Chapter 18: Revenue Recognition

Consigned goods are recognized as revenues by the A) consignor when it receives notification and payment from consignee for goods sold. B) consignee when a sale to a third party has occurred. C) consignor when a sale to a third party has occurred. D)consignor when the merchandise has been shipped to a consignee.

A) consignor when it receives notification and payment from consignee for goods sold.

Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be A) recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed. B)recognized in the current period under the completed-contract method, but the percentage-of-completion method defers the loss until the contract is completed. C)deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or completed-contract method is employed. D)recognized in the current period under the percentage-of-completion method, but the completed-contract method defers recognition of the loss to the time when the contract is completed.

A) recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed.

The percentage-of-completion method A) recognizes revenue and gross profit each period based upon progress. B) accumulates construction costs in the Billings on Construction in Progress account. C)recognizes revenue and gross profits only when contract is completed. D) is used primarily for short-term contracts

A) recognizes revenue and gross profit each period based upon progress.

In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be A)the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable. B)the method commonly used by the contractor to account for other long-term construction contracts. C)the inherent nature of the contractor's technical facilities used in construction. D)the terms of payment in the contract.

A)the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable

Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the first 90 days. Entertainment Tonight also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,100 and $900, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty will include a A) debit to Warranty Expense, $900. B) credit to Unearned Warranty Revenue, $900. C) debit to Warranty Liability, $350. D) credit to Warranty Liability, $900.

B) credit to Unearned Warranty Revenue, $900.

In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the A) unbilled portion of the contract price. B) total estimated cost. C) total costs incurred to date. D) total contract price.

B) total estimated cost.

n July 31, O'Malley Company contracted to have two products built by Taylor Manufacturing for a total of $370,000. The contract specifies that payment will only occur after both products have been transferred to O'Malley Company. Taylor determines that the standalone prices are $200,000 for Product 1 and $170,000 for Product 2. On August 1, when Product 1 has been transferred, Taylor's journal entry to record this event includes a A) debit to Accounts Receivable for $200,000. B)debit to Contract Assets for $200,000. C) debit to Contract Assets for $170,000. D) debit to Accounts Receivable for $170,000.

B)debit to Contract Assets for $200,000.

Noncash consideration should be A) recognized on the basis of fair value of equivalent goods or services. B) recognized on the basis of original cost paid by customer. C) recognized on the basis of fair value of what is received. D) recognized on the basis of fair value of what is given up.

C) recognized on the basis of fair value of what is received.

Correct answer icon Correct! The seller of a good or service should recognize revenue when each performance obligation is satisfied. The seller of a good or service should recognize revenue when A) they identify the contract with customers. B)they determine the transaction price. C)they identify the separate performance obligations in the contract. D)each performance obligation is satisfied.

D)each performance obligation is satisfied.

Cullumber Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1600000 each quarter. The total contract price is $18654000 and Cullumber estimates total costs of $17800000. Cullumber estimates that the building will take 3 years to complete, and commences construction on January 2, 2021.At December 31, 2021, Cullumber estimates that it is 40% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2021 and what is the balance in the Accounts Receivable account assuming Cannon Company has not yet made its last quarterly payment?

Dr Accounts Receivable $1600000 Cr Revenue $7461600