goods sold. D) Ignore the time value of money.

A

154) Dana sells White equipment under an arrangement whereby Dana receives cash on February 23, 2021 and delivers the equipment on August 30, 2023. When the cash is received, Dana will record a journal entry that includes: A) Credit to deferred revenue. B) Credit to interest revenue. C) Debit to notes receivable. D) Credit to sales revenue.

A

155) Lewis sells goods to Dean in a transaction for which the time value of money is viewed as significant. The goods have a fair value of $10,000, and Lewis receives a total of $8,000 cash in full payment, consistent with the sales contract. From this information we can infer that: A) Lewis collected cash in advance of delivering the goods. B) Lewis collected cash after delivering the goods. C) Lewis is a very poor businessperson. D) Lewis suffered a default on an accounts receivable.

A

171) Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers purchase his work there). Sweeney recently transferred a painting on consignment to a local barbershop. After Sweeney has transferred a painting to a barbershop, the painting: A) Should be counted in Sweeney's inventory until the barbershop sells it. B) Should be counted in the barbershop's inventory, as the barbershop now possesses it. C) Should be counted in either Sweeney's or the barbershop's inventory, depending on which incurred the cost of preparing the painting for display. D) We lack sufficient information to know who should carry the painting in inventory.

A

174) Which of the following is not true about contract liabilities? A) Contract liabilities are only recognized when the seller has a conditional right to receive payment. B) Contract liabilities might be called deferred revenue. C) Contract liabilities are recognized when the seller has been paid in advance of satisfying its performance obligations. D) Contract liabilities may be shown on a separate line of the balance sheet.

A

175) Gupta Industries received a $300,000 prepayment from Packard Associates for the sale of new equipment. Gupta will bill Packard an additional $100,000 upon delivery of the equipment. Upon receipt of the $300,000 prepayment, how much should Gupta recognize for a contract asset, a contract liability, and accounts receivable? A) Contract asset: $0; contract liability: $300,000, accounts receivable, $0. B) Contract asset: $300,000; contract liability: $0, accounts receivable, $0. C) Contract asset: $0; contract liability: $300,000, accounts receivable, $100,000. D) Contract asset: $300,000; contract liability: $0, accounts receivable, $100,000.

A

178) Which of the following is least likely to be a reason why a long-term construction contract would qualify for revenue recognition over time? A) The customer consumes the benefit of the seller's work as it is performed. B) The customer controls the asset as it is created. C) The seller is creating an asset that has no alternative use to the seller, and the seller has the legal right to receive payment for progress to date. D) The seller is constructing an addition to property that is owned by the customer.

A

179) Which of the following is true about accounting for contract assets (CIP in excess of billings) in each balance sheet prior to completion of long-term construction contracts? A) Contract assets are likely to be larger if revenue is recognized over time than if revenue is recognized at a point in time. B) Contract assets are likely to be smaller if revenue is recognized over time than if revenue is recognized at a point in time. C) Contract assets are likely to be the same size regardless of whether revenue is recognized over time or at a point in time. D) There is no way to tell how revenue recognition timing will affect the size of contract assets without more information.

A

183) With respect to delaying revenue recognition until completion of a long-term contract, it is the case that: A) Estimated losses on the overall contract are recognized before the contract is completed. B) Expenses are recognized each period, but revenue is only recognized when the contract is completed. C) Use of this approach is not permitted under generally accepted accounting principles. D) Neither gains nor losses are recognized until the contract is completed.

A

196) Indiana Co. began a construction project in 2021 with a contract price of $150 million to be received when the project is completed in 2023. During 2021, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed. Suppose that, in 2022, Indiana incurred additional costs of $63.75 million and estimated an additional $42.75 million in costs to complete the project. Indiana: A) Recognized $3.75 million loss on the project in 2022. B) Recognized $5.25 million gross profit on the project in 2022. C) Recognized $7.5 million gross profit on the project in 2022. D) Recognized $1.5 million loss on the project in 2022.

A

235) Flapper Jack's Pancake Restaurants Inc. sells franchises for an initial fee of $36,000 plus operating fees of $500 per month. The initial fee covers site selection, training, computer and accounting software, and on-site consulting and troubleshooting, as needed, over the first five years. On March 15, 2020, Tim Cruise signed a franchise contract, paying the standard $6,000 down with the balance due over five years with interest. Assuming that the initial services to be performed by Flapper Jack's subsequent to the signing are substantial and that collection of the receivable is reasonably assured, the journal entry required at signing would include a credit to: A) Deferred revenue for $36,000. B) Deferred revenue for $30,000. C) Franchise fee revenue for $36,000. D) Franchise fee revenue for $6,000.

A

237) Flapper Jack's Pancake Restaurants Inc. sells franchises for an initial fee of $36,000 plus operating fees of $500 per month. The initial fee covers site selection, training, computer and accounting software, and on-site consulting and troubleshooting, as needed, over the first five years. On March 15, 2020, Tim Cruise signed a franchise contract, paying the standard $6,000 down with the balance due over five years with interest. Assume at March 15, 2020, the time of signing the contract, collection of the receivable was reasonably assured and there were no significant continuing obligations. The journal entry at signing would include a: A) Credit to franchise fee revenue for $36,000. B) Credit to franchise fee revenue for $9,000. C) Credit to deferred revenue for $36,000. D) Credit to deferred revenue for $27,000.

A

88) Which of the following is one of the steps for recognizing revenue? A) Identify the performance obligations of the contract. B) Determine whether bad debts can be reasonably estimated. C) Estimate the total transaction price of the contract based on fair value. D) Allocate all revenue to the performance obligation with the largest stand-alone selling price.

A

200) In 2021, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC recognizes revenue over time according to percentage of completion for this contract, and provides the following information (dollars in millions): Accounts receivable, 12/31/2021 (from construction progress billings) $ 37.5 Actual construction costs incurred in 2021 $ 135 Cash collected on project during 2021 $ 105 Construction in progress, 12/31/2021 $ 207 Estimated percentage of completion during 2021 60 % What were the construction billings by CCC during 2021? A) $142.5 million. B) $67.5 million. C) $37.5 million. D) Cannot be determined from the given information.

Answer: A Explanation: Billings − Cash collections = Accounts receivable, so Billings = Accounts receivable at year-end of $37.5 million + Cash collections of $105 million = $142.5 million.

198) In 2021, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC recognizes revenue over time according to percentage of completion for this contract, and provides the following information (dollars in millions): Accounts receivable, 12/31/2021 (from construction progress billings) $ 37.5 Actual construction costs incurred in 2021 $ 135 Cash collected on project during 2021 $ 105 Construction in progress, 12/31/2021 $ 207 Estimated percentage of completion during 2021 60 % What are CCC's estimated remaining construction costs on the project at the end of 2021? A) $90 million. B) $135 million. C) $225 million. D) $0.

Answer: A Explanation: Percentage completion to date = 60 % = Actual costs to date of $135 million / Total estimated project costs of $X. Solve for X. Estimated total costs = $225 million; therefore, Estimated remaining costs of construction = $225 million − $135 million = $90 million.

197) In 2021, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC recognizes revenue over time according to percentage of completion for this contract, and provides the following information (dollars in millions): Accounts receivable, 12/31/2021 (from construction progress billings) $ 37.5 Actual construction costs incurred in 2021 $ 135 Cash collected on project during 2021 $ 105 Construction in progress, 12/31/2021 $ 207 Estimated percentage of completion during 2021 60 % What is the amount of gross profit on the project recognized by CCC during 2021? A) $160 million. B) $72 million. C) $48 million. D) Cannot be determined from the given information.

Answer: B Explanation: Construction in progress = Actual costs incurred + Gross profit recognized; so $207 million = $135 million + X. Solve for X. X = $72 million.

199) In 2021, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC recognizes revenue over time according to percentage of completion for this contract, and provides the following information (dollars in millions): Accounts receivable, 12/31/2021 (from construction progress billings) $ 37.5 Actual construction costs incurred in 2021 $ 135 Cash collected on project during 2021 $ 105 Construction in progress, 12/31/2021 $ 207 Estimated percentage of completion during 2021 60 % What is the fixed contract price for CCC's project? A) $120 million. B) $225 million. C) $345 million. D) $349.5 million.

Answer: C Explanation: Gross profit recognized in 2021 of $72 million = 60% of estimated gross project on the project. Therefore, total gross profit is estimated at $72 million/0.6 = $120 million. Since Gross profit = Contract price − Estimated total construction costs of $225 million, the Contract price = $120 million + $225 million = $345 million. Alternatively, construction in progress = cost to date + profit recognized to date = $207 million (given) = 60% of total project price. $207 million/0.6 = $345 million contract price.

100) Mary signed up and paid $1200 for a 6-month ceramics course on June 1st with Choplet Ceramics. As of August 1st, Choplet's accounting records would indicate: A) $400 of revenue, $800 of accounts receivable B) $400 of revenue, $800 of deferred revenue C) $1,200 of revenue, $1,200 of cash D) $800 of revenue, $400 of accounts receivable

B

110) On July 15, 2021, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $90,000. The system included finely tuned scales that fit into EverFresh's automated assembly line, Ortiz's proprietary software modified to allow the weighing system to function in EverFresh's automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. (Ortiz competes with other vendors who offer ongoing calibration contracts for Ortiz's systems.) If Ortiz was to provide these goods or services separately, it would charge $60,000 for the scales, $10,000 for the software, and $30,000 for the calibration contract. Ortiz delivered and installed the equipment and software on August 1, 2021, and the calibration service commenced on that date. Assume that the scales, software and calibration service are viewed as one performance obligation. How much revenue will Ortiz recognize in 2021 for this contract? A) $0 B) $37,500 C) $63,000 D) $90,000

B

111) A contract does not exist for purposes of applying the revenue recognition principle in all of the following cases except for when: A) The seller believes it is not probable that it will collect the amount it's entitled to receive under the contract. B) The seller and buyer did not sign a formalized written contract. C) The seller and buyer can terminate the contract without penalty and neither has performed any obligations under the contract. D) The seller believes it is highly likely but not certain that the buyer will agree to the terms of the contract.

B

113) Waldman Associates received a written, approved contract to deliver economic consulting services, with service and payment commencing in one month. The contract specifies the services that Waldman is to perform, and the payment terms. Waldman and the customer both can cancel the contract without penalty prior to commencing service. Does Waldman have a contract for purposes of revenue recognition on the day the contract is received? A) Yes, because Waldman has a written approved contract. B) No, because Waldman and the customer can cancel without penalty, and neither has performed an obligation under the contract. C) Maybe, depending on whether Waldman can estimate collectability of the receivable. D) There is insufficient data on which to base an answer.

B

115) Which of the following is considered a performance obligation? A) Up-front registration fees for a gym membership B) Extended warranties on electronic products C) Quality-assurance warranties on electronic products D) A processing fee to obtain a bank loan

B

116) Which of the following is not a performance obligation? A) A good that the seller could sell separately and that is separately identifiable from other goods or services in the contract. B) A right of return. C) An option for a customer to purchase goods under terms that are more advantageous than those enjoyed by other customers. D) An extended warranty.

B

118) Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $150, but Orange offers it for $120 when purchased along with an oPhone. Orange anticipates a 75% chance that a customer will purchase the extended warranty along with the oPhone. Assume Orange sells to 1,000 oPhones with the extended warranty discount offer. What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts? A) $0 B) $22,500 C) $30,000 D) $120,000

B

119) In which of the following is the option described not a performance obligation? A) Customers accumulate points for every dollar spent at Madeline's Book Store. The points can be redeemed for books once certain levels are met. B) Customers can get 5% cash back for every $100 spent on eco-friendly products. C) Customers can "buy two, get one free" at a menswear store. D) Upon purchase of any name-brand TV, customers can purchase a 5-year extended warranty at a 25% discount.

B

120) Verma, Inc. sells office furniture. In 2021, it sold 200 desks for $500 each. For each desk sold, Verma distributed a 50% discount coupon for purchase of an office chair within one month. Based on historical experience, Verma expects that approximately 20% of the coupons will be utilized. The chairs purchased with the coupons are priced at $150 and normally discounted 10%. What would be the stand-alone sales price used by Verma for the coupon when allocating the $500 transaction price to performance obligations? A) $0 B) $12 C) $15 D) $75

B

126) Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that this contract qualifies for revenue recognition over time. Assume Sanjeev estimates variable consideration as the most likely amount. What is the amount of revenue Sanjeev would recognize for the first month of the contract? A) $1,000 B) $1,333 C) $1,400 D) $1,200

B

129) On June 1, 2021, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2021. Under the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract. Assume Emmet estimates variable consideration as the expected value. How much revenue should Emmet recognize on this contract in 2021? A) $25,000 B) $26,125 C) $28,750 D) $50,000

B

134) Boomerang Computer Company sells computers with an unconditional right to return the computer if the customer is not satisfied. Boomerang has a long history selling these computers under this returns policy and can provide precise estimates of the amount of returns associated with each sale. Boomerang most likely should recognize revenue: A) When Boomerang delivers a computer to a customer, ignoring potential returns. B) When Boomerang delivers a computer to a customer, in an amount that is reduced by the expected returns. C) When Boomerang receives cash from the customer. D) When a customer returns a computer.

B

149) Assume a contract for the sale of goods specifies that the seller will receive cash 20 months after 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? A) Recognize interest expense. B) Recognize sales revenue for an amount that is less than the cash eventually received. C) Recognize additional cost of goods sold. D) Ignore the time value of money.

B

150) Gaur sells Jensen equipment under an arrangement whereby Gaur delivers the equipment on January 1, 2021 and receives payment on June 30, 2022. When delivery of the equipment occurs, Gaur will record a journal entry that includes: A) Debit to discount on notes receivable. B) Credit to sales revenue. C) Debit to cash. D) Credit to notes receivable.

B

157) Johnson sells $100,000 of product to Robbins, and also purchases $10,000 of advertising services from Robbins. The advertising services have a fair value of $8,000. Johnson should record revenue on its sale of product to Robbins of: A) $100,000 B) $98,000 C) $92,000 D) $90,000

B

159) Which of the following is not true? A) Licenses for functional intellectual property typically have revenue recognized at a point in time. B) Licenses for symbolic intellectual property convey a right of use, and not a right of access. C) Licenses for functional intellectual property can be viewed as conveying an access right. D) Software and media are examples of functional intellectual property.

B

161) The Ultimate Frisbee League (UFL) licenses its trademark to Tank-Skin Apparel. Under the license arrangement, Tank-Skin pays the UFL a $1 million initial license fee plus a bonus when annual sales of Tank-Skin merchandise reach a threshold. The license agreement is for 4 years. How much of the $1 million initial license fee should the UFL recognize as revenue in the first year of the contract? A) $0 B) $250,000 C) $1,000,000 D) Cannot tell from information given.

B

162) The Ultimate Frisbee League (UFL) licenses its trademark to Tank-Skin Apparel. Under the license arrangement, Tank-Skin pays the UFL a $1 million initial license fee plus a bonus when annual sales of Tank-Skin merchandise reach a threshold. The license agreement is for 4 years. Assume that the UFL anticipates that, in addition to receiving the $1 million license fee, it will receive a bonus of $2 million in year 1 of the contract and a bonus of $3 million in years 2-4 of the contract based on Tank-Skin's sales. Also assume that the UFL is convinced that it is probable there will not be a significant reversal of any revenue recognized with respect to the bonus in subsequent periods. At the inception of the contract, what is the amount of transaction price that the UFL would estimate with respect to this license arrangement? A) $0 B) $1,000,000 C) $3,000,000 D) $12,000,000

B

168) On June 1st, Joseph & Company received a $500 deposit for 80 cases of wine. On June 10th, the customer identified specific vintages that are included in Joseph's inventory, and asked that Joseph not ship the wine until June 20 so the customer could ready space to store the wine, so Joseph set those wines aside for the customer, boxed and ready for shipment to the customer. On June 20th the wine was shipped and delivered to the customer. Joseph likely would recognize revenue on A) June 20th. B) June 10th. C) June 1st. D) Upon consumption of the wine by the customer.

B

172) Bull'sEye sells gift cards redeemable for Bull'sEye products either in-store or online. During 2021, Bull'sEye sold $2,000,000 of gift cards, and $1,800,000 of the gift cards were redeemed for products. As of December 31, 2021, $150,000 of the remaining gift cards had passed the date at which Bull'sEye concludes that the cards will never be redeemed. How much gift card revenue should Bull'sEye recognize in 2021? A) $2,000,000 B) $1,950,000 C) $1,850,000 D) $1,800,000

B

180) Which of the following is not true about accounting for long-term construction contracts? A) Long-term construction contracts could show a contract asset or contract liability, depending on the relation between construction in progress and billings. B) Billings on contracts in progress is a contra account to accounts receivable. C) Gross profit is debited to construction in progress. D) When a customer is billed for payment due, billings on contracts in progress is credited at the same time accounts receivable is debited.

B

181) A rationale for recognizing revenue over the life of a contract rather than at a single point in time is that: A) Results are more conservative. B) It provides a better measure of periodic accomplishment. C) It is a better match with legal ownership. D) It results in a lower income tax.

B

184) When accounting for revenue over time for a long-term contract, the percentage of completion used to recognize revenue in the first year usually is determined by measuring: A) Costs incurred in the first year, divided by estimated remaining costs to complete the project. B) Costs incurred in the first year, divided by estimated total costs for the completed project. C) Costs incurred in the first year, divided by estimated gross profit. D) Costs incurred in the first year, divided by estimated total costs to be incurred in the remaining years of the project.

B

206) Under IFRS, which of the following is not a condition for recognizing revenue? A) The amount of revenue and costs associated with the transaction can be measured reliably. B) It is reasonably possible that the economic benefits associated with the transaction will flow to the seller. C) For sales of goods, the seller has transferred to the buyer the risks and rewards of ownership and doesn't effectively manage or control the goods. D) For sales of services, the stage of completion can be measured reliably.

B

236) Flapper Jack's Pancake Restaurants Inc. sells franchises for an initial fee of $36,000 plus operating fees of $500 per month. The initial fee covers site selection, training, computer and accounting software, and on-site consulting and troubleshooting, as needed, over the first five years. On March 15, 2020, Tim Cruise signed a franchise contract, paying the standard $6,000 down with the balance due over five years with interest. Assume that at the time of signing the contract, collection of the receivable was assured and that service obligations were substantial. However, by October 20, 2020, substantially all continuing obligations had been met. The journal entry required at October 20, 2020 would include a: A) Credit to franchise fee receivable for $27,000. B) Debit to deferred revenue for $36,000. C) Credit to franchise fee revenue for $9,000. D) Debit to deferred revenue for $27,000.

B

238) The Racquet Store (RS) sells franchise agreements in which it charges an up-front fee of $50,000 for assistance in setting up a store, and then a monthly fee of $1,000 for national advertising and administrative assistance. Steffi Hingis signs a franchise agreement with RS. Assume that Steffi paid the $50,000 in cash when she signed the agreement. RS can recognize revenue associated with the $50,000: A) When Steffi signs the agreement and pays the cash. B) As soon as RS has assisted Steffi in setting up the store. C) Gradually as RS provides advertising and administration services. D) Only after the store has operated long enough for the chance of business failure to be remote.

B

239) The Racquet Store (RS) sells franchise agreements in which it charges an up-front fee of $50,000 for assistance in setting up a store, and then a monthly fee of $1,000 for national advertising and administrative assistance. Steffi Hingis signs a franchise agreement with RS. Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS can recognize revenue associated with the $50,000: A) When Steffi signs the agreement, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts. B) As soon as RS has assisted Steffi in setting up the store, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts. C) Gradually as RS provides advertising and administration services. D) When RS receives installment payments from Steffi, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.

B

241) Sullivan Software sells packages of a software program and one year's worth of technical support for $500. Its packaging lists the $500 sales price as comprised of a software program at a price of $450 and technical support with a price of $100, with a $50 discount for the package deal. All of Sullivan's sales are for cash, and there are no returns. Sullivan sells the software program separately for $475 and offers a year of technical support separately for $75. Sullivan should recognize revenue for the two parts of the arrangement as follows: A) Recognize the entire $500 when the customer pays cash to buy the package. B) Recognize the portion of the $500 attributable to the software program when the customer pays cash to buy the package; defer the portion attributable to technical support and recognize over the support period. C) Defer the entire $500 and recognize over the support period. D) Recognize the entire $500 upon conclusion of the support period.

B

90) Which one of the following is not one of the five steps for recognizing revenue? A) Identify the contract with a customer. B) Recognize revenue when all the performance obligations have been satisfied. C) Identify the separate performance obligation(s) in the contract. D) Allocate the transaction price to the separate performance obligations

B

95) The core revenue principle states that: A) Companies recognize revenue when the earnings process is virtually complete and it is probable that payments will be received. B) Companies recognize revenue when goods or services are transferred to customers for the amount the company expects to be entitled to receive in exchange for those goods or services. C) Companies recognize revenue when goods or services are transferred to the customer and payments are received. D) Companies recognize revenue when the goods or services are transferred to the customer in an arm's length transaction.

B

99) On November 1, 2021, Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates, with the contract to start immediately. King agreed to pay Taylor $4,800 for the one-year period. Taylor is confident that King will pay that amount, but payment is not scheduled to occur until 2022. Taylor should recognize revenue in 2021 in the amount of A) $0. B) $800. C) $2,400. D) $4,800.

B

103) Which of the following is not a characteristic of a distinct good or service? A) It can be used on its own or in combination with other goods or services the seller could obtain elsewhere. B) It is not highly dependent on other goods or services in the contract. C) It has a stand-alone selling price. D) It is not interrelated with other goods or services in the contract.

C

104) For contracts that include more than one separate performance obligation: A) Revenue is recorded over time at the fair value of each performance obligation. B) Revenue is recognized in the amount of the contract price on the date the last separate performance obligation is satisfied. C) The contract price is allocated to each performance obligation in proportion to the obligations' stand-alone selling prices. D) Revenue is recognized in the amount of the contract price on the date the contract is signed.

C

105) Binz Company provides cleaning services and sells garbage bins to office clients. On June 1st, Binz delivered 100 garbage bins to a client, and also entered into a 5-year contract for Binz to provide cleaning services to that client. Which of the following is most likely to be true? A) Revenue for the garbage bins and the cleaning services must be recognized on June 1st. B) Revenue for the garbage bins is recognized on June 1st and no revenue will be recognized for the cleaning services until the end of the 5th year. C) Revenue for the garbage bins is recognized on June 1st and revenue for the cleaning service is recognized over the 5 years as those services are performed. D) Binz Company should not recognize any revenue until the end of the 5th year.

C

107) Minarski Electronics sells computers and provides hardware maintenance services. On April 1st, Minarski sold a package deal containing a computer and a one-year unlimited maintenance/repair service for the computer at a bundle price of $1,000. If sold separately, the computer costs $840 and the one-year unlimited maintenance/repair service costs $360. How much revenue does Minarski Electronics recognize for the month ended April 30th, assuming that revenue is accrued monthly? A) $1,000 B) $870 C) $725 D) $30

C

108) On July 15, 2021, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $90,000. The system included finely tuned scales that fit into EverFresh's automated assembly line, Ortiz's proprietary software modified to allow the weighing system to function in EverFresh's automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. (Ortiz competes with other vendors who offer ongoing calibration contracts for Ortiz's systems.) If Ortiz was to provide these goods or services separately, it would charge $60,000 for the scales, $10,000 for the software, and $30,000 for the calibration contract. Ortiz delivered and installed the equipment and software on August 1, 2021, and the calibration service commenced on that date. How many performance obligations exist in this contract? A) 0 B) 1 C) 2 D) 3

C

109) On July 15, 2021, Ortiz & Co. signed a contract to provide EverFresh Bakery with an ingredient-weighing system for a price of $90,000. The system included finely tuned scales that fit into EverFresh's automated assembly line, Ortiz's proprietary software modified to allow the weighing system to function in EverFresh's automated system, and a one-year contract to calibrate the equipment and software on an as-needed basis. (Ortiz competes with other vendors who offer ongoing calibration contracts for Ortiz's systems.) If Ortiz was to provide these goods or services separately, it would charge $60,000 for the scales, $10,000 for the software, and $30,000 for the calibration contract. Ortiz delivered and installed the equipment and software on August 1, 2021, and the calibration service commenced on that date. Assume that the scales, software and calibration service are all separate performance obligations. How much revenue will Ortiz recognize in 2021 for this contract? A) $0 B) $63,000 C) $74,250 D) $90,000

C

117) Which of the following is an example of an extended warranty? A) Fancy Headphones, Inc. provides assurance that its headphones are defect-free after purchase. B) Azalea's Flowers assures clients that its flowers will stay fresh for at least a week. C) Mark Electronics offers a warranty at an affordable price that provides additional protection after the customer takes possession of the product. D) Erickson Electronics promises to make repairs or replace any product found to be defective within a week of purchase.

C

125) On April 1st, Bob the Builder entered into a contract of one-month duration to build a barn for Nolan. Bob is guaranteed to receive a base fee of $5,000 for his services in addition to a bonus depending on when the project is completed. Nolan created incentives for Bob to finish the barn as soon as he can without jeopardizing the structural integrity of the barn. Nolan offered to pay an additional 30% of the base fee if the project finished 2 weeks early and 10% if the project finished a week early. The probability of finishing 2 weeks early is 30% and the probability of finishing a week early is 60%. What is the expected transaction price with variable consideration estimated as the most likely amount? A) $4,750 B) $5,000 C) $5,500 D) $5,750

C

127) Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that this contract qualifies for revenue recognition over time. Assume Sanjeev estimates variable consideration as the expected value. What is the amount of revenue Sanjeev would recognize for the first month of the contract? A) $1,000 B) $1,333 C) $1,400 D) $1,200

C

132) Which of the following is not an indicator that the constraint on recognizing variable consideration should be applied? A) Poor (limited) evidence on which to base an estimate B) A broad range of outcomes that could occur C) A short delay before uncertainty resolves D) A history of the seller changing payment terms on similar contracts

C

140) Wilson Links Products sells a product that involves two separate performance obligations: the SwingRight golf club weight and the SwingCoach teaching software. SwingRight has a stand-alone selling price of $150. Wilson sells both the SwingRight and the SwingCoach as a package deal for $200. The SwingCoach software is not sold separately. Wilson is aware that other vendors charge $100 for similar software, and Wilson's prices are generally 10% lower than what is charged by those vendors. Wilson estimates that it incurs approximately $65 of cost per copy of the software, and usually charges 50% above cost on similar products. Estimate the stand-alone selling price of the software using the adjusted market assessment approach. A) $50 B) $80 C) $90 D) $97.50

C

144) Which of the following applies to a seller who is an agent? A) Warehouses inventory B) Liable for the delivery of goods or services to the client C) Charges a commission for each transaction D) Records revenue at full transaction price

C

146) Jing Statistical Services operates a website that links experienced statisticians with businesses that need data analyzed. Statisticians post their rates, qualifications, and references on the website, and Jing receives 25% of the fee paid to the statisticians in exchange for identifying potential customers. VetMed Associates contacts Jing and arranges to pay a consultant $1,500 in exchange for analyzing some data. Jing's income statement would include the following with respect to this transaction: A) Revenue of $1,500 B) Revenue of $1,500, and cost of services of $1,125 C) Revenue of $375 D) Revenue of $1,875 and cost of services of $1,500

C

152) Assume a contract for the sale of goods specifies that cash is collected 19 months prior to delivery of a product. The seller is likely to do which of the following with respect to the time value of money? A) Recognize interest expense upon receipt of payment. B) Recognize sales revenue for an amount that is less than the cash received. C) Debit deferred revenue when delivery occurs. D) Debit notes receivable upon receipt of payment.

C

156) Heather sells goods to Chrissy in a transaction for which the time value of money is viewed as significant. The goods have a fair value of $3,000, and Heather receives a total of $4,000 cash in full payment, consistent with the sales contract. From this information we can infer that: A) Cash of $4,000 was debited upon delivery of the goods. B) Sales revenue of $3,000 was credited when payment was received. C) A discount of $1,000 on notes receivable was credited upon delivery of the goods. D) Heather must have received cash in advance of delivering the goods.

C

166) Pita Pal sells fast-food franchises. Pita Pal receives $75,000 from a new franchisee for providing initial training, equipment, and furnishings that together have a stand-alone selling price of $75,000. Pita Pal also receives $36,000 per year for use of the Pita Pal name and for ongoing consulting services (starting on the date the franchise is purchased). Rachel became a Pita Pal franchisee on March 1, 2021, and on May 1, 2021 Rachel had completed training and was open for business. How much revenue in 2021 will Pita Pal recognize for its arrangement with Rachel? A) $75,000 B) $99,000 C) $105,000 D) $111,000

C

167) Which of the following is typically true for a bill-and-hold arrangement? A) Revenue is recognized at the point in time when the arrangement is made. B) Revenue is recognized at the point in time when goods are manufactured. C) Revenue is recognized at the point in time when the delivery of goods is made. D) Revenue is recognized at the point in time at which payment from the customer is received.

C

169) Which of the following is most true regarding consignment arrangements? A) Revenue is recognized at the point in time when the consignment arrangement is made. B) Revenue is recognized when goods are transferred to the consignee. C) Revenue is recognized upon sale by the consignee to an end customer. D) Revenue is never recognized because GAAP does not allow such arrangements.

C

170) Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers purchase his work there). Sweeney recently transferred a painting on consignment to a local barbershop. Sweeney most likely should recognize revenue when: A) He paints the painting, because the painting is produced while he works. B) He transfers the painting to a barbershop. C) The barbershop sells the painting. D) The barbershop's right of return expires.

C

173) Which of the following is not true about contract assets? A) Contract assets are recorded when payment depends on something other than the passage of time. B) Contract assets are recognized when the seller has a conditional right to receive payment. C) Contract assets are recognized when the seller has been paid in advance for at least partially fulfilling its performance obligations. D) Contract assets are not the same as accounts receivable.

C

194) Indiana Co. began a construction project in 2021 with a contract price of $150 million to be received when the project is completed in 2023. During 2021, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed. Indiana: A) Recognized no gross profit or loss on the project in 2021. B) Recognized $6 million loss on the project in 2021. C) Recognized $9 million gross profit on the project in 2021. D) Recognized $36 million loss on the project in 2021.

C

201) In 2021, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC recognizes revenue over time according to percentage of completion for this contract, and provides the following information (dollars in millions): Accounts receivable, 12/31/2021 (from construction progress billings) $ 37.5 Actual construction costs incurred in 2021 $ 135 Cash collected on project during 2021 $ 105 Construction in progress, 12/31/2021 $ 207 Estimated percentage of completion during 2021 60 % How much cash remains to be collected by CCC on the project? A) $70 million. B) $202.5 million. C) $240 million. D) Cannot be determined from the given information.

C

205) Under the realization principle, revenue should not be recognized until the earnings process is deemed virtually complete and: A) Revenue is realized. B) Any receivable is collected. C) Collection is reasonably certain. D) Collection is absolutely assured.

C

207) Under IFRS, revenue for a product sale should occur when: A) Inventory production is complete. B) Warranty fulfillment is viewed as unlikely. C) The seller has transferred to the buyer the risks and rewards of ownership and doesn't effectively manage or control the goods. D) The buyer has paid a preponderance of installment amounts due.

C

242) Sullivan Software sells packages of a software program and one year's worth of technical support for $500. Its packaging lists the $500 sales price as comprised of a software program at a price of $450 and technical support with a price of $100, with a $50 discount for the package deal. All of Sullivan's sales are for cash, and there are no returns. Sullivan sells the software program separately for $475 and offers a year of technical support separately for $75. The amount of revenue that GAAP, regarding software revenue recognition, would require Sullivan to attribute to the software program (as opposed to the technical support) is (rounded): A) $450. B) $475. C) $432. D) $400.

C

244) Under GAAP, with respect to multiple-element arrangements, if the revenue for a particular part of a multiple-element arrangement does not qualify for separate recognition, it is: A) Never recognized. B) Recognized when the contract is signed or persuasive evidence of an arrangement exists. C) Recognized when revenue for the other parts is recognized. D) Recognized at the end of the contract.

C

91) For a typical manufacturing company, the most common critical point for recognizing revenue is the date: A) An order is received. B) Production is completed. C) The product is delivered. D) Payment is received.

C

94) On June 1st, Lucy & Bros received an order for 500 cupcakes. Lucy delivered the cupcakes to the client on June 25th. A $50 deposit was received on June 5th and the remaining $450 was paid on June 30th. Lucy likely would recognize revenue on: A) June 1st B) June 5th C) June 25th D) June 30th

C

96) Consider the following three scenarios: I. ABC Lawncare performed lawn maintenance services for Drake Inc. on June 1st, and received payment of $500 for those services. II. On June 1st, Melly Corp received payment for 100 pounds of raw material to be delivered to Drake Inc. in 6 months. III. Lodo, LLC collected cash on June 1st for services rendered on May 1st. Given these scenarios, revenue cannot be recognized on June 1st for: A) I, II B) I only C) II, III only D) III only

C

97) Which of the following is not an indicator that revenue can be recognized over time? A) The seller is enhancing an asset that the buyer controls as the service is performed. B) The customer consumes the benefit of the seller's work as the seller performs the service. C) The seller is creating an asset that has an alternative use to the seller, and the seller can receive payment for its progress even if the customer cancels the contract. D) None of these answer choices are correct.

C

106) Goods or services are capable of being distinct if: A) The seller regularly sells the good or service separately. B) A buyer could use the good or service on its own. C) A buyer could use the good or service in combination with goods or services the buyer could obtain elsewhere. D) The seller regularly sells the good or service separately, or the buyer could use the good or service on its own, or the buyer could use the good or service in combination with goods or services the buyer could obtain elsewhere.

D

122) Which of the following is an example of a variable consideration? A) John is expected to receive $100 for his tutoring services provided that he keeps track of his hours. B) Melody's Piano will get paid for the 50 pianos sold provided that the pianos are non-defective after the customer takes control. C) Cantankerous Computers gets paid a base amount for every repair plus an additional hourly fee of $10. D) Excellent Electronics has a 10% mail-in rebate program for the Model X-001 speaker system. The company sold $10,000 worth of systems and believes there is a 50% chance that rebates will be redeemed.

D

124) On April 1st, Bob the Builder entered into a contract of one-month duration to build a barn for Nolan. Bob is guaranteed to receive a base fee of $5,000 for his services in addition to a bonus depending on when the project is completed. Nolan created incentives for Bob to finish the barn as soon as he can without jeopardizing the structural integrity of the barn. Nolan offered to pay an additional 30% of the base fee if the project finished 2 weeks early and 10% if the project finished a week early. The probability of finishing 2 weeks early is 30% and the probability of finishing a week early is 60%. What is the expected transaction price with variable consideration estimated as the expected value? A) $4,750 B) $5,000 C) $5,500 D) $5,750

D

128) Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that this contract qualifies for revenue recognition over time. Assume that Sanjeev estimates variable consideration as the most likely amount. After Sanjeev has recognized revenue for two months of the contract, he changes his assessment of the chance the contract will pay him $3,000 to 70%. What adjustment to revenue should Sanjeev recognize to account for that change in estimate? A) Debit of $1,000 B) Debit of $334 C) Credit of $1,000 D) Credit of $334

D

131) On June 1, 2021, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2021. Under the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract. Assume that Emmet accrues revenue each month, and estimates variable consideration as the most likely amount. On November 1, Emmet revises its estimate of the chance the building will exceed the 90% occupancy threshold to a 70% chance. What is the total amount of revenue Emmet should recognize on this contract in November of 2021? A) $3,125 B) $4,167 C) $4,792 D) $7,291

D

135) Gunk Goblin sells vacuums and just launched a policy where customers have the right to return a vacuum during a three-year period following purchase. Gunk management has no experience under this sort of policy and does not believe it can accurately estimate returns. What is the longest period of time that Gunk may have to wait before recognizing revenue associated with one of these sales? A) No time delay, recognize revenue upon delivery. B) Gunk should recognize revenue as cash is received. C) Gunk should defer revenue recognition until costs are recovered. D) Three years, after the right of return has expired.

D

137) CatManDoo sold 4,500 bags of kitty litter during the month of June at a price of $10/bag. The company offers a full refund to unsatisfied customers for any product returned within 30 days from the date of purchase. Based on historical experience, Aria expects that 2% of sales will be returned. How much revenue should CatManDoo recognize in June? A) $45,900 B) $45,000 C) $44,900 D) $44,100

D

141) Wilson Links Products sells a product that involves two separate performance obligations: the SwingRight golf club weight and the SwingCoach teaching software. SwingRight has a stand-alone selling price of $150. Wilson sells both the SwingRight and the SwingCoach as a package deal for $200. The SwingCoach software is not sold separately. Wilson is aware that other vendors charge $100 for similar software, and Wilson's prices are generally 10% lower than what is charged by those vendors. Wilson estimates that it incurs approximately $65 of cost per copy of the software, and usually charges 50% above cost on similar products. Estimate the stand-alone selling price of the software using the expected cost plus margin approach. A) $50 B) $80 C) $90 D) $97.50

D

143) Which of the following does not apply to a seller who is a principal? A) Has control over goods or services B) Primarily responsible for providing goods or services to customer C) Exposed to risks associated with holding inventory D) Primary performance obligation is to facilitate the transfer of goods or services

D

147) Assume a contract for the sale of goods specifies that payment is to be made four months after 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? A) Recognize interest expense. B) Recognize interest revenue. C) Recognize additional cost of goods sold. D) Ignore the time value of money.

D

151) Davis sells Weber equipment under an arrangement whereby Davis delivers the equipment on January 1, 2021 and receives payment on June 30, 2022. When subsequent payment occurs, Davis will record a journal entry that includes: A) Credit to discount on notes receivable. B) Credit to sales revenue. C) Credit to cash. D) Credit to interest revenue.

D

153) Doug sells Nina equipment under an arrangement whereby Doug receives cash on January 1, 2021 and delivers the equipment on June 30, 2023. When delivery of the equipment occurs, Doug will record a journal entry that includes: A) Credit to deferred revenue. B) Credit to interest revenue. C) Debit to cash. D) Credit to sales revenue.

D

158) Which of the following is not true? A) Licensing fees are recognized as revenue over time whenever the seller expects its ongoing activities to affect the benefits that the buyer receives from intellectual property. B) License fees are recognized as revenue over time for any license that is viewed as providing a right of access. C) License fees are recognized as revenue at a point in time if the buyer expects that the seller's future activities will not affect the benefit the buyer derives from the intellectual property. D) Licensing fees are recognized as revenue at the end of the license period, when the seller has completed its performance obligation to provide access to its intellectual property.

D

160) Maas LLP developed software that helps farmers to plow their fields in a manner that prevents erosion and maximizes the effectiveness of irrigation. Sunny Dale paid a licensing fee of $20,000 for a copy of the software. Although Sunny Dale can use the software as long as it wants, Maas expects that Sunny Dale will use the software for approximately 5 years. Maas does not anticipate any further interaction with Sunny Dale following transfer of the license. How much revenue should Maas recognize in the first year of the contract? A) $0 B) $4,000 C) $5,000 D) $20,000

D

164) The Fremont (Ireland) Flyers were a semi-professional carriage racing team that competed up until the early 1930's. Mary Smith owns the Fremont Flyers' trademark, and recently licensed it to the Fremont (California) Flyers roller derby team. The license allows the roller derby team to use the trademark for five years for a total of $15,000. Under IFRS, how much revenue would Mary recognize in year 1 of the license? A) $0 B) $1,500 C) $3,000 D) $15,000

D

165) Which of the following is not true about accounting for revenue from franchise arrangements? A) Franchise arrangements often include a performance obligation for a license as well as for delivery of goods or services. B) Franchise arrangements typically include one or more performance obligations for which revenue is recognized at a point in time. C) Franchise arrangements typically include one or more performance obligations for which revenue is recognized over a period of time. D) Franchise arrangements typically include one performance obligation because the goods or services included in the arrangement are not separately identifiable.

D

176) Which of the following is not something that revenue recognition disclosures typically should help investors to understand? A) Timing of revenue and cash flows B) Outstanding performance obligations C) Significant judgments used to estimate transaction prices D) Significant fluctuations in long-term debt necessary to increase revenue in the future

D

177) Which of the following is not true about revenue recognition with respect to long-term construction contracts? A) Long-term construction contracts often are viewed as having a single performance obligation, because goods or services fail the "separately identifiable" criterion. B) Long-term construction contracts often satisfy the criteria for recognizing revenue over time. C) Long-term construction contracts require accounting for construction in progress as well as billings to customers. D) Long-term construction contracts typically include multiple performance obligations because of all the different types of goods or services included for each project.

D

182) Revenue on a long-term contract should not be recognized according to the proportion of the performance obligation that has been completed if: A) Completion rates are certain. B) Profits are low. C) Projects are more than five years to completion. D) The arrangement does not qualify for revenue recognition over time.

D

195) Indiana Co. began a construction project in 2021 with a contract price of $150 million to be received when the project is completed in 2023. During 2021, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project. Indiana recognizes revenue over time and for this project recognizes revenue over time according to the percentage of the project that has been completed. In 2022, Indiana incurred additional costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Indiana: A) Recognized $15 million gross profit on the project in 2022. B) Recognized $13.5 million gross profit on the project in 2022. C) Recognized $6 million gross profit on the project in 2022. D) Recognized $1.5 million gross profit on the project in 2022.

D

240) The Racquet Store (RS) sells franchise agreements in which it charges an up-front fee of $50,000 for assistance in setting up a store, and then a monthly fee of $1,000 for national advertising and administrative assistance. Steffi Hingis signs a franchise agreement with RS. Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS has no experience estimating uncollectible accounts associated with these sorts of notes. RS can recognize: A) $50,000 of revenue when Steffi signs the agreement. B) $50,000 of revenue as soon as it has assisted Steffi in setting up the store. C) Revenue under the installment sales method, starting when Steffi signs the agreement. D) Revenue under the installment sales method, as soon as it has assisted Steffi in setting up the store.

D

243) GAAP that covers revenue recognition for multiple-element arrangements requires that a seller recognize revenue for a particular part if: A) The part has value on a stand-alone basis. B) Customer acceptance of the part is not contingent on successful delivery of a later part. C) The part constitutes at least a "preponderance of the fair value" of the total arrangement. D) Both the part has value on stand-alone basis and customer acceptance of the part is not contingent on successful delivery of a later part are required.

D

246) "VSOE" is necessary to separately recognize revenue in multiple-element contracts for: A) All service contracts. B) All product contracts. C) All contracts that involve at least one non-software element. D) Software contracts.

D

89) Which of the following is not one of the five steps for recognizing revenue? A) Recognize revenue when (or as) each performance obligation is satisfied. B) Determine the transaction price. C) Allocate the transaction price to each performance obligation. D) Estimate variable consideration.

D

92) Stayman Associates has sold a good to a buyer and wants to recognize revenue. Which of the following is an indicator that control of a good has passed from Stayman to the buyer? A) Buyer has scheduled delivery. B) Buyer has a strong credit history, such that bad debts are reasonably estimable. C) Buyer has not scheduled delivery. D) Buyer has assumed the risk and rewards of ownership.

D

98) Revenue likely is recognized over time for all the following arrangements except for A) Bank earning interest on a long-term loan. B) Construction of a building. C) Providing a two-year gym membership. D) Manufacturing generally stocked items ordered by a favored customer.

D