Chapter 8 MC
15) The amount of consideration that an entity expects to be entitled to as a result of providing goods or services to a customer is the ________. A) performance obligation B) expected value C) transaction price D) variable consideration
C
37) Two methods used to account for revenue recognition for long term contracts are the percentage-of-completion method and the ___ A) installment sales method B) cost recovery method C) completed-contract method D) sales method
C
ABC provides a product and installation to be used in conjunction with the buyer's production system. The buyer's system is unusable without ABC's product. The product and the installation are an example of A) three performance obligations B) no performance obligations C) a single performance obligation D) two performance obligations
C
ABC Company enters into a contract with Edmond Library to help them streamline their purchasing process. The contract specifies that Edmond Library will pay ABC $90,000 in the form of a fixed fee plus an additional $10,000 if the library achieves $200,000 in cost savings. ABC estimates 55 % chance that the library will achieve a $200,000 savings. Assume ABC estimates that the transaction price is the expected-value transaction price. The transaction price is recorded as _____. Ignore any constraints on variable consideration. A) $90,000 B) $95,500 C) $100,000 D) $84,500
C 90,000+(10,000x55%)
17) If noncash consideration such as stock of a contract, then the value to be used for the transaction price should be publicly-traded company is A) fair value of stock B) book value of stock C) historical cost of stock D) net present value of revenue
A
Able sells a piece of equipment to Smythe for $1,800 on August 1. The equipment cost $1,000. The equipment is picked up by Smythe on August 10. How many performance obligations are included in this transaction? A) 1 B) 2 C) 3 D) 4
A
Derby Company sells season passes to its entertainment center. The passes sell for $85 each and are good for the year. On January 1, Derby sells 3,000 passes and received cash. The amount of revenue to be recognized on January 1 is ____ A) $0 B) $127,500 C) $255,000 D) $21,250
A
Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access and will also pay a $110,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 months period. Jones estimates that it has a 60% chance of earning the $110,000 bonus. Refer to Jones Corporation. Upon collection of the upfront fee, Jones would recognize a ______. A) $150,000 B) $250,000 C) $310,000 D) $350,000
A
Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $110,000 bonus if Jones' users access Warner Video for at least 10,000 during the 12 month period. Jones estimates that it has a 60 % chance of earning the $ 110 00 bonus. Refer to Jones Corporation. Upon collection of the upfront fee, Jones would recognize a(n) A) unearned revenue of $250,000 B) unearned revenue of $360,000 C) prepaid revenue of $250,000 D) prepaid revenue of $360,000
A
Louise paints seascapes and landscapes. In 2019 she placed nine of her most prized paintings with the Wainwright Studio Gallery. The paintings each carried a price of $6,000, and Louise made a deal with the Gallery to pay them a 40 % commission on all paintings sold. At the end of the year, three paintings had been sold. How much revenue will Louise recognize on each of the consignment sales? A) $6,000 B) $3,600 C) $2,400 D) $0
A
Shady Equipment sells a truck to Fred for $160,000 on January 1, 2016.Payment of $160,000 is received on January 1, 2016, and interest is incurred over two years. The truck is delivered two years later. The market rate of interest is 9%. Refer to Shady Equipment. How much interest expense will Shady report over the term of the contract? (Do not round intermediary calculations, and round your final answer to the nearest whole number.) A $30,096 B) $14,400 C) $160,000 D) $47,205
A
The general rule is that the transaction price should be allocated to the performance obligations based on the relative standalone selling prices unless a discount is ______. A) not related to all of the contract's performance obligations B) related to all of the contract's performance obligations C) less than the standalone selling price D) not part of the variable consideration
A
The local Mini Mart makes cash sales of $8,000 on April 5, 2019. The journal entry to record the transaction would to ______. The firm uses the periodic inventory system. A) DR Cash 8,000 / CR Sales Revenue 8,000 B) DR Sales Revenue 8,000 / CR Cash 8,000 C) DR Accounts Receivable 8,000 / CR Sales Revenue 8,000 D) DR Cash 8,000 / CR Accounts Receivable 8,000
A
The timing of revenue recognition is dependent upon the control of the good being in the hands of A) the buyer B) the seller C) the management D) any third party
A
Hopner Products enters into a contract with Tulles to sell three different products. The total transaction price is $370,000. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the allocated transaction price of product Z using the expected-cost-plus-a-profit margin approach? (Round intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest whole number.) Product Standalone Price Market Price Forecasted Cost X $150,000 $130,000 $100,000 Y $110,000 $160,000 $85,000 Z UNKNOWN $100,000 $140,000 A) $159,390 B) $94,868 C) $123,333 D) $185,000
A - (total forecasted cost-total market cost) / total forecasted cost = mark-up percentage, (forecasted cost product Z x mark-up percentage) + forecasted cost product Z= allocated cost
Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,700,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete the project are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the completed-contract method? A) liability of $1,000,000 B) asset of $1,000,000 C) asset of $500,000 D) liability of $500,000
A - billings in excess of costs
Hopner Products enters into a contract with Tulles to sell three different products. The total transaction price is $350,000. Each of the products is a separate performance obligation. Based on the information presented in the table, what is the allocated transaction price of product Z using the adjusted market assessment approach? (Round intermediary percentages to the nearest hundredth percent, and round your final answer to the nearest whole number.) Product Standalone Price Market Price X $130,000 $110,000 Y $120,000 $150,000 Z UNKNOWN $110,000 A) $104,055 B) $116,286 C) $116,667 D) $90,000
A - total both columns, find market price for each as a percentage of total market price, use market price percentage of Z times the total transaction price for the allocation of Z
Aztec Company contracted with the Kirk Company to review their revenue recognition policies for recording sales. The contract will pay Aztec $800,000 in the form of a fixed fee. Aztec will also receive $150,000 additionally if Kirk achieves $200,000 in additional revenues. Aztec estimates a 70% chance that Kirk Company will achieve $200,000 in additional revenues. Refer to Aztec Company. Assume that Aztec estimates that the transaction price is the probability weighted amount of expected consideration. The transaction price is A) $905,000 B) $800,000 C) $560,000 D) $240,000
A 800,000 + (150,000x70%)
40) Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,100,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete the project are $5,000,000. Tullis billed $5,000,000 in year 1 and collected $3,500,000 by the end of the year. How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the completed-contract method? A) $0 B) $1,500,000 C) $5,000,000 D) $8,500,000
B
A financing component is accounted for separately in a sales contract if delivery occurs advance of payment or payment occurs in advance of delivery by more than ___. A) six months B) one year C) two years D) three years
B
A performance obligation is a promise to transfer a good or service that is_____ A) indistinguishable B) distinct C) available D) nondescript
B
An automotive magazine charges an annual subscription fee of $300, with customers prepaying the fee. Subscribers receive 50 issues for the annual fee. The publisher provides the new subscribers with a discount coupon good for a 30 percent discount on a race car ride at a major track. The list price of the ride along experience is $200. The company estimates that 35 % of the coupons will be utilized. What is the number of performance obligations? A) 1 B) 2 C) 3 D) 4
B
IFRS defines the probable collection from a credit sale as A) likely to be collected B) more likely than not to be collected C) at least a 50% probability of being collected D) at least a 45% probability of being collected
B
In determining whether the promise to deliver goods and services is separate from other promises the accountant must often rely on ______. A) professional skepticism B) professional judgment C) professional standards D) standards of conduct
B
When accounting for revenue for a long-term contract, the percentage of completion used to recognize revenue in the first year usually is determined by measuring A) costs incurred in the first year, divided by estimated remaining costs to complete the project B) costs incurred in the first year, divided by estimated total costs for the completed project C) costs incurred in the first year, divided by estimated gross profit D) costs incurred in the first year, divided by estimated total costs to be incurred in the remaining years of the project
B
The major difference between the percentage-of-completion method and the completed- contract method is the timing of A) revenue and cost recognition B) revenue and billing recognition C) revenue and gross profit recognition D) revenue and net profit recognition
C
Under US GAAP, when a contract meets the collectability criterion, this means A) the seller believes it is 50 % likely to collect the consideration in the contract B) the seller believes it is more likely than not to collect the consideration in the contract C) the seller believes it is likely to collect the consideration in the contract D) the seller believes it is unlikely to collect the consideration in the contract
C
When a contract is expected to affect the risk, timing, or amount of the entity's future cash flows, the contract is said to have __________. A) non-commercial substance B) no substance C) commercial substance D) no profit
C
Which of the following is not an indicator to determine when control transfers? A) Seller has present right to payment for the asset. B) Customer has significant risk and rewards for ownership of the asset. C) Seller has legal title to asset D) Seller has transferred physical possession of the asset
C
Gray Uniforms is a wholesaler who sells school uniforms to retailers. On August 1, Gray contracts with Excel School Uniforms to sell 2,000 uniforms to Excel to be delivered September 1. The contract price is set at $300 each. The contract provides for 10% volume discount if sales exceed 3,000 uniforms. The probability of sales exceeding 3,000 uniforms is expected to be 71 %. Using the most - likely - amount approach, the consideration is estimated to be _____. A) $813,000 B) $639,000 C) $540,000 D) $426,000
C 2000 x 300 x (1-10%)
Pemco Enterprises sells annual membership to its shooting lodge. The memberships cost $200 each. On January 1, Pemco sold 3000 memberships and received cash. Refer to Pemco Enterprises. How much revenue should Pemco recognize each month? (Round your final answer to the nearest whole number.) A) $0 B) $25,000 C) $50,000 D) $60,000
C 3000 x $200 / 12 = $50,000
Walker Consulting helped McCall Roofers put various cost saving techniques into place. The contract specifies that Walker will receive a flat fee of $70,000 and an additional $17,000 if McCall attains a target amount of cost savings. Walker estimates a 20% chance that McCall reach the target for cost savings. Assuming that Walker uses the expected-value approach, what is the transaction price for this product? A) $17,000 B) $70,000 C) $73,400 D) $87,000
C 70,000+(17,000x20%)
44) Fare Jewelry Company is holding goods on consignment from Tomko with a selling price of $3,000,000. Fare is promised a commission of 25% for goods sold. By the end of 2019 Fare has sold $700,000 of Tomko's goods. How much revenue should Tomko recognize for 2019 on this transaction? A) $0 B) $3,000,000 C) $2,300,000 D) $700,000
D
The method of reporting gross profit for long term contracts that does a better job of providing relevant information on the income statement is the A) completed-contract-method B) installment sales method C) cost recovery method D) percentage-of-completion method
D
Which one of the following approaches is not a method of allocating a transaction price to multiple performance obligations? A) adjusted market B) expected-cost-plus-a-margin assessment C) residual D) present cost basis
D
Novella Company sells annual memberships to its auto club. The memberships cost $300 each. On January 1, Novella sold 16,000 memberships and received cash. How should Novella record the receipt of cash on January 1? A) revenue of $300 B) liability of $300 C) revenue of $4,800,000 D) liability of $4,800,000
D - unearned revenue
Greenwell Farm Equipment sells a tractor to Farmer for $40,000 on January 1, 2019. The tractor is delivered that day. Greenwell agrees that the Farmer may delay the payment for 2 years. The market rate of interest is 7%. Refer to Greenwell Farms. How much interest revenue will Greenwell report over the life of this contract? (Do not round intermediary calculations, a round your final answer to the nearest whole number.) Use the formula approach. A) $5,062 B) $2,800 C) $5,600 D) $5,796
D 40,000x(1/(1+7%)2)=34,938 40,000-34,938=5,062
Judgment may be involved in the determination of whether the promise to deliver the good or service is separate from other promises. True or False
True
