Smartbook Chapter 6 (Part B)

A contract is said to have ????? consideration if the price depends on the outcome of future events.

variable

Licenses typically allow customers to use the seller's ____ property.

intellectual

Which of the following must a seller recognize as separate line items on the balance sheet? (Select all that apply.) Accounts receivable Contract assets Contract liabilities Bad debt expense

Accounts receivable Contract assets Contract liabilities

Who earns a commission for helping seller transact with buyer?

Agent

When is gross profit recorded in the construction in progress account for a long-term contract accounted for upon completion?

At the completion of the contract.

Kline Corp. recognizes revenue over time to account for long-term contracts. The contract price is $5 million, total construction costs are $3.75 million, actual costs incurred during the first year are $1.5 million, and the revenue recognized is $2 million. The journal entry to record revenue during year 1 is: (Select all that apply.) Credit: Cost of construction $1.5 million Credit: Revenue $2 million Debit: Cost of construction $1.5 million Credit CIP $500,000 Debit: CIP $500,000

Credit: Revenue $2 million Debit: Cost of construction $1.5 million Debit: CIP $500,000

What journal entry should be made to recognize accounts receivable for long-term construction projects?

Debit Accounts Receivable and Credit Billings on Construction Contract

What is the correct journal entry to recognize profit for a long-term construction project for which revenue is recognized over time?

Debit construction in progress and debit cost of construction; credit revenue from long-term contracts

When is a loss recognized on a long-term contract?

In the first period in which the loss become evident.

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.

Who carries risk and rewards associated with collecting the contract price?

Principal

Which methods may be used to estimate the stand-alone prices of goods and services? (Select all that apply.) Residual approach Current replacement cost approach Adjusted market assessment approach Expected cost plus margin approach

Residual approach Adjusted market assessment approach Expected cost plus margin approach

Which method provides a better measure of a company's economic activity each period? Revenue recognition upon completion Revenue recognition over time Both methods provide the same measure of economic activity each period

Revenue recognition over time

Which statements are true regarding revenue recognition over time and upon completion? (Select all that apply.) The timing of gross profit recognized is the same under both methods. Revenue recognition over time provides a more realistic measure of a project's periodic performance. Revenue recognition upon completion is required for all long-term construction contracts. 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 same total amount of gross profit is recognized under both methods.

What account tracks the inflow of net assets that occurs when a business provides goods or services to its customers?

Revenues

Which of the following differs between revenue recognized over time and revenue recognized at completion? Total profit Total revenue The timing of recognition Total expense

The timing of recognition

Who is not directly involved with the transaction?

Third Party

Which of the following will not differ between revenue recognized over time and revenue recognized at completion? (Select all that apply.) Total profit Total revenue The timing of recognition Total expense

Total profit Total revenue Total expense

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

Which of the following situations may make the contract price less apparent? Variable consideration provisions Payment by the seller to the customer The time value of money Fixed price listed in contract

Variable consideration provisions Payment by the seller to the customer The time value of money

Which of the following situations may make the contract price less apparent? (Select all that apply.) Variable consideration provisions Sales with right of return Determining whether the seller is acting as principal or agent Fixed price listed in contract

Variable consideration provisions Sales with right of return Determining whether the seller is acting as principal or agent

A seller recognizes contract liabilities, contract assets, and accounts receivable on separate lines of its ???? ????

balance sheet

Commitment to performing an obligation and enforcing related rights represents a critical aspect of a(n)

contract

Which of the following are included in the journal entry required to record the collection of cash from a customer related to a long-term construction contract? (Select all that apply.) credit accounts receivable debit cash debit construction in progress credit billings on construction contract

credit accounts receivable debit cash

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

Which of the following costs are included in a long-term construction contract? (Select all that apply.) direct material administrative expense direct labor overhead

direct material direct labor overhead

A contract is said to have variable consideration if the price depends on the outcome of

future events

Prepayments for future goods or services should be:

included in the transaction price allocated to the various performance obligations in the contract

Which of the following are indicators that a company is a principal? It receives a commission for facilitating the transfer of goods or services. it contracts with the buyer it owns the inventory prior to delivery 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 It has primary responsibility for providing the product or service

Typical costs included in a construction project include

labor, materials, and overhead.

A contract is an agreement that creates ????? enforceable rights and obligations.

legally

Agreements that allow customers to use the seller's intellectual property are referred to as

licenses

Malone Corp. properly recognizes revenue upon completion of a long-term construction project. Malone has the following information for a 3-year contract. Year 1 Year 2 Year 3 Billings on contracts 10,000 10,000 30,000 Construction costs 8,000 8,000 8,000 The journal entry required at the end of the contract to recognize revenue and expenses will include (Select all that apply.) debit construction in progress $26,000. credit revenue from contracts $50,000. debit billings on contracts $26,000. credit billings on contracts $50,000. debit cost of construction $24,000.

lude (Select all that apply.) debit construction in progress $26,000. credit revenue from contracts $50,000. debit cost of construction $24,000.

Revenue recognized each period is determined by multiplying total estimated revenue by

percentage completed to date and subtracting revenue recognized in prior periods

The formula: total estimated revenue times percentage completed to date less revenue recognized in prior periods is used to measure:

revenue recognized for the current period

Inflows or other enhancements of assets or settlements of an entity's liabilities from delivering or producing goods, rendering services, or other activities that constitute its ongoing major or central operations are

revenues

The inflow of cash or other assets that a business receives when it provides goods or services to customers is referred to as

revenues

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.) should be recognized as revenue when received should be recorded as deferred revenue does not create a separate performance obligation represents a separate performance obligation

should be recorded as deferred revenue does not create a separate performance obligation

A long-term contract that includes many products and services that are capable of being distinct, may be accounted for as a single performance obligation because

the seller's role is to combine those products and services prior to delivery or completion.