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