Intermediate Accounting 1 Exam 2 Study Guide
Questions And Answers Verified 100% Correct
What is the journal entry to recognize revenue, cost of construction,
and gross profit when recognizing revenue upon completion of the
contract? - ANSWER --Debit: Construction in progress
-Debit: Cost of construction
-Credit: Revenue from long-term contracts
*Recorded only in last year*
What is the journal entry to recognize revenue, cost of construction,
and gross profit when recognizing revenue over time according to
percentage of completion? - ANSWER --Debit: Construction in
progress
-Debit: Cost of construction
-Credit: Revenue from long-term contracts
*Recorded on a yearly basis*
CIP includes ________ and ________ on the contract that have been
recognized to date. - ANSWER -Profits and losses
Revenue recognized - Actual cost of construction = ? - ANSWER -
Gross profit
,If revenue is recognized upon completion of the contract, CIP is
updated to include _____ ______ at that point in time. - ANSWER
gross profit
What formula is used to determine the amount of revenue recognized
in each period when recognizing long term contract revenue over
time? - ANSWER -Recognized revenue this period = (total estimated
revenue*Percentage completed to date)-revenue recognized in prior
periods
When recognizing revenue over term of the contract CIP is updated
each period to include _____ ______. - ANSWER -gross profit
Percentage of Completion Method - ANSWER -Revenue recognition
method in which companies recognize revenues, costs, and gross
profit as progress is made toward completion on a long-term contract,
using a basis or standard (such as the cost-to-cost basis) to measure
the progress toward completion at interim dates.
Look over multiple choice questions in week 5 slides because exam
questions may be set up this way - ANSWER -
Upon completion of a long term contract, what is the journal entry to
officially transfer title to the finished asset to the customer? -
ANSWER -To close accounts:
-Debit: Billings on construction contract
-Credit: Construction in progress (CIP)
Long term contract losses - ANSWER --most are periodic (only affects
one year but does not affect profitability of full contract) this loss gets
credited to the CIP account
,-estimated loss on a long term contract is fully recognized in the first
period the loss is anticipated regardless of whether the revenue is
recognized over time or upon completion.
Formulas for long term contracts - ANSWER -
Total contract loss will not be on exam - ANSWER -
will have to know how to compute a period loss for the current year -
ANSWER -
Macrovision sells a variety of satellite TV packages. The popular $600
Basic Package includes a hardware component (consisting of a
satellite dish and receiver) along with a twelve-month subscription to
130 TV channels. Macrovision sells the hardware component without
a subscription for $180 and sells a 12-month subscription to the same
130 channels without hardware for $540/year. Let's account for the
sale of one Basic Package for $600 on January 1, 2024. - ANSWER -
Required Questions in the next flashcard
Required:
1. Identify the performance obligations in the Basic Package contract,
and determine when revenue for each should be recognized.
2. For the single Basic Package sold on January 1, 2024, allocate the
$600 transaction price to the performance obligations in the contract,
and prepare a journal entry to record the sale (ignoring any entry to
record the reduction in inventory and the corresponding cost of goods
sold).
3. Prepare any journal entry necessary to record revenue related to
the same contract on January 31, 2024. - ANSWER -1. Hardware
component (revenue should be recognized at a point in time) and
, 12 month subscription (revenue should be recognized over time. 2.
($180/($180/$540))=.25 or 25% for hardware component so
subscription must be 75% since only two performance obligations.
So ANSWER is $600*.25=$150 hardware and $600*.75=$450
subscription.
Journal entry would be debit cash $600, credit sales rev (hardware)
150 and deferred revenue (subscription) 450
3. Debit deferred rev ($450/12) = 37.50 credit service rev 37.50
Whether we recognize revenue over the contract period or upon
completion of the contract we recognize the same amount of revenue
and profit over the life of the contract. (T/F) - ANSWER -T
Cost revisions are not typical in long term contracts because costs
are estimated over long periods of time. (T/F) - ANSWER -F
What three things make up construction costs? - ANSWER --labor,
materials, and overhead
Recording construction costs - ANSWER -Construction in progress
(debit amount of costs incurred during the year),cash, materials, etc.
(credit same amount)
To record progress billings - ANSWER -Debit Accounts Receivable
(amount is billings made during the year) and Credit Billings on
Construction Contract (same amount)
Questions And Answers Verified 100% Correct
What is the journal entry to recognize revenue, cost of construction,
and gross profit when recognizing revenue upon completion of the
contract? - ANSWER --Debit: Construction in progress
-Debit: Cost of construction
-Credit: Revenue from long-term contracts
*Recorded only in last year*
What is the journal entry to recognize revenue, cost of construction,
and gross profit when recognizing revenue over time according to
percentage of completion? - ANSWER --Debit: Construction in
progress
-Debit: Cost of construction
-Credit: Revenue from long-term contracts
*Recorded on a yearly basis*
CIP includes ________ and ________ on the contract that have been
recognized to date. - ANSWER -Profits and losses
Revenue recognized - Actual cost of construction = ? - ANSWER -
Gross profit
,If revenue is recognized upon completion of the contract, CIP is
updated to include _____ ______ at that point in time. - ANSWER
gross profit
What formula is used to determine the amount of revenue recognized
in each period when recognizing long term contract revenue over
time? - ANSWER -Recognized revenue this period = (total estimated
revenue*Percentage completed to date)-revenue recognized in prior
periods
When recognizing revenue over term of the contract CIP is updated
each period to include _____ ______. - ANSWER -gross profit
Percentage of Completion Method - ANSWER -Revenue recognition
method in which companies recognize revenues, costs, and gross
profit as progress is made toward completion on a long-term contract,
using a basis or standard (such as the cost-to-cost basis) to measure
the progress toward completion at interim dates.
Look over multiple choice questions in week 5 slides because exam
questions may be set up this way - ANSWER -
Upon completion of a long term contract, what is the journal entry to
officially transfer title to the finished asset to the customer? -
ANSWER -To close accounts:
-Debit: Billings on construction contract
-Credit: Construction in progress (CIP)
Long term contract losses - ANSWER --most are periodic (only affects
one year but does not affect profitability of full contract) this loss gets
credited to the CIP account
,-estimated loss on a long term contract is fully recognized in the first
period the loss is anticipated regardless of whether the revenue is
recognized over time or upon completion.
Formulas for long term contracts - ANSWER -
Total contract loss will not be on exam - ANSWER -
will have to know how to compute a period loss for the current year -
ANSWER -
Macrovision sells a variety of satellite TV packages. The popular $600
Basic Package includes a hardware component (consisting of a
satellite dish and receiver) along with a twelve-month subscription to
130 TV channels. Macrovision sells the hardware component without
a subscription for $180 and sells a 12-month subscription to the same
130 channels without hardware for $540/year. Let's account for the
sale of one Basic Package for $600 on January 1, 2024. - ANSWER -
Required Questions in the next flashcard
Required:
1. Identify the performance obligations in the Basic Package contract,
and determine when revenue for each should be recognized.
2. For the single Basic Package sold on January 1, 2024, allocate the
$600 transaction price to the performance obligations in the contract,
and prepare a journal entry to record the sale (ignoring any entry to
record the reduction in inventory and the corresponding cost of goods
sold).
3. Prepare any journal entry necessary to record revenue related to
the same contract on January 31, 2024. - ANSWER -1. Hardware
component (revenue should be recognized at a point in time) and
, 12 month subscription (revenue should be recognized over time. 2.
($180/($180/$540))=.25 or 25% for hardware component so
subscription must be 75% since only two performance obligations.
So ANSWER is $600*.25=$150 hardware and $600*.75=$450
subscription.
Journal entry would be debit cash $600, credit sales rev (hardware)
150 and deferred revenue (subscription) 450
3. Debit deferred rev ($450/12) = 37.50 credit service rev 37.50
Whether we recognize revenue over the contract period or upon
completion of the contract we recognize the same amount of revenue
and profit over the life of the contract. (T/F) - ANSWER -T
Cost revisions are not typical in long term contracts because costs
are estimated over long periods of time. (T/F) - ANSWER -F
What three things make up construction costs? - ANSWER --labor,
materials, and overhead
Recording construction costs - ANSWER -Construction in progress
(debit amount of costs incurred during the year),cash, materials, etc.
(credit same amount)
To record progress billings - ANSWER -Debit Accounts Receivable
(amount is billings made during the year) and Credit Billings on
Construction Contract (same amount)
