Update1-6%261-71. Several of Fox, Inc.’s customers are having cash flow problems. Information pertaining to these customers for the years ended March 31, Year 7 and Year 8 follows: 3/31/Yr 7 3/31/Yr 8 Sales $10,000 $15,000 Cost of sales 8,000 9,000 Cash collections on Year 7 sales 7,000 3,000 on Year 8 sales -- 12,000 If the cost-recovery method is used, what amount would Fox report as gross profit from sales to these customers for the year ended March 31, Year 8?
A. When the cash is collected., B. Evenly over the year as the services are performed., C. At the end of the contract year after all of the services have been performed., D. At the end of the fiscal year.,
2. ABC operates a catering service that specializes in business luncheons for large corporations. ABC requires customers to place their orders 2 weeks in advance of the scheduled events. ABC bills its customers on the 10th day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually, ABC should recognize revenue from its catering services at the date when a
A. $0 , B. $100,000, C. $110,000, D. $120,000,
3. A company began work on a long-term construction contract in Year 1. The contract price was $3,000,000. Year-end information related to the contract is as follows: Year 1 Year 2 Year 3 Estimated total cost $2,000,000 $2,000,000 $2,000,000 Cost incurred 700,000 900,000 400,000 Billings 800,000 1,200,000 1,000,000 Collections 600,000 1,200,000 1,200,000 Under the percentage-of-completion method, the gross profit to be recognized in Year 1 is
A. Passenger reservations are booked., B. Passenger reservations are confirmed., C. Tickets are issued., D. Related flights occur.,
4. An airline should recognize revenue from airline tickets in the period when
A. Evenly over 3 years from the date of issuance., B. In the period the certificates are sold., C. In the period the certificates expire., D. In the period the certificates are redeemed or in the period they expire if they are allowed to lapse. ,
5. On February 1, Year 1, a computer software firm agrees to program a software package. Twelve payments of $10,000 on the first of each month are to be made, with the first payment March 1, Year 1. The software is accepted by the client June 1, Year 2. How much Year 1 revenue should be recognized?
A. Work is performed., B. Employee is paid., C. Product is completed., D. Product is sold.,
6. The calculation of the income recognized in the third year of a 5-year construction contract accounted for using the percentage-of-completion method includes the ratio of
A. The revenue is realizable., B. The revenue is realized and earned., C. Products or services are exchanged for cash or claims to cash., D. The entity has substantially accomplished what it agreed to do.,
7. How should the balances of progress billings and construction in progress be shown at reporting dates prior to the completion of a long-term contract?
A. The sale occurs., B. Cash is received., C. Production is completed., D. Quarterly financial statements are prepared.,
8. A company provides fertilization, insect control, and disease control services for a variety of trees, plants, and shrubs on a contract basis. For $50 per month, the company will visit the subscriber’s premises and apply appropriate mixtures. If the subscriber has any problems between the regularly scheduled application dates, the company’s personnel will promptly make additional service calls to correct the situation. Some subscribers elect to pay for an entire year because the company offers an annual price of $540 if paid in advance. For a subscriber who pays the annual fee in advance, the company should recognize the related revenue
A. Collection period extends over more than 12 months., B. Installments are due in different years., C. Ultimate amount collectible is indeterminate., D. Percentage-of-completion method is inappropriate.,
9. A department store sells gift certificates that may be redeemed for merchandise. Each certificate expires 3 years after issuance. The revenue from the gift certificates should be recognized
A. I only., B. II only., C. Both I and II. create online tests , D. Neither I nor II.,
10. Revenues of an entity are usually measured by the exchange values of the assets or liabilities involved. Recognition of revenue does not occur until
A. $2,000, B. $3,000, C. $5,000, D. $15,000,
11. - During Year 1, Tidal Co. began construction on a project scheduled for completion in Year 3. At December 31, Year 1, an overall loss was anticipated at contract completion. What would be the effect of the project on Year 1 operating income under the percentage-ofcompletion method and the completed-contract method? Percentage-of- Completion Completed-Contract
A. Costs incurred in Year 3 to total billings., B. Costs incurred in Year 3 to total estimated costs., C. Total costs incurred to date to total billings., D. Total costs incurred to date to total estimated costs.,
12. A company appropriately uses the completed-contract method to account for a long-term construction contract. Revenue is recognized when progress billings are Recorded Collected
A. No Yes, B. Yes Yes, C. Yes No, D. No No,
13. It is proper to recognize revenue prior to the sale of merchandise when I. The revenue will be reported as an installment sale. II. The revenue will be reported under the cost-recovery method.
A. After the contract is signed., B. As progress is made toward completion of the contract. ESL , C. As cash is received., D. When the contract is completed.,
14. For financial statement purposes, the installment method of accounting may be used if the
A. Progress billings as deferred income, construction in progress as a deferred expense., B. Progress billings as income, construction in progress as inventory., C. Net, as a current asset if debit balance and current liability if credit balance., D. Net, as gross profit from construction if credit balance, and loss from,
15. Robin Gavaskar, who recently founded a company that produces baseball bats and balls, wants to determine her company’s policy for revenue recognition. According to the revenue recognition principle, the mostappropriate time to recognize revenue would be when
A. No effect No effect, B. No effect Decrease, C. Decrease No effect, D. Decrease Decrease,
16. To comply with the matching principle, the cost of labor services of an employee who participates in the manufacturing of a product normally should be charged to the income statement in the period in which the
A. $(100,000), B. $100,000, C. $200,000, D. $350,000,