Advanced Accounting Review / Introduction / MIDTERM EXAM

Started on Saturday, October 27, 2018, 9:13 AM

State Finished
Completed on Saturday, October 27, 2018, 10:42 AM
Time taken 1 hour 29 mins
Marks 63.00/67.00
Grade 94.03 out of 100.00
Question 1
Correct Mark 1.00 out of 1.00

For a contract to exist under IFRS 15 ALL of the following criteria must be
met:

* Contract has been approved by both parties. A contract exists if both

parties have agreed to the terms verbally or rati ed it in a written
document.

* Each parties rights and obligations regarding the goods or services can
be identi ed (IDENTIFY WHAT EACH PARTY MUST DO i.e. THEIR RIGHTS
AND DUTIES).

* The payment terms can be identi ed regarding merx.

* The contract has commercial substance in that the transactions will

affect the cash ows of the entity regarding risk, timing and amount
(STATE THAT RECEIPT OF CONSIDERATION WILL INCREASE/DECREASE
CASH FLOW).

* It is probable that the entity will collect the consideration to which it is

entitled (ASSESS THE SCENARIO TO SEE WHAT MAKES IT CERTAIN
THAT THE ENTITY WILL RECEIVE THE MONEY e.g. the other party has
signed the document which makes it legally binding). 

* Finally it must be proved, as stated above, that the party receiving the
good/service is a customer, using the de nition of a customer. 

When a contract does not meet these criteria, the consideration received
will be recognized as a CONTRACT LIABILITY until they have been met or
if:

* The entity has discharged all obligations and there are no remaining
P.Os left to perform and all or substantially all the consideration promised
by the customer has been received and is non-refundable.

* The contract is terminated and the consideration received is non-

refundable. 

Two or more contracts may be combined if:

* The contracts are negotiated as a package for the same objective. 

* The consideration to be paid in one contract is dependent on the details

of the other contract.

* The goods or services promised in each contract is a single

P.O. → Identify the Contracts with Customers

Select one:
True 
False

The correct answer is 'True'.

Question 2
Correct Mark 1.00 out of 1.00

According to IFRS 15, the asset is transferred to a customer…

Select one or more:

a. When the customer obtains control over it 
b. o    On the day when the entity satis es all performance obligations, speci ed in the
contract with the customer

c. When the asset is physically delivered to the customer’s premises

d. On the day speci ed by a contract with the customer

Your answer is correct.

The correct answer is: When the customer obtains control over it
Question 3
Correct Mark 1.00 out of 1.00

According to the FASB's conceptual framework, the process of reporting

an item in the nancial statements of an entity is

Select one or more:

a. realization
b. recognition 
c. matching

d. allocation

Your answer is correct.

The correct answer is: recognition
Question 4
Correct Mark 1.00 out of 1.00

Eilert Construction Company had a contract starting April 2011, to

construct a $15,000,000 building that is expected to be completed in
September 2012, at an estimated cost of $13,750,000. At the end of 2011,
the costs to date were $6,325,000 and the estimated total costs to
complete had not changed. The progress billings during 2011 were
$3,000,000 and the cash collected during 2011 was $2,000,000. Eilert
uses the percentage-of-completion method. At December 31, 2011, Eilert
would report Construction in Process in the amount of

Select one or more:

a. 5,900,000
b. 6,900,000 
c. 6,325,000

d. 575,000

Your answer is correct.

The correct answer is: 6,900,000

Question 5
Correct Mark 1.00 out of 1.00

Kiner, Inc. began work in 2010 on a contract for 8,400,000. Other data are
as follows:

                                                                                                          2010                 

    2011     
Costs incurred to date                                                3,600,000           
5,600,000
Estimated costs to complete                                        2,400,000                    
—

Billings to date                                                               2,800,000             

8,400,000
Collections to date                                                        2,000,000             
7,200,000
If Kiner uses the percentage-of-completion method, the gross pro t to be
recognized in 2010 is

Select one or more:

a. 2,160,000.
b. 1,440,000 
c. 1,600,000

d. 2,400,000

Your answer is correct.

The correct answer is: 1,440,000

Question 6
Incorrect Mark 0.00 out of 1.00

Under the completed-contract method

Select one or more:

a. revenue and cost are recognized during the production cycle, but gross pro t
recognition is deferred until the contract is completed 
b. revenue, cost, and gross pro t are recognized during the production cycle

c. none of these

d. revenue, cost, and gross pro t are recognized at the time the contract is completed

Your answer is incorrect.

The correct answer is: revenue, cost, and gross pro t are recognized at the time the
contract is completed
Question 7
Correct Mark 1.00 out of 1.00

Monroe Construction Company uses the percentage-of-completion

method of accounting. In 2010, Monroe began work on a contract it had
received which provided for a contract price of $15,000,000. Other details
follow:

                                                                                                                        
2010    
Costs incurred during the year                                                     7,200,000
Estimated costs to complete as of December 31                   4,800,000

Billings during the year                                                                     6,600,000

Collections during the year                                                             3,900,000
What should be the gross pro t recognized in 2010?

Select one or more:

a. 7,800,000

b. 3,000,000

c. 600,000
d. 1,800,000 

Your answer is correct.

The correct answer is: 1,800,000

Question 8
Correct Mark 1.00 out of 1.00

How should earned but unbilled revenues at the balance sheet date on a
long-term construction contract be disclosed if the percentage-of-
completion method of revenue recognition is used

Select one or more:

a. In a note to the nancial statements until the customer is formally billed for the
portion of work completed

b. As construction in process in the noncurrent asset section of the balance sheet

c. As construction in process in the current asset section of the balance sheet 
d. As construction in process in the noncurrent asset section of the balance sheet

Your answer is correct.

The correct answer is: As construction in process in the current asset section of the
balance sheet
Question 9
Correct Mark 1.00 out of 1.00

If a contract with a customer provides a warranty, then the warranty

always represents a separate performance obligation and part of the
transaction price must be allocated to it.

Select one:
True
False 

The correct answer is 'False'.

Question 10
Correct Mark 1.00 out of 1.00

The criteria for recognition of revenue at the completion of production of

precious metals and farm products include

Select one or more:

a. low additional costs of completion and selling

b. units are interchangeable

c. all of these 
d. an established market with quoted prices

Your answer is correct.

The correct answer is: all of these
Question 11
Correct Mark 1.00 out of 1.00

For which of the following products is it appropriate to recognize revenue

at the completion of production even though no sale has been made?

Select one or more:

a. Single family residential units
b. Precious metals 
c. Large appliances

d. Automobiles

Your answer is correct.

The correct answer is: Precious metals
Question 12
Correct Mark 1.00 out of 1.00

When a contract contains more than one distinct performance obligation,

an entity allocates the transaction price to each distinct performance
obligation on the basis of the stand-alone selling price. A performance
obligation is satis ed at a point in time unless it meets certain criteria.
Which of the following conditions would not allow the performance
obligation to be satis ed over time?

Select one or more:

a. The customer simultaneously receives and consumes the bene ts provided by the
performance as the entity performs
b. The performance of the entity creates an asset with an alternative use to the entity and
the entity may not be able to enforce the right to payment for performance completed to date

c. The performance of the entity creates or enhances an asset that the customer
controls as the asset is created or enhanced

d. The performance of the entity does not create an asset with an alternative use to the
entity and the entity has an enforceable right to payment for performance completed to date

Your answer is correct.

The correct answer is: The performance of the entity creates an asset with an alternative
use to the entity and the entity may not be able to enforce the right to payment for
performance completed to date
Question 13
Correct Mark 1.00 out of 1.00

The carrying amount of contract costs relating to a performance

obligation and recognised as an asset is £120,000. Further costs
required in order to satisfy the obligation are estimated to be £30,000.
The consideration receivable by the company when the obligation is
satis ed is £132,000. 

Calculate the amount of the impairment loss (if any) which should be
deducted from the contract asset and recognised as an expense.

Select one:
a. 30,000
b. 18,000 
c. nil

d. 42,000

Your answer is correct.

The correct answer is: 18,000
Question 14
Correct Mark 1.00 out of 1.00

During 2010, Gates Corp. started a construction job with a total contract
price of 3,500,000. The job was completed on December 15, 2011.
Additional data are as follows:

                                                                                        2010                   2011     

Actual costs incurred                                      1,350,000         1,525,000
Estimated remaining costs                           1,350,000                   —

Billed to customer                                             1,200,000           2,300,000

Received from customer                               1,000,000           2,400,000
Under the completed-contract method, what amount should Gates
recognize as gross pro t for 2011?

Select one or more:

a. 625,000 
b. 475,000

c. 225,000

d. 312,500

Your answer is correct.

The correct answer is: 625,000

Question 15
Correct Mark 1.00 out of 1.00

Seasons Construction is constructing an o ce building under contract for

Cannon Cafe. The contract calls for progress billings and payments of
620,000 each quarter. The total contract price is 7,440,000 and Seasons
estimates total costs of 7,100,000. Seasons estimates that the building
will take 3 years to complete, and commences construction on January 2,
2010. At December 31, 2010, Seasons estimates that it is 30% complete with the construction,
based on costs incurred. What is the total amount of Revenue from Long-Term Contracts
recognized for 2010 and what is the balance in the Accounts Receivable account assuming
Cannon Cafe has not yet made its last quarterly payment?

      Revenue                Accounts Receivable

a.   $2,480,000                  $2,480,000
b.   $2,130,000                  $   620,000

c.   $2,232,000                  $   620,000

d.   $2,130,000                  $2,480,000

Select one or more:

a. 2,232,000            620,000 
b. 2,480,000                  2,480,000

c. 2,130,000              620,000

d. 2,130,000              2,480,000

Your answer is correct.

The correct answer is: 2,232,000            620,000
Question 16
Correct Mark 1.00 out of 1.00

A company enters into a contract to build a factory for a customer. The

agreed price is P2m and the speci ed completion date is 31 October
2018. However, the contract provides that the company should receive
an incentive payment of a further P250,000 if the factory is completed by
30 September 2018. Similarly, the price will be reduced by P250,000 if
the factory is not completed until after 30 November 2018. 

The company estimates that there is a 15% probability that the factory
will be completed by 30 September 2016, an 80% probability that it will
be completed in October 2018 or November 2018 and a 5% probability
that it will not be completed until after 30 November 2018. 

What is the expected value of the transaction price for this contract?

Select one or more:

a. 2.125m
b. 2.025m 
c. 1.975m

d. 2m

Your answer is correct.

The correct answer is: 2.025m
Question 17
Correct Mark 1.00 out of 1.00

Step 4 requires the allocation of the transaction price to

separate performance obligations. The allocation is
based on the relative standalone selling prices of the
goods or services promised and is made at inception of
the contract. It is not adjusted to re ect subsequent
changes in the standalone selling prices of those goods
or services. What is the best evidence of standalone
selling price?

Select one or more:

a. The observable price of a good or service when the entity sells that good or service
separately 
b. Expected cost

c. Unadjusted market prices for similar goods or services

d. An estimate that maximises the use of observable inputs

Your answer is correct.

The correct answer is: The observable price of a good or service when the entity sells that
good or service separately
Question 18
Correct Mark 1.00 out of 1.00

Hiser Builders, Inc. is using the completed-contract method for a

$5,600,000 contract that will take two years to complete. Data at
December 31, 2010, the end of the rst year, are as follows:

Costs incurred to date                                                $2,560,000

Estimated costs to complete                                      3,280,000
Billings to date                                                                 2,400,000

Collections to date                                                         2,000,000

The gross pro t or loss that should be recognized for 2010 is

Select one or more:

a. 105,600 loss

b. 0
c. 240,000 loss 
d. 120,000 loss

Your answer is correct.

The correct answer is: 240,000 loss
Question 19
Correct Mark 1.00 out of 1.00

Braun, Inc. appropriately uses the installment-sales method of accounting

to recognize income in its nancial statements. Some pertinent data
relating to this method of accounting include:

                                                                                                              2010             

2011   
Installment sales                                                                       750,000     
 720,000
Cost of installment sales                                                        570,000      
504,000

Gross pro t                                                                                 180,000     

 216,000
 
Rate of gross pro t                                                                       24%           
30%

 
Balance of deferred gross pro t at year end:

      2010                                                                                         108,000     

36,000
      2011                                                                                                               
198,000
            Total                                                                             $108,000    
$234,000

What amount of installment accounts receivable should be presented in

Braun's December 31, 2011 balance sheet?
Select one or more:
a. 780,000

b. 720,000

c. 866,666
d. 810,000 

Your answer is correct.

The correct answer is: 810,000

Question 20
Correct Mark 1.00 out of 1.00

A manufacturer of large equipment sells on an installment basis to

customers with questionable credit ratings. Which of the following
methods of revenue recognition is least likely to overstate the amount of
gross pro t reported?

Select one or more:

a. At the time of completion of the equipment (completion of production method)

b. The installment-sales method

c. At the date of delivery (sales method)

d. The cost–recovery method 

Your answer is correct.

The correct answer is: The cost–recovery method
Question 21
Correct Mark 1.00 out of 1.00

A good or service that is promised to a customer is distinct if…

Select one or more:

a. The entity’s promise to transfer the good or service to the customer is separately
identi able from other promises in the contract

b. The customer can bene t from the good or service on its own

c. The customer can bene t from the good or service together with other resources that
are readily available to the customer
d. All of the above 

Your answer is correct.

The correct answer is: All of the above
Question 22
Incorrect Mark 0.00 out of 1.00

On April 1, 2010 Weston, Inc. entered into a franchise agreement with a

local business-man. The franchisee paid $240,000 and gave a $160,000,
8%, 3-year note payable with interest due annually on March 31. Weston
recorded the $400,000 initial franchise fee as revenue on April 1, 2010. On
December 30, 2010, the franchisee decided not to open an outlet under
Weston's name. Weston canceled the franchisee's note and refunded
$128,000, less accrued interest on the note, of the $240,000 paid on April
1. What entry should Weston make on December 30, 2010?

Select one or more:

a. Loss on Repossessed Franchise...............................................      118,400
                  Cash..........................................................................                           118,400

b. Loss on Repossessed Franchise...............................................      128,000

                  Cash..........................................................................                           128,000
c. Loss on Repossessed Franchise...............................................      278,400
                  Cash..........................................................................                           118,400
                  Note Receivable.........................................................                           160,000 
d. Revenue from Franchise Fees....................................................      400,000
                  Interest Income..........................................................                               9,600
                  Cash..........................................................................                           118,400
                  Note Receivable.........................................................                           160,000
                  Revenue from Repossessed Franchise...................                           112,000 

Your answer is incorrect.

The correct answer is: Revenue from Franchise Fees....................................................     
400,000
                  Interest Income..........................................................                               9,600
                  Cash..........................................................................                           118,400
                  Note Receivable.........................................................                           160,000
                  Revenue from Repossessed Franchise...................                           112,000
Question 23
Correct Mark 1.00 out of 1.00

Similarly, this method is only used when it faithfully represents the

progress toward complete satisfaction of the P.O. 

* It is measured as the amount of effort put in by the entity or inputs by

the entity in transferring the good or service to the customer. 

The entity will EXCLUDE the effects of inputs that do not result result in
the transfer of control to the customer. → Output Method

Select one:
True
False 

The correct answer is 'False'.

Question 24
Correct Mark 1.00 out of 1.00

In 2010, Fargo Corporation began construction work under a three-year

contract. The contract price is $2,400,000. Fargo uses the percentage-of-
completion method for nancial accounting purposes. The income to be
recognized each year is based on the proportion of costs incurred to total
estimated costs for completing the contract. The nancial statement
presentations relating to this contract at December 31, 2010, follow:

Balance Sheet
Accounts receivable—construction contract billings                                 
$100,000
Construction in progress                                                        $300,000

Less contract billings                                                                240,000

Costs and recognized pro t in excess of billings                                           
60,000
 

Income Statement
Income (before tax) on the contract recognized in 2010                              
$60,000

How much cash was collected in 2010 on this contract?

Select one or more:

a. 20,000

b. 100,000
c. 140,000 
d. 240,000

Your answer is correct.

 The correct answer is: 140,000

Question 25
Correct Mark 1.00 out of 1.00

Which of the following is an exception for application of IFRS 15?

Select one or more:

a. Lease contracts
b. A and B 
c. Pharmaceutical contracts

d. Insurance contracts

Your answer is correct.

The correct answer is: A and B
Question 26
Correct Mark 1.00 out of 1.00

On May 1, 2010, TV Inc. consigned 80 TVs to Ed's TV. The TVs cost $270.
Freight on the shipment paid by Ed’s TV was $600. On July 10, TV Inc.
received an account sales and $12,900 from Ed's TV. Thirty TVs had been
sold and the following expenses were deducted:

Freight                                                                       $600
Commission (20% of sales price)                                ?
Advertising                                                                  390

Delivery                                                                       210
The inventory of TVs will be reported on whose balance sheet and at what
amount?
Balance Sheet of                Amount of Inventory

a.                TV Inc.                        13,875

b.                TV Inc.                        13,500

c.               Ed's TV                       13,875

d.               Ed's TV                       13,500

Select one or more:

a. Ed's TV                       13,875

b. Ed's TV                       13,500

c. TV Inc.                        13,500
d. TV Inc.                        13,875 

Your answer is correct.

 The correct answer is: TV Inc.                        13,875

Question 27
Correct Mark 1.00 out of 1.00

A contract is wholly unperformed if…

Select one or more:

a. The customer can bene t from the good or service together with other resources that
are readily available to the customer

b. The entity’s promise to transfer the good or service to the customer is separately
identi able from other promises in the contract

c. The entity has not yet transferred any promised goods or services to the customer
d. All of the above 

Your answer is correct.

The correct answer is: All of the above
Question 28
Incorrect Mark 0.00 out of 1.00

A franchise agreement grants the franchisor an option to purchase the

franchisee's business. It is probable that the option will be exercised.
When recording the initial franchise fee, the franchisor should

Select one or more:

a. record the entire initial franchise fee as a deferred credit which will reduce the
franchisor's investment in the purchased outlet when the option is exercised.

b. record the entire initial franchise fee as unearned revenue which will reduce the
amount of cash paid when the option is exercised.
c. record the portion of the initial franchise fee which is attributable to the bargain
purchase option as a reduction of the future amounts receivable from the franchisee. 
d. None of these

Your answer is incorrect.

The correct answer is: record the entire initial franchise fee as a deferred credit which will
reduce the franchisor's investment in the purchased outlet when the option is exercised.
Question 29
Correct Mark 1.00 out of 1.00

Seasons Construction is constructing an o ce building under contract for

Cannon Cafe. The contract calls for progress billings and payments of
620,000 each quarter. The total contract price is 7,440,000 and Seasons
estimates total costs of 7,100,000. Seasons estimates that the building
will take 3 years to complete, and commences construction on January 2,
2010.  At December 31, 2011, Seasons Construction estimates that it is 75% complete with
the building; however, the estimate of total costs to be incurred has risen to 7,200,000 due to
unanticipated price increases. What is reported in the balance sheet at December 31, 2011 for
Seasons as the difference between the Construction in Process and the Billings on Construction
in Process accounts, and is it a debit or a credit?

Difference between the accounts             Debit/Credit

a.               1,690,000                                        Credit
b.                    620,000                                       Debit

c.                   440,000                                        Debit

d.                   620,000                                        Credit

Select one or more:

a. 620,000                                       Debit 
b.  1,690,000                                        Credit

c.   440,000                                        Debit

d.    620,000                                        Credit

Your answer is correct.

The correct answer is: 620,000                                       Debit
Question 30
Correct Mark 1.00 out of 1.00

A performance obligation is satis ed over time if:

Select one or more:

a. The customer does not receive or consume the bene ts provided by the entity's
performance until the obligation is completely satis ed

b. The entity's performance creates an asset which has an alternative use to the entity
c. The entity's performance creates an asset that the customer controls as it is created

d. The entity does not have an enforceable right to payment for the performance that has
been completed to date

Your answer is correct.

The correct answer is: The entity's performance creates an asset that the customer
controls as it is created
Question 31
Correct Mark 1.00 out of 1.00

Step 5 allows an entity to recognise revenue when (or as) each

performance obligation is satis ed. Revenue is recognised in line with
the pattern of transfer. If an entity does not satisfy its performance
obligation over time, it satis es it at a point in time and revenue will be
recognised when control is passed at that point in time. Which of the
following factors may not indicate the passing of control?

Select one or more:

a. The entity has transferred physical possession of the asset

b. The customer has legal title to the asset

c. The present right to payment for the asset

d. The entity has physical possession but has transferred a portion of the economic risks


Your answer is correct.

The correct answer is: The entity has physical possession but has transferred a portion of
the economic risks
Question 32
Correct Mark 1.00 out of 1.00

On January 1, 2010, Orton Co. sold a used machine to King, Inc. for
$350,000. On this date, the machine had a depreciated cost of $245,000.
King paid $50,000 cash on January 1, 2010 and signed a $300,000 note
bearing interest at 10%. The note was payable in three annual
installments of $100,000 beginning January 1, 2011. Orton appropriately
accounted for the sale under the installment method. King made a timely
payment of the rst installment on January 1, 2011 of $130,000, which
included interest of $30,000 to date of payment. At December 31, 2011,
Orton has deferred gross pro t of

Select one or more:

a. 51,000

b. 70,000

c. 66,000
d. 60,000 

Your answer is correct.

The correct answer is: 60,000

Question 33
Correct Mark 1.00 out of 1.00

Coaster manufactures and sells logging equipment. Due to the nature of

its business, Coaster is unable to reliably predict bad debts. During 2010,
Coaster sold equipment costing $2,400,000 for $3,600,000. The terms of
the sale were 20% down, with equal payments due quarterly over the next
3 years. All payments for 2010 were made on schedule. Round answers
to two places. Assuming that Coaster uses the installment method of
accounting for its installment sales, what amount of realized gross pro t
will Coaster report in its income statement for the year ended December
31, 2010?

Select one or more:

a. 560,000 
b. 1,120,000

c. 369,600

d. 1,680,000

Your answer is correct.

The correct answer is: 560,000
Question 34
Correct Mark 1.00 out of 1.00

Wynne Inc. charges an initial franchise fee of $920,000, with $200,000

paid when the agreement is signed and the balance in ve annual
payments. The present value of the future payments, discounted at 10%,
is $545,872. The franchisee has the option to purchase $120,000 of
equipment for $96,000. Wynne has substantially provided all initial
services required and collectibility of the payments is reasonably assured.
The amount of revenue from franchise fees is

Select one or more:

a. 721,872 
b. 200,000

c. 920,000

d. 745,872

Your answer is correct.

The correct answer is: 721,872
Question 35
Correct Mark 1.00 out of 1.00

Gomez, Inc. began work in 2010 on contract #3814, which provided for a
contract price of $7,200,000. Other details follow:

                                                                                                               2010            
          2011     
Costs incurred during the year                                          1,200,000           
3,675,000
Estimated costs to complete, as of December 31      3,600,000                     
 0

Billings during the year                                                          1,350,000             

5,400,000
Collections during the year                                                     900,000             
5,850,000
Assume that Gomez uses the completed-contract method of accounting.
The portion of the total gross pro t to be recognized as income in 2011 is

Select one or more:

a. 900,000
b. 2,325,000 
c. 7,200,000

d. 1,350,000

Your answer is correct.

The correct answer is: 2,325,000
Question 36
Correct Mark 1.00 out of 1.00

1.       Income arising or generated from the ordinary business activities of

an entity.

HERE IT IS IMPORTANT TO PROVE IN A THEORY QUESTION THAT THE

ACTIVITY IS ORDINARY BUSINESS FOR THE ENTITY, OTHERWISE
REVENUE CANNOT BE RECOGNIZED i.t.o IFRS 15. → Revenue

Select one:
True 
False

The correct answer is 'True'.

Question 37
Correct Mark 1.00 out of 1.00

The principal advantage of the completed-contract method is that

Select one or more:

a. it is not necessary to recognize revenue at the point of sale.
b. reported revenue is based on nal results rather than estimates of unperformed work.

c. a greater amount of gross pro t and net income is reported than is the case when the
percentage-of-completion method is used.

d. it re ects current performance when the period of a contract extends into more than
one accounting period.

Your answer is correct.

The correct answer is: reported revenue is based on nal results rather than estimates of
unperformed work.
Question 38
Correct Mark 1.00 out of 1.00

Gorman Construction Co. began operations in 2010. Construction activity

for 2010 is shown below. Gorman uses the completed-contract method.

                                                   Billings                

Collections                                         Estimated
                        Contract              Through                 Through                Costs
to               Costs to
  Contract           Price               12/31/10                12/31/10             
  12/31/10               Complete 

      1               3,200,000           3,150,000              2,600,000           

2,150,000                   —
      2               3,600,000           1,500,000              1,000,000             
 820,000           $1,880,000
      3               3,300,000           1,900,000              1,800,000           
2,250,000             1,200,000

Which of the following should be shown on the balance sheet at

December 31, 2010 related to Contract 2?

Select one or more:

a. Inventory, 680,000

b. Current liability, 1,500,000

c. Current liability, 680,000 
d. Inventory, 820,000

Your answer is correct.

The correct answer is: Current liability, 680,000

Question 39
Correct Mark 1.00 out of 1.00

Step three requires the entity to determine the transaction price. This is
the amount of consideration that an entity expects to be entitled to in
exchange for the promised goods or services. The transaction price
might include variable or contingent consideration. How does the entity
estimate the amount of the variable consideration?

Select one or more:

a. The lower of the expected value or the most likely amount
b. The expected value or the most likely amount whichever best predicts the consideration

c. The choice of the expected value or the most likely amount

d. The higher of the expected value or the most likely amount

Your answer is correct.

The correct answer is: The expected value or the most likely amount whichever best
predicts the consideration
Question 40
Correct Mark 1.00 out of 1.00

Crane, Inc. is a retailer of home appliances and offers a service contract

on each appliance sold. Crane sells appliances on installment contracts,
but all service contracts must be paid in full at the time of sale.
Collections received for service contracts should be recorded as an
increase in a

Select one or more:

a. service revenue account
b. deferred revenue account 
c. stockholders' valuation account

d. sales contracts receivable valuation account

Your answer is correct.

The correct answer is: deferred revenue account

Question 41
Correct Mark 1.00 out of 1.00

A single contract with a customer could include more than one

performance obligation and it is necessary to identify each performance
obligation in the contract.

Select one:
True 
False

The correct answer is 'True'.

Question 42
Correct Mark 1.00 out of 1.00

Hogan Farms produced 800,000 pounds of cotton during the 2010

season. Hogan sells all of its cotton to Ott Co., which has agreed to
purchase Hogan's entire production at the prevailing market price. Recent
legislation assures that the market price will not fall below $.70 per pound
during the next two years. Hogan's costs of selling and distributing the
cotton are immaterial and can be reasonably estimated. Hogan reports its
inventory at expected exit value. During 2010, Hogan sold and delivered to
Ott 600,000 pounds at the market price of $.70. Hogan sold the remaining
200,000 pounds during 2011 at the market price of $.72. What amount of
revenue should Hogan recognize in 2010?

Select one or more:

a. 576,000

b. 432,000

c. 420,000
d. 560,000 

Your answer is correct.

The correct answer is: 560,000
Question 43
Correct Mark 1.00 out of 1.00

A company enters into a contract to supply three distinct products to a

customer. The promise to supply each of these products is regarded as a
separate performance obligation. The stand-alone prices of the three
products (if sold singly) are: 

Product X £12,500
Product Y £24,000
Product Z £27,500

The agreed contract price is £57,600. How should this price be allocated
to performance obligations? 

Select one or more:

a. Product X £19,200
Product Y £19,200
Product Z £19,200

b. Product X £10,367
Product Y £21,867
Product Z £25,366

c. Product X £12,500
Product Y £24,000
Product Z £27,500
d. Product X £11,250
Product Y £21,600
Product Z £24,750 

Your answer is correct.

The correct answer is: Product X £11,250
Product Y £21,600
Product Z £24,750
Question 44
Correct Mark 1.00 out of 1.00

Winser, Inc. is engaged in extensive exploration for water in Utah. If, upon
discovery of water, Winser does not recognize any revenue from water
sales until the sales exceed the costs of exploration, the basis of revenue
recognition being employed is the

Select one or more:

a. production basis

b. cash (or collection) basis

c. cost recovery basis 
d. sales (or accrual) basis

Your answer is correct.

The correct answer is: cost recovery basis

Question 45
Correct Mark 1.00 out of 1.00

The accounting principle applied by IFRS15 when determining whether or

not revenue should be recognised in respect of a repurchase agreement
is:

Select one or more:

a. Substance over form 
b. Prudence

c. Veri ability

d. Relevance

Your answer is correct.

The correct answer is: Substance over form
Question 46
Correct Mark 1.00 out of 1.00

On 1 January 2018, a vendor enters into a contract with a customer to

build an item of specialised equipment, for delivery on 30 April 2018.
However, the exact delivery date is hard to estimate. The amount of
consideration speci ed in the contract is P300,000, but that amount will
be decreased or increased by P500 for each day, depending on whether
the actual delivery date is before or after 30 April 201X. How should a
vendor determine a transaction price for this contract?

Select one or more:

a. A vendor needs to apply the most likely amount method in order to predict the amount
of consideration, because there is a range of possible outcomes

b. The transaction price may only be calculated when the equipment is delivered and
exact amount of consideration is known

c. The transaction price for this contract should be the same as speci ed in the contract
with a customer, which is P300,000
d. A vendor needs to apply expected value method in order to predict the amount of
consideration, because there is a range of possible outcomes 

Your answer is correct.

The correct answer is: A vendor needs to apply expected value method in order to predict
the amount of consideration, because there is a range of possible outcomes
Question 47
Correct Mark 1.00 out of 1.00

Oliver Co. uses the installment-sales method. When an account had a

balance of $8,400, no further collections could be made and the dining
room set was repossessed. At that time, it was estimated that the dining
room set could be sold for $2,400 as repossessed, or for $3,000 if the
company spent $300 reconditioning it. The gross pro t rate on this sale
was 70%. The gain or loss on repossession was a

Select one or more:

a. 5,880 loss

b. 600 gain

c. 6,000 loss
d. 180 gain 

Your answer is correct.

The correct answer is: 180 gain

Question 48
Correct Mark 1.00 out of 1.00

An entity shall recognise revenue to depict the transfer of promised

goods or services to customers in the _________ amount that re ects the
consideration to which the entity expects to be entitled in exchange for
those goods or services.

Select one or more:

a. Residual 

b. Cumulative
c. Gross 
d. Net 

Your answer is correct.

The correct answer is: Gross

Question 49
Correct Mark 1.00 out of 1.00

Adler Construction Co. uses the percentage-of-completion method. In

2010, Adler began work on a contract for $3,300,000 and it was
completed in 2011. Data on the costs are:
                                                                              Year Ended December 31
                                                                                   2010                  2011  

Costs incurred                                              1,170,000        840,000

Estimated costs to complete                     780,000                 —
For the years 2010 and 2011, Adler should recognize gross pro t of

          2010                       2011    

a.   0                               1,290,000

b.   774,000               516,000

c.   810,000               480,000
d.   810,000               1,290,000

Select one or more:

a. 810,000               1,290,000

b. 0                               1,290,000
c. 810,000               480,000 
d. 774,000               516,000

Your answer is correct.

The correct answer is: 810,000               480,000
Question 50
Incorrect Mark 0.00 out of 1.00

Which of the following is not an accurate representation concerning

revenue recognition?

Select one or more:

a. Revenue from services rendered is recognized when cash is received or when services
have been performed

b. Revenue from selling products is recognized at the date of sale, usually interpreted to
mean the date of delivery to customers
c. Revenue from disposing of assets other than products is recognized at the date of sale

d. Revenue from permitting others to use enterprise assets is recognized as time passes
or as the assets are used

Your answer is incorrect.

The correct answer is: Revenue from services rendered is recognized when cash is
received or when services have been performed
Question 51
Correct Mark 1.00 out of 1.00

Hayes Construction Corporation contracted to construct a building for

$1,500,000. Construction began in 2010 and was completed in 2011. Data
relating to the contract are summarized below:

                                                                                     Year ended
                                                                                   December 31,       
                                                                                2010                2011  

Costs incurred                                             600,000         450,000

Estimated costs to complete                  400,000                 —
Hayes uses the percentage-of-completion method as the basis for
income recognition. For the years ended December 31, 2010, and 2011,
respectively, Hayes should report gross pro t of

Select one or more:

a. 300,000 and 150,000 
b. 0 and 450,000

c. 270,000 and 180,000

d. 900,000 and 600,000

Your answer is correct.

The correct answer is: 300,000 and 150,000

Question 52
Correct Mark 1.00 out of 1.00

An entity can only include variable consideration in the

transaction price to the extent that it is highly probable
that a subsequent change in the estimated variable
consideration will not result in a signi cant revenue
reversal. What action should the entity take if it is not
appropriate to include all of the variable consideration in
the transaction price?

Select one or more:

a. The entity should assess whether it should include part of the variable consideration
subject to the revenue reversal test 
b. The entity should assess whether it should include part of the variable consideration
without the need to use the revenue reversal test

c. The entity can use its judgment in all matters such as this

d. The entity should not include any of the variable consideration

Your answer is correct.

The correct answer is: The entity should assess whether it should include part of the
variable consideration subject to the revenue reversal test
Question 53
Correct Mark 1.00 out of 1.00

A contract modi cation is the change in the price and/or scope that is
approved by the parties to the contract in a written form only.

Select one:
True
False 

The correct answer is 'False'.

Question 54
Correct Mark 1.00 out of 1.00

The ve-step model in IFRS 15 applies to revenue earned from a contract

with a customer with limited exceptions, regardless of the type of
revenue transaction or the industry. Which of the steps below is not a
valid step in IFRS 15?

Select one or more:

a. Step four requires the allocation of the transaction price to the separate performance
obligations

b. Step three requires the entity to determine the transaction price

c. Step two requires the identi cation of the separate performance obligations in the
contract
d. Step ve requires revenue to be recognised when the risks and rewards of ownership
passes to the customer 

Your answer is correct.

The correct answer is: Step ve requires revenue to be recognised when the risks and
rewards of ownership passes to the customer
Question 55
Correct Mark 1.00 out of 1.00

With regard to the de nition of revenue given by IFRS15, which of the

following statements is true?

Select one or more:

a. Revenue arises from ordinary activities only 
b. Revenue may arise from either ordinary activities or extraordinary activities

c. Revenue includes cash received from borrowings

d. Revenue includes cash received from share issues

Your answer is correct.

The correct answer is: Revenue arises from ordinary activities only

Question 56
Correct Mark 1.00 out of 1.00

A contract modi cation is always treated as a separate contract for the

purposes of IFRS 15.

Select one:
True
False 

The correct answer is 'False'.

Question 57
Correct Mark 1.00 out of 1.00

In general, contract costs incurred in relation to a contract with a

customer must be:

Select one or more:

a. Recognised as an asset if they relate to a performance obligation which has been
satis ed
b. Recognised as an asset if they relate to a performance obligation which has not yet
been satis ed 
c. Recognised as an expense when incurred

d. Recognised as an asset if they are not expected to be recovered

Your answer is correct.

The correct answer is: Recognised as an asset if they relate to a performance obligation
which has not yet been satis ed
Question 58
Correct Mark 1.00 out of 1.00

If the agreed date of payment by a customer is later than the date on

which goods or services are transferred to that customer, part of the
consideration should always be treated as nance income (not revenue).

Select one:
True
False 

The correct answer is 'False'.

Question 59
Correct Mark 1.00 out of 1.00

The entity may forecast the expected cost of satisfying the P.O. and apply
an appropriate margin. → Adjusted Market Assessment Approach

Select one:
True
False 

The correct answer is 'False'.

Question 60
Correct Mark 1.00 out of 1.00

Cost estimates on a long-term contract may indicate that a loss will result
on completion of the entire contract. In this case, the entire expected loss
should be

Select one or more:

a. recognized in the current period, regardless of whether the percentage-of-completion or
completed-contract method is employed 
b. recognized in the current period under the percentage-of-completion method, but the
completed-contract method should defer recognition of the loss to the time when the
contract is completed

c. recognized in the current period under the completed-contract method, but the
percentage-of-completion method should defer the loss until the contract is completed

d. deferred and recognized when the contract is completed, regardless of whether the
percentage-of-completion or completed-contract method is employed

Your answer is correct.

The correct answer is: recognized in the current period, regardless of whether the
percentage-of-completion or completed-contract method is employed
Question 61
Correct Mark 1.00 out of 1.00

The realization of income on installment sales transactions involves

Select one or more:

a. deferring gross pro t while recognizing operating or nancial expenses in the period
incurred 
b. deferring gross pro t and all additional expenses related to installment sales until
cash is ultimately collected

c. deferring the net income related to installment sales and recognizing the income as
cash is collected

d. recognition of the difference between the cash collected on installment sales and the
cash expenses incurred

Your answer is correct.

The correct answer is: deferring gross pro t while recognizing operating or nancial
expenses in the period incurred
Question 62
Correct Mark 1.00 out of 1.00

Bruner Constructors, Inc. has consistently used the percentage-of-

completion method of recognizing income. In 2010, Bruner started work
on a $35,000,000 construction contract that was completed in 2011. The
following information was taken from Bruner's 2010 accounting records:

Progress billings                                                 11,000,000

Costs incurred                                                      10,500,000
Collections                                                              7,000,000

Estimated costs to complete                          21,000,000

What amount of gross pro t should Bruner have recognized in 2010 on
this contract?

Select one or more:

a. 2,333,334
b. 1,166,667 
c. 3,500,000

d. 1,750,000

Your answer is correct.

The correct answer is: 1,166,667
Question 63
Correct Mark 1.00 out of 1.00

Step two requires the identi cation of the separate

performance obligations in the contract. This is often
referred to as unbundling, and is done at beginning of a
contract. What is the key factor in identifying a separate
performance obligation?

Select one or more:

a. The enforceability of the contract

b. The identi cation of the payment terms

c. The passing of the risks and rewards to the customer

d. The distinctiveness of the good or service 

Your answer is correct.

The correct answer is: The distinctiveness of the good or service
Question 64
Correct Mark 1.00 out of 1.00

During 2010, Martin Corporation sold merchandise costing $2,100,000 on

an installment basis for $3,000,000. The cash receipts related to these
sales were collected as follows: 2010, $1,200,000; 2011, $1,050,000;
2012, $750,000. What amount would be shown in the December 31, 2011
nancial statements for realized gross pro t on 2010 installment sales,
and deferred gross pro t on 2010 installment sales, respectively?

Select one or more:

a. $315,000 and $675,000

b. $225,000 and $675,000

c. $315,000 and $225,000 
d. $585,000 and $315,000

Your answer is correct.

The correct answer is: $315,000 and $225,000
Question 65
Correct Mark 1.00 out of 1.00

Step 1 of the " ve-step model" states that certain conditions must be
satis ed before an entity can account for a contract with a customer.
Which of the following is not one of these conditions?

Select one or more:

a. Each party's rights with regard to the goods or services concerned can be identi ed

b. The payment terms can be identi ed

c. It is certain that the entity will collect the consideration to which it is entitled 
d. The entity and the customer have approved the contract and are committed to perform
their contractual obligations

Your answer is correct.

The correct answer is: It is certain that the entity will collect the consideration to which it is
entitled
Question 66
Correct Mark 1.00 out of 1.00

The customer is deemed to receive a discount for purchase of a bundle of

goods or services if the sum of the stand-alone selling prices of the
components exceed the contract consideration of the bundle. In this case
the entity will allocate the discount proportionately to ALL the P.Os
according to stand-alone selling price EXCEPT where the entity has
observable evidence that it only applies to a particular item.

The discount is allocated to one or more but not all P.O.s, where ALL of
the following exists:

* The entity regularly sells the distinct good or service on a stand-alone

basis.

* The entity also regularly sells a bundle of some of those distinct goods
and services at a discount to the sum of the stand-alone selling prices of
the distinct goods and services in the bundle.

* The discount that applies to each bundle is the same as the the contract
discount and looking at the goods or services in the bundle provides an
indication that the entire discount belongs to a particular P.O.

Where the entire discount is applicable to one or more goods or services,

the discount will be applied before the residual approach is used to
determine the SSP of the good or service. → Constraining the Variable
Consideration

Select one:
 True
False 

The correct answer is 'False'.

Question 67
Correct Mark 1.00 out of 1.00

In certain cases, revenue is recognized at the completion of production

even though no sale has been made. Which of the following statements is
not true?

Select one or more:

a. No signi cant costs are involved in selling the product

b. The products possess immediate marketability at quoted prices

c. Examples involve precious metals or farm equipment 
d. All of these statements are true

Your answer is correct.

The correct answer is: Examples involve precious metals or farm equipment
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