Accounting 3010 Test# 2

अब Quizwiz के साथ अपने होमवर्क और परीक्षाओं को एस करें!

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, 2016, the job is 80% complete. How much revenue should Rothbart recognize in 2016 for this contract?

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?

$1,000,000; Normally the UFL would include an estimate of variable consideration in its estimate of the transaction price, yielding an estimate of $12 million (computed as $1 million initial fee + $2 million year 1 bonus + ($3 million × 3 years for subsequent-year bonuses). However, ASU No. 2014-09 does not allow estimates of sales-based royalties on licenses to be included in the transaction price until that consideration is no longer variable, so those amounts would be excluded from the transaction price estimated at the inception of the contract, and the transaction price would only include the $1 million initial fee.

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?

$1,333; The most likely outcome is that Sanjeev receives the $2,000 bonus (likelihood = 60%), in which case Sanjeev would be paid a total of ($1,000 × 6 months) + $2,000, or $8,000. Therefore, Sanjeev would recognize $8,000 ÷ 6 = $1,333 each month.

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?

$1,400; The expected value of the transaction price is $8,400, computed as $1,000 × 6 months + (60% × $2,000) + (40% × $3,000). Therefore, Sanjeev would recognize $8,400 ÷ 6 = $1,400 each month.

Bull'sEye sells gift cards redeemable for Bull'sEye products either in-store or online. During 2016, 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, 2016, $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 2016?

$1,950,000; Sale of a gift card created deferred revenue, as it is a prepayment by a customer for goods or services to be delivered at a future date. Revenue is recognized when goods or services are delivered or when the likelihood of redemption is remote. In this case, $1,800,000 were redeemed and another $150,000 were viewed as broken, yielding total revenue of $1,950,000.

Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2013. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000, respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:

$132,000

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?

$20,000; Because Maas will have no more continuing involvement, the license transfers a right of use, and all license revenue can be recognized upon transfer of control of the software to the customer.

Nevada Boot Co. reported net income of $216,000 for its year ended December 31, 2013. Purchases totaled $152,000. Accounts payable balances at the beginning and end of the year were $36,000 and $33,000, respectively. Beginning and ending inventory balances were $44,000 and $46,000, respectively. Assuming that all relevant information has been presented, Nevada Boot would report operating cash flows of:

$211,000

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?

$22,500; The $30 discount has a 75% chance of being taken by a customer, so the stand-alone selling price associated with 1,000 oPhones is $22,500 (computed as $30 × 75% × 1,000 phones).

On June 1, 2016, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2016. 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 2016?

$25,000; The most likely amount to be received by Emmet is $50,000 per year. Since there is a 30% chance of receiving an additional amount, there is a 70% (100% - 30%) chance of not receiving any additional amount. Therefore the most likely amount of an additional fee is zero. Since six months have elapsed, Emmet should recognize revenue of only the fixed fee for that period: $50,000 × 6/12 = $25,000.

$250,000; Because the UNFL's ongoing activities affect the value of the trademark to Tank-Skin, the UFL should recognize revenue over time. Therefore, the amount of $1 million initial license fee that the NFL should recognize as revenue is $250,000 (computed as $1 million ÷ 4 years).

On June 1, 2016, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2016. 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 2016?

$26,125; The expected value of the transaction price is $52,250 for one year, computed as $50,000 + (30% × $50,000 × 15%). Since six months have elapsed, Emmet should recognize revenue of $52,250 × 6/12 = $26,125.

On July 15, 2016, 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 and 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, 2016, 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 2016 for this contract?

$37,500

Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2013. Accounts receivable at December 31, 2012 and 2013, were $320,000 and $355,000, respectively. Using the direct method for reporting cash flows from operating activities, Hong Kong Clothiers would report cash collected from customers of:

$4,965,000

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:

$400 of revenue, $800 of deferred revenue

Tropical Tours reported revenue of $400,000 for its year ended December 31, 2013. Accounts receivable at December 31, 2012 and 2013, were $35,000 and $32,000, respectively. Using the direct method for reporting cash flows from operating activities, Tropical Tours would report cash collected from customers of:

$403,000

Bird Brain Co. reported net income of $45,000 for the year ended December 31, 2013. January 1 balances in accounts receivable and accounts payable were $23,000 and $26,000 respectively. Year-end balances in these accounts were $22,000 and $28,000, respectively. Assuming that all relevant information has been presented, Bird Brain's cash flows from operating activities would be:

$48,000

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?

$5,500; The likelihood that the job is finished a week early = 60%, in which case it is more likely that Bob would be paid the bonus than to not receive the bonus. The total expected amount is $5,000 + ($5,000 × 10%) = $5,500.

$5,750; The expected value of the transaction price is $5,750, computed as [$5,000 plus (30% × $5,000 × 30%) + (10% × $5,000 × 60%) + (0% × $5,000 × 10%)], or $5,000 + 450 + 300 + 0.

On January 1, 2016, 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, 2016?

$50,000; Elite would not include the bonus in its estimate of the transaction price, as it is not probable that the bonus revenue would not have to be reversed at a future date. Therefore, Elite would use a $150,000 transaction price, and since it provided advertising services for 1/3 of the duration of the contract, would recognize revenue of $50,000 = $150,000 × 1/3.

Estimate the stand-alone selling price of the software using the residual approach.

$50; Under the residual approach, Wilson calculates the stand-alone selling price of the software by subtracting the known stand-alone selling prices of other goods and services in the contract from the total transaction price. In this case, Wilson would calculate a stand-alone selling price of $50 (calculated as $200 - $150).

Schneider Inc. had salaries payable of $60,000 and $90,000 at the end of 2012 and 2013, respectively. During 2013, Schneider recorded $620,000 in salaries expense in its income statement. Cash outflows for salaries in 2013 were:

$590,000

On June 1, 2016, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2016. 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 2016?

$7,291; In July, August, September, and October, Emmet would have based revenue recognition on the most likely amount of $50,000, and so would have recognized revenue of $50,000 × 4/12 = $16,667. Starting in November, Emmet believes the most likely amount is $50,000 + ($50,000 × 15%) = $57,500, such that by the end of November Emmet should have recognized revenue totaling $57,500 × 5/12 = $23,958. Therefore, the amount of revenue Emmet should recognize in November to revise its estimate is $7,291, calculated as $23,958 - $16,667.

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?

$725

On July 15, 2016, 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 and 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, 2016, 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 2016 for this contract?

$74,250

On November 1, 2016, 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 2017. Taylor should recognize revenue in 2016 in the amount of

$800.

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.

$90; Under the adjusted market assessment approach, Wilson considers the prices charged by other vendors for similar goods and adjusts them as necessary. In this case, Wilson would start with $100 charged by other vendors, and subtract 10% to estimate its own stand-alone selling price, yielding an estimate of $90.

$97.50; Under the expected cost plus margin approach, Wilson considers its cost and then adds a normal margin. In this case, Wilson would start with its cost of $65 and add its margin of $65 × 50%, or $32.50, yielding an estimate of $97.50.

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:

$98,000; Johnson is paying more for advertising services than the fair value of those services, so the excess of $2,000 (computed as $10,000 price paid - 8,000 fair value of the services) is viewed as a refund of part of the $100,000 sale. Therefore, Johnson records revenue of $98,000 (computed as $100,000 - 2,000).

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, 2016, and on May 1, 2016 Rachel had completed training and was open for business. How much revenue in 2016 will Pita Pal recognize for its arrangement with Rachel?

$99,000; Because Rachel had completed training and was open for business on May 1, 2016, Pita Pal apparently has satisfied its performance obligation with respect to the initial training, equipment and furnishings, so it would recognize $75,000 of revenue in 2016. In addition, since Rachel was a franchisee and using the Pita Pal name and consulting services for the last eight months of 2016, Pita Pal should recognize 8 ÷ 12 = 2/3 of a yearly fee of $36,000, or $24,000. In total, Pita Pal recognizes revenue from Rachel of $75,000 + 24,000 = $99,000 in 2016.

On July 15, 2016, 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 and 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, 2016, and the calibration service commenced on that date. How many performance obligations exist in this contract?

Shady Lane's income tax payable account decreased from $14 million to $12 million during 2013. If its income tax expense was $80 million, what was shown as an operating cash flow under the direct method?

A cash outflow of $82 million. Income taxes payable: $14 million + 80 million - x = $12 million. x = $82 million.

Which of the following is not a performance obligation?

A right of return.

Which of the following is not an indicator that the constraint on recognizing variable consideration should be applied?

A short delay before uncertainty resolves: A long delay before uncertainty resolves is an indicator that the constraint applies.

Which of the following is not an indicator that the customer is likely to have control over a good?

Asset warehoused by seller-affiliated third party

Cash flows from investing do not include cash flows from:

Borrowing

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?

Buyer has assumed the risk and rewards of ownership.

Change statements include a:

Cash flow statement, income statement, and retained earnings statement.

Which of the following is correct about changes in estimated variable consideration?

Changes in estimated variable consideration should be recognized as an adjustment to revenue in the period the change in estimate is made.

Which of the following applies to a seller who is an agent?

Charges a commission for each transaction: Agents recognize as revenue their commission for facilitating sales.

Which of the following is a characteristic of a contract for purposes of revenue recognition?

Commercial substance.

The core revenue principle states that

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.

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 Holt recognize for a contract asset, a contract liability, and accounts receivable?

Contract asset: $0; contract liability: $300,000, accounts receivable, $0.--The $300,000 is a prepayment and so is a contract liability. The $100,000 owed upon delivery is neither a contract asset nor an account receivable, because Gupta has not fulfilled its performance obligation and so has neither a conditional nor an unconditional right to receive payment.

Which of the following is not true about contract assets?

Contract assets are recognized when the seller has been paid in advance for at least partially fulfilling its performance obligations.--Contract assets are recognized when the seller has at least partially fulfilled its performance obligations but not yet been paid, and payment depends on something other than the passage of time.

Which of the following is not true about contract liabilities?

Contract liabilities are only recognized when the seller has a conditional right to receive payment.--Contract liabilities are not conditional obligations. They are an obligation that arises due to a customer prepayment.

Companies recognize revenue only when

Control over goods or services has been transferred from the seller to the customer.

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?

Credit of $334; In the first two months of the contract, the most likely outcome is that Sanjeev receives a $2,000 bonus (likelihood = 60%), in which case Sanjeev would be paid a total of ($1,000 × 6 months) + $2,000, or $8,000. Therefore, Sanjeev would recognize $8,000 ÷ 6 = $1,333 each month, and after two months would have recognized $2,666. Then Sanjeev concludes that the most likely outcome is that Sanjeev receives a $3,000 bonus (likelihood = 70%), in which case Sanjeev would be paid a total of ($1,000 × 6 months) + $3,000, or $9,000. Therefore, Sanjeev should have recognized $9,000 ÷ 6 = $1,500 each month, and after two months should have recognized $3,000. The amount of adjustment Sanjeev should record is a credit of $334, calculated as $3,000 - $2,666.

In which of the following is the option described not a performance obligation?

Customers can get 5% cash back for every $100 spent on eco-friendly products.

The FASB's stated preference for reporting operating cash flows is the:

Direct method

Cash flows from financing activities include:

Dividends paid

Operating cash flows would exclude:

Dividends paid

In a statement of cash flows prepared under International Financial Reporting Standards, each of the following items is typically classified as a financing cash flow except:

Dividends received

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

Estimate variable consideration.

Which of the following is an example of a variable consideration?

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.

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?

Explodia is an agent in this transaction.--Explodia has the characteristics of an agent. It does not have control of the fireworks that are purchased by customers, because it doesn't have primary responsibility for delivering the product, is not vulnerable to risks associated with holding inventory, and doesn't collect payment from the customer. Rather, Explodia is an agent, with its primary performance obligation being to facilitate transactions between fireworks customers and manufacturers.

Which of the following is considered a performance obligation?

Extended warranties on electronic products

Which of the following is not an approach for estimating stand-alone selling prices?

Fair market appraisal approach--The other three answers are the three methods indicated for assessing stand-alone selling prices.

The statement of cash flows reports cash flows from the activities of:

Financing, investing, and operating.

Which of the following is not true about accounting for revenue from franchise arrangements?

Franchise arrangements typically include one performance obligation because the goods and services included in the arrangement are not separately identifiable.--Franchise arrangements typically include multiple performance obligations because the goods and services included in the arrangement are both capable of being distinct and are separately identifiable.

Each of the following would be reported as items of other comprehensive income except:

Gains from the sale of equipment

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 can not be recognized on June 1st for

II, III only

Which of the following is one of the steps for recognizing revenue?

Identify the performance obligations of the contract.

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?

Ignore the time value of money.--If the payment is made nine months after delivery, the seller is essentially loaning money to the buyer. However, since the payment is within one year of delivery, the financing component of the contract is viewed as insignificant, so the time value of money is ignored.

In the operating activities section of the statement of cash flows, we start with net income:

In the indirect method

Reporting comprehensive income according to International Financial Reporting Standards can be accomplished by each of the following methods except:

In the statement of shareholders' equity

Reporting comprehensive income can be accomplished by each of the following methods except:

In the statement of shareholders' equity

Shively Mfg. Co. sold for $18,000 equipment that cost $40,000 and had a book value of $30,000. Shively would report:

Investing cash inflows of $18,000

Which of the following is not a characteristic of a distinct good or service?

It has a stand-alone selling price

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

June 10th; Bill-and-hold arrangements normally do not qualify for revenue recognition until delivery is made to the customer. Prior to that point, control of goods is not viewed as having passed to the customer. However, sellers can recognize revenue prior to delivery if it is concluded that the customer controls the product (the customer specifically identified the goods), there is good reason for the bill-and-hold arrangement (the customer needed time to make space for the wine), and the product is specifically identified as belonging to the customer and is ready for shipment (Joseph has a good faith deposit, the customer selected the goods, the goods were prepared for shipment and set aside from regular goods for sale).

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

June 25th.

Which of the following is not true? Licensing fees are recognized as revenue over time for any licenses for which the seller expects its ongoing activities to affect the benefits that the buyer receives from intellectual property. License fees are recognized over time for any license that is viewed as providing a right of access. 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. 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.

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.--If the seller provides access to its intellectual property, revenue is recognized over the period of time for which access is provided, not deferred until the end of the license period.

Which of the following is not true about revenue recognition with respect to long-term construction contracts?

Long-term construction contracts typically include multiple performance obligations because of all the different types of goods and services included for each project.--Long-term contracts include goods and services that are highly interrelated, so they are not viewed as separately identifiable and are combined into a single performance obligation. Long-term contracts often qualify for revenue recognition over time, either because the customer owns the seller's work in process, such that the seller is creating an asset that the customer controls as it is completed, or because the seller is creating an asset that is customized for the customer, so the seller has no other use for the asset and has the right to be paid for progress even if the customer cancels the contract.

Which of the following is added to net income as an adjustment under the indirect method of preparing the statement of cash flows?

Loss on the sale of equipment

Revenue likely is recognized over time for all of the following arrangements except for

Manufacturing generally stocked items ordered by a favored customer.

Which of the following is an example of an extended warranty?

Mark Electronics offers a warranty at an affordable price that provides additional protection after the customer takes possession of the product.

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?

No, because Waldman and the customer can cancel without penalty, and neither has performed an obligation under the contract.

Comprehensive income is the change in equity from:

Nonowner transactions

In comparing the direct method with the indirect method of preparing the statement of cash flows:

Only operating activities are presented differently.

Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:

Operating, $12,000; financing, $6,000.

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?

Over time

Which of the following does not apply to a seller who is a principal?

Primary performance obligation is to facilitate the transfer of goods or services: An agent's primary performance obligation is to facilitate the transfer of goods or services.

Cash flows from investing activities do not include:

Proceeds from issuing bonds

Operating cash outflows would include:

Purchases of inventory

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?

Recognize interest expense.--If the payment is made fifteen months prior delivery, the contract includes a financing component whereby the seller is essentially borrowing money from the buyer. And, since the payment is outside one year of delivery, the financing component is viewed as significant, so interest expense is recognized.

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

Recognize revenue when all the performance obligations have been satisfied

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?

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.

Which of the following is typically true for a bill-and-hold arrangement?

Revenue is recognized at the point in time when the delivery of goods is made.--Bill-and-hold arrangements normally do not qualify for revenue recognition until delivery is made to the customer. Prior to that point, control of goods is not viewed as having passed to the customer.

Which of the following is most true regarding consignment arrangements?

Revenue is recognized upon sale by the consignee to an end customer.--Consignment arrangements normally do not qualify for revenue recognition until delivery is made to the end customer. Prior to that point, control of goods is viewed as having been retained by the consignor, not by the consignee.

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:

Revenue of $375--Jing is an agent. It doesn't have primary responsibility for delivering the statistics services and doesn't collect payment from the customer. Rather, Jing is an agent, with its primary performance obligation being to facilitate transactions between customers and statisticians. Therefore, Jing would recognize as revenue only its commission of $375 (computed as 25% × $1,500).

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:

Should be counted in Sweeney's inventory until the barbershop sells it.--Consignment arrangements normally do not qualify for revenue recognition until delivery is made to the end customer. Prior to that point, control of goods is viewed as having been retained by the consignor, not by the consignee, so the consignor retains the goods in the consiginor's inventory. In this case, that means that Sweeney will retain the painting in its inventory until the painting is sold to an end customer.

Which of the following is not something that revenue recognition disclosures typically should help investors to understand?

Significant fluctuations in long-term debt necessary to increase revenue in the future--Long-term debt fluctuations to finance future revenue increases are not specific to revenue recognition practices, so are least likely to appear with revenue recognition disclosures.

For contracts that include more than one separate performance obligation:

The contract price is allocated to each performance obligation in proportion to the obligations' stand-alone selling prices.

For a typical manufacturing company, the most common critical point for recognizing revenue is the date:

The product is delivered.

A contract does not exist for purposes of applying the revenue recognition principle in all of the following cases except for when:

The seller and buyer did not sign a formalized written contract.

Under which of the following circumstances is it most appropriate to use the residual method to estimate stand-alone selling prices?

The seller hasn't previously sold the product and hasn't determined a price for it.--The residual approach is allowed only if the stand-alone selling price is highly uncertain, either because the seller hasn't previously sold the good or service and hasn't yet determined a price for it, or because the seller provides the same good or service to different customers at substantially different prices.

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

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.

What is the effect of bad debts on revenue recognition?

The seller must believe it is probable it will collect the amounts it is entitled to collect.

Goods and services are capable of being distinct if:

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.

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?

Three years, after the right of return has expired.-If returns can't be estimated, the constraint on recognizing variable consideration applies, and revenue should be deferred until returns can be estimated or until the return of right expires.

Reconciliation between net income and comprehensive income would include:

Unrealized losses and unrealized gains on available for sale securities.

Which of the following statement is most true?

Variable consideration means that the transaction price is uncertain.

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:

When Boomerang delivers a computer to a customer, in an amount that is reduced by the expected returns.: Boomerang can estimate returns reliably enough for the constraint on recognizing variable consideration to not apply, so Boomerang would adjust the transaction price for expected returns and recognize revenue in that amount upon delivery.

When the barbershop sells the painting.--Consignment arrangements normally do not qualify for revenue recognition until delivery is made to the end customer. Prior to that point, control of goods is viewed as having been retained by the consignor, not by the consignee.

Accounting 3010 Test# 2

संबंधित स्टडी सेट्स

Bio 109 Midterm 1

Sun and Moon

mgmt 371

forces and the laws of motion

Chemistry Atomic models

MDC 4 EXAM 2 PRACTICE QUESTIONS

Chapter 21 Study Questions

The Grapes Of Wrath Chapter 28

5 - Utmost Good Faith

Pharm 1 Final Review

ENTR 321 Chapter 10

NAB practice exams

Banking & The Fed Test Review

ECO 351 Exam 2

BUS 303 Compliance and Auditing

HRM final

Marketing Exam 1

Terms - Chapter 7

chapter 7

Drugs Used to Treat Cancer