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21 Cards in this Set
- Front
- Back
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30. The third step in the processfor revenue recognition is to
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determine the transaction price |
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34. Revenue from a contract with a customer |
cannot be recognized until a contract exists |
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42. Seadrill Engineering licensedsoftware to oil-drilling firms for 5 years. In addition to providing thesoftware, the company also provides consulting services and support to ensuresmooth operation of the software. The total transaction price is $420,000.Based on standalone values, the company estimates the consulting services andsupport have a value of $120,000 and the software license has a value of$300,000. Assuming the performance obligations are not interdependent andlicensed software is delivered and consulting service will be provided over 5years, the journal entry to record the transaction includes |
a credit to Sales Revenue for $300,000 and a credit to Unearned Service Revenue of $120,000 Explanation: Dr. Cash $420,000 Cr. Unearned ServiceRevenue $120,000 Cr. Sales Revenue $300,000 |
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44. Companies can use the expected value to estimate variable consideration when |
a company has a large number of contracts with similar characteristics |
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45. If a contract involves a significant financing component |
the time value of money is used to determine the fair value of the transaction |
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46. Noncash consideration should be |
recognized on the basis of fair value of what is received |
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50. a company has satisfied its performance obligation when the |
company has transferred physical possession of the asset. |
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52. the cost-to-cost basis measures progress towards completion by |
comparing cost incurred to date with total costs to complete the contract |
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54. when a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price, the transaction should be treated as a: |
financing transaction |
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55. When a customer purchases a product but is not yet ready for delivery, this is referred to as: |
a bill-and-hold arrangement |
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59. Consigned goods are recognized as revenues by the? |
consignor when it receives payment from consignee for goods sold |
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72. The Billings on Construction in Progress account is a(n): |
contra-inventory account |
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86. MarleConstruction enters into a contract with a customer to build a warehouse for$950,000 on March 30, 2018 with a performance bonus of $50,000 if the buildingis completed by July 31, 2018. The bonus is reduced by $10,000 each week thatcompletion is delayed. Marle commonly includes these completion bonuses in itscontracts and, based on prior experience, estimates the following completionoutcomes: Completed by: 7/31/18 - 65% 8/7/18 - 25% 8/14/18 - 5% 8/21/18 - 5% |
$995,000 Explanation:When the contract includes variable consideration,companies can estimate amount of revenue to recognize using the expected value. Expectedvalue:
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87. On June 1, 2018, Johnson & Sons soldequipment to James Landscaping Service in exchange for a zero-interest bearingnote with a face value of $110,000, with payment due in 12 months. The fairvalue of the equipment on the date of sale was $100,000. The amount of revenueto be recognized on this transaction in 2018 is:
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$100,000 sales revenue and $5,833 interest revenue Explanation: June 1,2018 Dr. Notes Receivable $110,000 Cr. Discount on Notes Receivable $10,000 Cr. Sales Revenue $100,000 December 31, 2018 Dr. Discount on Notes Receivable $5,833 Cr.Interest Revenue $5,833 (=$10,000x 7/12) |
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90. Meyer & Smith is a full-servicetechnology company. They provide equipment, installation services as well astraining. Customers can purchase any product or service separately or as abundled package. Container Corporation purchased computer equipment,installation and training for a total cost of $144,000 on March 15, 2018.Estimated standalone fair values of the equipment, installation, and trainingare $90,000, $60,000, and $30,000 respectively. The transaction price allocatedto equipment, installation and training is:
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$72,000, $48,000, $24,000 respectively Explanation: Allocation oftransaction price to performance obligations. The total revenue of $144,000 shouldbe allocated to the three components based on their relative standalone sellingprices. In this case, the standalone selling price of the equipment is $90,000, the installation fee is $60,000, and the training is $30,000. The total standaloneselling price therefore is $180,000 ($90,000 + $60,000 + $30,000). Theallocation is as follows. ·
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91. Meyer &Smith will have a journal entry to record the transaction on March 15, 2018that includes a
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credit to Unearned Service Revenue of $24,000 Explanation:Allocation of transaction price to performance obligations March15, 2018 Dr. Cash $144,000 Cr. Service Revenue(installation) $48,000 Cr. Unearned ServiceRevenue $24,000 Cr. Sales Revenue (Equipment) $72,000 |
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95. On August 5,2018, Famous Furniture shipped 40 dining sets on consignment to FurnitureOutlet, Inc. The cost of each dining set was $350 each. The cost of shippingthe dining sets amounted to $3,600 and was paid for by Famous Furniture. OnDecember 30, 2018, the consignee reported the sale of 30 dining sets at $850each. The consignee remitted payment for the amount due after deducting a 6%commission, advertising expense of $600, and installation and setup costs of$780. The amount cash received by Famous furniture is
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$22,590 Explanation: Theamount cash received by Famous furniture = (30 ´ $850)× (100%-6%) – $600 – $780 = $22,590 Journal entry reported byFamous Furniture (consignor) at December 30, 2018 Dr. Cash $22,590 Dr. Advertising expense $600 Dr. Installation and setupexpense $780 Dr. Commission Expense $1,530 (=30 ´ $850 × 6%) Cr.Revenue from Consignment Sales $25,500 (= 30 ´ $850) |
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97. On November 1,2018, Green Valley Farm entered into a contract to buy a $150,000 harvesterfrom John Deere. The contract required Green Valley Farm to pay $150,000 in advanceon November 1, 2018. The harvester (cost of $110,000) was delivered on November30, 2018. The journal entry to record the contract on November 1, 2018 includesa
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credit to unearned sales revenue for $150,000 Explanation: Journal entry by John Deere to record the contract on November 1, 2018 Dr. Cash $150,000 Cr. Unearned Sales Revenue $150,000 |
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*113. Kiner, Inc. began work in 2018 on a contract for $21,000,000. Otherdata are as follows:
Costs incurred to date: 2018 - $9,000,000 2019 - $14,000,000 Estimated costs to complete: 2018 - $6,000,000 2019 - - Billings to dat: 2018 - $7,000,000 2019 - $21,000,000 Collections to date: 2018 - $5,000,000 2019 - $18,000,0000 If Kiner uses thepercentage-of-completion method, the gross profit to be recognized in 2018 is |
$3,600,000 Explanation: Percentage-of-completionmethod: Recognize revenues and gross profits each period based upon theprogress of the construction Estimated total cost = Costs todate + Estimated costs to complete = $9,000,000 + $6,000,000 = $15,000,000 Percentage of completion =Costs to date / Estimated total cost = $9,000,000 / $15,000,000=60% The gross profit to berecognized in 2018 = $21,000,000 x 60% - $9,000,000 = $3,600,000 |
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116. Horner Construction Co. uses thepercentage-of-completion method. In 2018, Horner began work on a contract for$22,000,000; it was completed in 2019. The following cost data pertain to thiscontract: Year Ended: 2018: Cost incurred that year - $7.8M Estimated cost to complete at end of year - $5.2M 2019: Cost incurred that year - $5.6M Estimated cost to complete at end of year = - If the completed-contractmethod of accounting was used, the amount of gross profit to be recognizedfor years 2018 and 2019 would be |
2018: $0 2019: $8.6M Explanation: under Complete-contractmethod, companies recognize revenue and gross profit only at point of sale—thatis, when the contract is completed. The amount of gross profit to be recognized in 2018 =0 The amount of gross profit to be recognized in 2019 =$22,000,000 – ($7,800,000 + $5,600,000) = $8,600,000 |
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*119. Eilert Construction Company had a contract starting April 2018, to construct a $42,000,000 building that is expected to be completed in September 2019, at an estimated cost of $38,500,000. At the end of 2018, the costs to date were $17,710,000 and the estimated total costs to complete had not changed. The progress billings during 2018 were $8,400,000 and the cash collected during 2018 was $5,600,000. Eilert uses the percentage-of-completion method.
At December 31, 2018, Eilert would report Construction in Process in the amount of |
$19,320,000 |
