AC 302 Quiz 2

AC 302 Quiz -Cost estimates at the end of the second year indicate that a loss will result on completion of the entire contract. Which of the following statements is correct?
  	Under the completed-contract method, the loss is not recognized until the year the construction is completed.
  			Under the percentage-of-completion method, the gross profit recognized in the first year must not be changed.
  		Under the completed-contract method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability.
  			Under the completed-contract method, when the Construction in Process balance exceeds the billings, the estimated loss is added to the accumulated costs.
  	Points Received: 	2 of 2
  	Comments: 	

Question 2. 	Question : 	

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014.

Seasons Construction completes the remaining 25% of the building construction on December 31, 2016, as scheduled. At that time the total costs of construction are $15,000,000. What is the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 2016?
            Revenue                      Expenses
  	$14,880,000            $15,000,000
  			$3,720,000              $3,750,000
  		$3,720,000             $4,200,000
  			$3,750,000              $3,750,000
  	Points Received: 	2 of 2
  	Comments: 	

Question 3. 	Question : 	

Noncash consideration should be
  	recognized on the basis of fair value of what is given up.
  			recognized on the basis of original cost paid by customer.
  		recognized on the basis of fair value of what is received.
  			recognized on the basis of fair value of equivalent goods or services.
  	Points Received: 	2 of 2
  	Comments: 	

Question 4. 	Question : 	

The converged standard on revenue recognition
  	reduces the number of disclosures required for revenue reporting.
  			increases the complexity of financial statement preparation.
  		recognizes and measures revenue based on changes in assets and liabilities.
  		simplify revenue recognition practices across entities and industries.
  	

Question 5. 	Question : 	

Under the completed-contract method
  	revenue, cost, and gross profit are recognized during the production cycle.
  			revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed.
  			revenue, cost, and gross profit are recognized at the time the contract is completed.
  			None of these answers are correct.
  	Points Received: 	2 of 2
  	Comments: 	

Question 6. 	Question : 	

Green Construction Co. has consistently used the percentage-of-completion method of recognizing revenue. During 2014, Green entered into a fixed-price contract to construct an office building for $24,000,000. Information relating to the contract is as follows:
                                                                                     At December 31                    
                                                                                 2014                        2015         
Percentage of completion                                         15%                                45%
Estimated total cost at completion                       $18,000,000                $19,200,000
Gross profit recognized (cumulative)                       1,200,000                     2,880,000


Contract costs incurred during 2015 were
  		$5,760,000.
  			$5,940,000.
  			$6,300,000.
  			$8,640,000.
  	Points Received: 	2 of 2
  	Comments: 	

Question 7. 	Question : 	

Bella Pool Company sells prefabricated pools that cost $100,000 to customers for $180,000. The sales price includes an installation fee, which is valued at $25,000. The fair value of the pool is $160,000. The installation is considered a separate performance obligation and is expected to take 3 months to complete. The transaction price allocated to the pool and the installation is
  	$155,676 and $24,324 respectively
  			$160,000 and $25,000 respectively
  			$180,000 and $25,000 respectively
  		$138,378 and $21,622 respectively
  	Points Received: 	0 of 2
  	Comments: 	

Question 8. 	Question : 	

Bruner Constructors, Inc. has consistently used the percentage-of-completion method of recognizing income. In 2014, Bruner started work on a $42,000,000 construction contract that was completed in 2015. The following information was taken from Bruner's 2014 accounting records:

Progress billings                                                                       $13,200,000
Costs incurred                                                                            12,600,000
Collections                                                                                   8,400,000
Estimated costs to complete                                                        25,200,000


What amount of gross profit should Bruner have recognized in 2014 on this contract?
  	$4,200,000
  			$2,800,000
  			$2,100,000
  	$1,400,000
  	Points Received: 	2 of 2
  	Comments: 	

Question 9. 	Question : 	

On November 1, 2014, Green Valley Farm entered into a contract to buy a $75,000 harvester from John Deere. The contract required Green Valley Farm to pay $75,000 in advance on November 1, 2014. The harvester (cost of $55,000) was delivered on November 30, 2014. The journal entry to record the contract on November 1, 2014 includes a
  	credit to Accounts Receivable for $75,000.
  			credit to Sales Revenue for $75,000.
  	credit to Unearned Sales Revenue for $75,000.
  			debit to Unearned Sales Revenue for $75,000.
  	Points Received: 	2 of 2
  	Comments: 	

Question 10. 	Question : 	

Gomez, Inc. began work in 2014 on contract #3814, which provided for a contract price of $14,400,000. Other details follow:
                                                                                  2014                     2015          
Costs incurred during the year                                $2,400,000                   $7,350,000
Estimated costs to complete, as of December 31     7,200,000                                   0
Billings during the year                                           2,700,000                     10,800,000
Collections during the year                                      1,800,000                     11,700,000

Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2015 is
  	Student Answer:			$1,800,000.
  			$2,700,000.
  		$4,650,000.
  			$14,400,000.
  	Points Received: 	2 of 2
  	Comments: 	

Question 11. 	Question : 	

On January 15, 2014, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was not delivered until March 31. The contract required full payment of $75,000 30 days after delivery. This contract should be
  		recorded on January 15, 2014.
  			recorded on March 1, 2014.
  	recorded on March 31, 2014.
  			recorded on April 30, 2014.
  	Points Received: 	0 of 2
  	Comments: 	

Question 12. 	Question : 	

The first step in the process for revenue recognition is to
  	Student Answer:			determine the transaction price.
  		identify the contract with customers.
  			allocate transaction price to the separate performance obligations.
  			identify the separate performance obligations in the contract.
  	

Question 13. 	Question : 	

Consignments are a specialized marketing method whereby the
  	Student Answer:			Consignee purchases goods for sale and sends payment when goods are sold.
  			Consignee (agent) holds title to the product.
  			Consignee pays for good up front and is paid when merchandise is sold.
  		Consignee takes possession of merchandise but title remains with manufacturer.
  	Points Received: 	2 of 2
  	Comments: 	

Question 14. 	Question : 	

Transaction price for multiple performance obligations should be allocated
  	S	based on selling price from the company- competitors.
  		based on what the company could sell the goods for on a standalone basis.
  			based on forecasted cost of satisfying performance obligation.
  			based on total transaction price less residual value.


Question 15. 	Question : 	

Botanic Choice sell natural supplements to customers with an unconditional right of return if they are not satisfied. The right of returns extends 60 days. On February 10, 2014, a customer purchases $3,000 of products (cost $1,500). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the sale and cost of goods sold includes a
  	Student Answer:			debit to Cash and a credit to Sales Revenue of $3,000.
  		credit to Refund Liability of $600 and a credit to Sales Revenue of $2,400.
  			debt to Cost of Goods Sold and credit to Inventory for $1,500.
  			credit to Estimated Inventory Returns of $300
 

Question 16. 	Question : 	

The second step in the process for revenue recognition is to
  	Student Answer:			allocate transaction price to the separate performance obligations.
  			determine the transaction price.
  			identify the contract with customers.
  identify the separate performance obligations in the contract.
  	
Question 17. 	Question : 	

Consigned goods are recognized as revenues by the
		consignor when a sale to a third party has occurred.
  			consignor when the merchandise has been shipped to a consignee.
  		I 	consignee when a sale to a third party has occurred.
  		consignor when it receives payment from consignee for goods sold.
  

Question 18. 	Question : 	

On August 5, 2014, Famous Furniture shipped 20 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was $350 each. The cost of shipping the dining sets amounted to $1,800 and was paid for by Famous Furniture. On December 30, 2014, the consignee reported the sale of 15 dining sets at $850 each. The consignee remitted payment for the amount due after deducting a 6% commission, advertising expense of $300, and installation and setup costs of $390. The amount cash received by Famous furniture is
  	Student Answer:			$12,750
  			$11,985
  		$11,295
  			$11,685
  	


Question 19. 	Question : 	

When multiple performance obligations exists in a contract, they should be accounted for as a single performance obligation when
  	Student Answer:		each service is interdependent and interrelated.
  		both performance obligations are distinct but interdependent.
  			the product is distinct within the contract.
  			determination cannot be made.
  

Question 20. 	Question : 	

During 2014, Gates Corp. started a construction job with a total contract price of $14,000,000. The job was completed on December 15, 2015. Additional data are as follows:
                                                                              2014                           2015         
Actual costs incurred during the year                        $5,400,000               $6,100,000
Estimated remaining costs                                         5,400,000                     —
Billed to customer                                                     4,800,000                 9,200,000
Received from customer                                             4,000,000                 9,600,000


Under the completed-contract method, what amount should Gates recognize as gross profit for 2015?
  			$900,000
  			$1,250,000
  			$1,900,000
  		2,500,000
  		

Question 21. 	Question : 	

Eilert Construction Company had a contract starting April 2015, to construct a $21,000,000 building that is expected to be completed in September 2016, at an estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses the percentage-of-completion method.

At December 31, 2015, Eilert would report Construction in Process in the amount of
  		$9,660,000.
  			$8,855,000.
  			$8,260,000.
  			$805,000.
  	Points Received: 	2 of 2
  	Comments: 	

Question 22. 	Question : 	

Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software. The total transaction price is $350,000. Based on standalone values, the company estimates the consulting services and support have a value of $100,000 and the software license has a value of $250,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes
  		a credit to sales revenue for $250,000 and a credit to unearned service revenue of $100,000.
  			a credit to service revenue of $100,000.
  			a credit to unearned service revenue of $100,000.
  			a credit to sales revenue of $350,000.
  	Points Received: 	0 of 2
  	Comments: 	

Question 23. 	Question : 	

An option to purchase a warranty is recorded as
  	Student Answer:			an expense in the period the goods or services are sold.
  	a warranty liability for all costs incurred after sale due to correction of defects.
  		revenue in the period that the service-type warranty is in effect.
  			an assurance type warranty which is included in the sales price of the product.
  	
  	Comments: 	

Question 24. 	Question : 	

Monroe Construction Company uses the percentage-of-completion method of accounting. In 2015, Monroe began work on a contract it had received which provided for a contract price of $25,000,000. Other details follow:
                                                                                                                     2015   
Costs incurred during the year                                                                  $12,000,000
Estimated costs to complete as of December 31                                           8,000,000
Billings during the year                                                                               11,000,000
Collections during the year                                                                           6,500,000


What should be the gross profit recognized in 2015?
  		$1,000,000
  			$13,000,000
  		$3,000,000
  			$5,000,000
  	Points Received: 	2 of 2
  	Comments: 	

Question 25. 	Question : 	

The role of the agent in a Principal-Agent relationship is to
  		arrange for the principal to provide goods or services to a customer.
  			provide the goods or services for a customer.
  			market the principal goods and services to prospective customers.
  			develop and maintain goodwill of the principal- customers.
  	Points Received: 	2 of 2