ch 6
Carries risks and rewards associated with collecting the contract price
Principal
Typical costs included in a construction project include selling, general, and administrative. interest and taxes. labor, materials, and overhead. property, plant, and equipment.
c
When is gross profit recorded in the construction in progress account for a long-term contract accounted for upon completion? At the end of each period. At the payment date. At the completion of the contract. At the inception of the contract.
c
Which of the following differs between revenue recognized over time and revenue recognized at completion? Total expense Total profit The timing of recognition Total revenue
c
What method(s) can be used to estimate progress toward completion for the purpose of recognizing revenue over time? (Select all that apply.) a. Activity based method b. Variable cost method c. Output method d. Input method
c,d
As compared to revenue recognition over time, the total amount of gross profit recognized related to revenue upon completion is: the same. smaller. greater.
a
Revenue recognition for services such as lending money and performing financial statement audits is typically a. over time. b. at inception of agreement. c. once services are completed.
a
Revenue recognized each period is determined by multiplying total estimated revenue by percentage completed to date and subtracting revenue recognized in prior periods revenue recognized in prior periods percentage completed to date and adding revenue recognized in prior period
a
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. stand-alone price. distinct amount. performance obligation.
a
The transaction price is the amount the seller expects to ______ from the customer in exchange for providing goods and services. a. be entitled to receive b. receive in cash by the end of the contract period c. earn d. realize
a
Which of the following likely will lead to revenue recognition at a point in time? (Select all that apply.) a. Buyer has legal title to the asset b. Buyer has accepted the asset c. Seller has possession of the asset d. Seller has legal title to the asset
a,b
Methods that can be used to estimate progress toward completion are referred to as ________ -based and ________-based methods.
input,output
A contract is an agreement that creates __________ enforceable rights and obligations. (Enter only one word.)
legally
Agreements that allow customers to use the seller's intellectual property are referred to as ________. (Enter only one word.)
licenses
Revenue is recognized when the ____________ obligation is satisfied. (Enter one word.)
performance
Is not directly involved with the transaction
Third Party
Earns a commission for helping seller transact with buyer
Agent
Which of the following are key indicators that control of goods or services has been transferred to the customer? (Select all that apply.) a. Customer has legal title to the asset b. Customer accepted the risks and rewards of ownership c. Customer signed a legally enforceable contract d. Customer has an obligation to pay
a,b,d
Which of the following are key indicators that control of goods or services has been transferred to the customer? (Select all that apply.) a. Customer has legal title to the asset b. Customer signed a legally binding contract c. Customer accepted asset d. Customer has physical possession of the asset
a,c,d
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
ab
Which of the following costs are included in a long-term construction contract? (Select all that apply.) direct labor direct material overhead administrative expense
abc
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.) Debit: CIP $500,000 Credit CIP $500,000 Credit: Revenue $2 million Debit: Cost of construction $1.5 million Credit: Cost of construction $1.5 million
acd
Prepayments for future goods or services should be (Select all that apply.) Multiple select question. allocated to the various performance obligations in the contract recognized as a separate performance obligation included in the transaction price obligations in the contract
acd
Which methods may be used to estimate the stand-alone prices of goods and services? (Select all that apply.) Expected cost plus margin approach Current replacement cost approach Adjusted market assessment approach Residual approach
acd
Which of the following must a seller recognize as separate line items on the balance sheet? (Select all that apply.) Accounts receivable Bad debt expense Contract assets Contract liabilities
acd
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 they are specified in a single explicit contract. the seller's role is to combine those products and services prior to delivery or completion. the seller customarily does not sell them separately
b
A transaction price may be uncertain because the price has not been agreed upon when the related contract was signed. depends on the outcome of future events. was disputed by one of the parties to the contract.
b
For the purpose of allocating the transaction price to multiple performance obligations, if a stand-alone selling price cannot be directly observed, the seller should Multiple choice question. not allocate any portion of the contract price to the performance obligation. estimate it. use a residual value approach.
b
For the purpose of allocating the transaction price to multiple performance obligations, the stand-alone selling price of a specific good or service may be estimated if it a. is difficult to measure. b. cannot be directly observed. c. involved an insignificant amount.
b
Goods or services that are not distinct are ____ and treated as a ____ performance obligation. a. separated; multiple b. combined; single c. separated; single d. combined; multiple
b
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: a. Matching principle b. Core revenue recognition principle c. Step 5 of the revenue recognition principle d. Realization principle
b
The formula: total estimated revenue times percentage completed to date less revenue recognized in prior periods is used to measure: revenue recognized over the contract period revenue recognized for the current period progress made toward completion of performance obligation
b
What is the correct journal entry to recognize profit for a long-term construction project for which revenue is recognized over time? Debit cost of construction; credit revenue from long-term contracts Debit construction in progress and debit cost of construction; credit revenue from long-term contracts Debit billings on construction and debit accounts receivable; credit revenue from long-term contracts Debit billings on construction contract; credit construction in progress
b
When is a loss recognized on a long-term contract? When the construction costs are in excess of billings. In the first period in which the loss becomes evident. In the period the contract is completed. When the billings are not collected during the period.
b
Which method provides a better measure of a company's economic activity each period? Both methods provide the same measure of economic activity each period Revenue recognition over time Revenue recognition upon completion
b
___________________ at a single point in time when control is transferred to the buyer at a single point in time. Multiple choice question. the contract is signed. the related performance obligation is satisfied. the contract price is realized or realizable.
b
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 does not create a separate performance obligation should be recorded as deferred revenue represents a separate performance obligation
b,c
Which of the following services are commonly performed over time? (Select all that apply.) a. Vehicle repair b. Consulting engagements c. Lending of money d. Financial statement audits
b,c,d
Which of the following support(s) the conceptual basis for separating contractual promises into several performance obligations? (Select all that apply.) Multiple select question. Large contracts can be broken into manageable parts Promises that can be viewed on a stand-alone basis should be separated Simplifies revenue recognition Financial statements better reflect timing of transfer of goods and services
b,d
A seller recognizes contract liabilities, contract assets, and accounts receivable on separate lines of its ________ __________. (Enter one word per blank.)
balance sheet
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.) debit cash debit construction in progress credit raw materials credit billings on construction contract
bc
Which of the following agreements may qualify as contracts? (Select all that apply.) Multiple select question. voidable agreements written documents oral agreements implicit agreements
bcd
Which of the following will not differ between revenue recognized over time and revenue recognized at completion? (Select all that apply.) The timing of recognition Total revenue Total expense Total profit
bcd
Which of the following situations may make the contract price less apparent? (Select all that apply.) Fixed price listed in contract Variable consideration provisions Determining whether the seller is acting as principal or agent Sales with right of return The time value of money Payment by the seller to the customer
bcdef
Which of the following situations may make the contract price less apparent? (Select all that apply.) Multiple select question. Fixed price listed in contract Variable consideration provisions Payment by the seller to the customer The time value of money Determining whether the seller is acting as principal or agent Sales with right of return
bcdef
Which of the following are indicators that a company is a principal? (Select all that apply.) It receives a commission for facilitating the transfer of goods or services. it owns the inventory prior to delivery it contracts with the buyer it sets the sales price It has primary responsibility for providing the product or service
bde
Licenses typically allow customers to use the seller's ____ property. real personal intellectual
c
Long-term contracts require careful consideration in identifying performance obligations because these type of contracts typically include many products and services that are always combined. normally are sold separately by the seller. could be viewed as separate performance obligations. are always distinct.
c
The core revenue recognition principle stipulates that companies recognize revenue when goods or services are a. contracted for in an explicit contract b. realizable c. transferred to customers
c
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. (Enter only one word.)
residual
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
A contract is said to have __________ consideration if the price depends on the outcome of future events. (Enter only one word.)
variable
