Test 1 Acct 5110 Questions With
Verified Answers
In class we discussed a number of situations where a seller could recognize
revenue before it has fully completed every obligation under a contract. Which
of the following items does NOT represent one of these situations?
-Sale without a fixed price
-Substantial completion of a contract (i.e., only inconsequential obligations
remain)
-A multiple-element arrangement
-Percentage-of-completion accounting for a long-term contract
-Bill-and-hold sale
-Sale with a return policy (provided certain conditions are met) - ANSWER Sale
without a fixed price
In class we discussed a couple situations where a seller would not be able to
recognize revenue even though it had shipped an item to a customer. Which of
the following items does NOT represent one of these situations? (i.e., in which of
these cases can revenue be recognized?)
-Goods shipped but still in transit, with FOB shipping point terms
-Goods shipped but still in transit, with FOB destination terms
-Goods delivered on consignment
-Goods delivered to a customer, where customer acceptance hasn't yet
occurred - ANSWER Goods shipped but still in transit, with FOB shipping point
terms
Seller's sales contract specifies that legal title transfers to customers upon
shipment from its facility. However, in the event that a product is lost or
damaged in shipment, Seller has a past practice of supplying a replacement
product at no charge to the customer. When should Seller recognize revenue?
-When the product arrives at the customer's facility
,-When the product is shipped from Seller's facility
-When Seller receives payment from the customer - ANSWER When the product
arrives at the customer's facility
For which type of customer acceptance are revenues recognized net (instead of
gross)?
-Acceptance based on subjective criteria
-Acceptance based on customer-specified objective criteria
-Acceptance based on seller-specified objective criteria - ANSWER Acceptance
based on subjective criteria
In 2015, Constructor Corp. began a three-year, long-term construction project
that qualified for percentage-of-completion accounting. Constructor's customer
agreed to pay $300,000. By the end of 2015, Constructor had incurred costs of
$60,000 and expected to spend an additional $180,000 over the next two years.
How much revenue will Constructor report on the project in its 2015 income
statement? - ANSWER $75,000 in revenue
On December 12, 2014, Customer purchased two pieces of equipment for $105.
Seller delivered Item A on December 13 but doesn't expect to deliver Item B until
the following February. Seller doesn't sell either items separately (only as a
pair), but Seller estimates the individual selling prices to be $40 for item A and
$80 for item B. Assuming this contract meets the criteria for separation as a
multiple-element arrangement, how much revenue can Seller recognize in the
fiscal year ending December 31, 2014? - ANSWER $35
Which of the following is NOT one of the limitations of the balance sheet that we
discussed in class?
-The balance sheet omits certain assets
-Some assets are presented using outdated values
-The balance sheet shows assets and liabilities at just one particular date
-The balance sheet requires judgment and estimation - ANSWER The balance
sheet shows assets and liabilities at just one particular date
Which of the following is NOT one of the roles of the income statement that we
discussed in class?
, -To help evaluate management's perfomance
-To help predict future performance
-To help predict the amount and timing of future cash flows - ANSWER To help
predict the amount and timing of future cash flows
Is the cash payment of dividends an operating, investing, or financing cash flow?
-Operating
-Investing
-Financing - ANSWER Financing
Is the cash payment of income taxes an operating, investing, or financing cash
flow?
-Operating
-Investing
-Financing - ANSWER Operating
Information Asymmetry
What does it mean?
What consequences does it have?
How is it resolved? - ANSWER Describes situations where one party has better
information than the other.
It prevents efficient capital allocation, which is critical for growth in an
economy.
Financial reporting can minimize information asymmetry.
Why do we need accounting standards? - ANSWER They facilitate clear and
consistent financial reporting.
Each company would have to negotiate accounting procedures with parties they
transact with.
What is the difference between cash and accrual base accounting? - ANSWER
Accrual accounting provides a better depiction of the periodic operating
performance of the company. However, accrual accounting requires judgement,
which can be subjective.
Going concern assumption - ANSWER Assume the business will continue to
operate indefinetly
Verified Answers
In class we discussed a number of situations where a seller could recognize
revenue before it has fully completed every obligation under a contract. Which
of the following items does NOT represent one of these situations?
-Sale without a fixed price
-Substantial completion of a contract (i.e., only inconsequential obligations
remain)
-A multiple-element arrangement
-Percentage-of-completion accounting for a long-term contract
-Bill-and-hold sale
-Sale with a return policy (provided certain conditions are met) - ANSWER Sale
without a fixed price
In class we discussed a couple situations where a seller would not be able to
recognize revenue even though it had shipped an item to a customer. Which of
the following items does NOT represent one of these situations? (i.e., in which of
these cases can revenue be recognized?)
-Goods shipped but still in transit, with FOB shipping point terms
-Goods shipped but still in transit, with FOB destination terms
-Goods delivered on consignment
-Goods delivered to a customer, where customer acceptance hasn't yet
occurred - ANSWER Goods shipped but still in transit, with FOB shipping point
terms
Seller's sales contract specifies that legal title transfers to customers upon
shipment from its facility. However, in the event that a product is lost or
damaged in shipment, Seller has a past practice of supplying a replacement
product at no charge to the customer. When should Seller recognize revenue?
-When the product arrives at the customer's facility
,-When the product is shipped from Seller's facility
-When Seller receives payment from the customer - ANSWER When the product
arrives at the customer's facility
For which type of customer acceptance are revenues recognized net (instead of
gross)?
-Acceptance based on subjective criteria
-Acceptance based on customer-specified objective criteria
-Acceptance based on seller-specified objective criteria - ANSWER Acceptance
based on subjective criteria
In 2015, Constructor Corp. began a three-year, long-term construction project
that qualified for percentage-of-completion accounting. Constructor's customer
agreed to pay $300,000. By the end of 2015, Constructor had incurred costs of
$60,000 and expected to spend an additional $180,000 over the next two years.
How much revenue will Constructor report on the project in its 2015 income
statement? - ANSWER $75,000 in revenue
On December 12, 2014, Customer purchased two pieces of equipment for $105.
Seller delivered Item A on December 13 but doesn't expect to deliver Item B until
the following February. Seller doesn't sell either items separately (only as a
pair), but Seller estimates the individual selling prices to be $40 for item A and
$80 for item B. Assuming this contract meets the criteria for separation as a
multiple-element arrangement, how much revenue can Seller recognize in the
fiscal year ending December 31, 2014? - ANSWER $35
Which of the following is NOT one of the limitations of the balance sheet that we
discussed in class?
-The balance sheet omits certain assets
-Some assets are presented using outdated values
-The balance sheet shows assets and liabilities at just one particular date
-The balance sheet requires judgment and estimation - ANSWER The balance
sheet shows assets and liabilities at just one particular date
Which of the following is NOT one of the roles of the income statement that we
discussed in class?
, -To help evaluate management's perfomance
-To help predict future performance
-To help predict the amount and timing of future cash flows - ANSWER To help
predict the amount and timing of future cash flows
Is the cash payment of dividends an operating, investing, or financing cash flow?
-Operating
-Investing
-Financing - ANSWER Financing
Is the cash payment of income taxes an operating, investing, or financing cash
flow?
-Operating
-Investing
-Financing - ANSWER Operating
Information Asymmetry
What does it mean?
What consequences does it have?
How is it resolved? - ANSWER Describes situations where one party has better
information than the other.
It prevents efficient capital allocation, which is critical for growth in an
economy.
Financial reporting can minimize information asymmetry.
Why do we need accounting standards? - ANSWER They facilitate clear and
consistent financial reporting.
Each company would have to negotiate accounting procedures with parties they
transact with.
What is the difference between cash and accrual base accounting? - ANSWER
Accrual accounting provides a better depiction of the periodic operating
performance of the company. However, accrual accounting requires judgement,
which can be subjective.
Going concern assumption - ANSWER Assume the business will continue to
operate indefinetly
