Test 1 Acct 5110 Practice Exam
Questions And All Correct 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
Realization Principle - Answer Recognize revenue when the earnings process is virtually complete and
collection is reasonably assured
Questions And All Correct 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
Realization Principle - Answer Recognize revenue when the earnings process is virtually complete and
collection is reasonably assured
