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.