第6版答案 Intermediate Accounting 6e Spiceland ch5.pdf

ch5 student: _ 1.revenue is not recognized under the realization principle unless the earnings process is complete or virtually complete and there is reasonable certainty about collectibility of the asset received. ? ? true false 2.under ifrs, revenue from product sales is recognized when the risks and rewards of ownership have been transferred to the customer. ? ? true false 3.the first disclosure note to the financial statements is typically the summary of significant accounting policies. ? ? true false 4.sab 101 was issued by the fasb to clarify its guidelines on revenue recognition. ? ? true false 5.use of the installment sales method requires that firms track the gross-profit percentage associated with a particular sale. ? ? true false 6.when collectibility of accounts receivable is difficult to estimate, companies must use the cost recovery method. ? ? true false 7.use of the installment sales method indicates little uncertainty about collection of the receivable. ? ? true false 8.over the life of a particular account receivable, the same total amount of gross profit is recognized under the installment method and the cost recovery method. ? ? true false 9.when the right of return exists, revenue can be recognized at the point of sale if the seller can make reliable estimates of future returns. ? ? true false 10. when the right of return exists and a seller cannot make reliable estimates of future returns, they can use the installment method. ? ? true false 11. under the percentage-of-completion method, amounts billed and the cash actually received affect income recognition. ? ? true false 12. under the percentage-of-completion method, the percent complete is often estimated by comparing the cost incurred to date with the total estimated cost to complete. ? ? true false 13. firms have free choice as to whether they use the percentage-of-completion method or the completed contract method to account for a long-term contract. ? ? true false 14. under ifrs, firms have free choice as to whether they use the percentage-of-completion method or the cost recovery method to account for a long-term contract. ? ? true false 15. the percentage-of-completion and completed contract methods calculate different amounts of total profit or loss for a particular contract. ? ? true false 16. use of the percentage-of-completion method is dependent on a firms ability to make dependable forecasts of future costs. ? ? true false 17. under the completed contract method, gross profit or loss is never recognized until the contract is completed. ? ? true false 18. under the cost recovery method used to account for long-term contracts under ifrs, equal amounts of revenue and cost are recognized until all costs are recovered. ? ? true false 19. under ifrs, firms typically use the cost recovery method if they conclude that the percentage-of- completion method is not appropriate to account for a long-term contract. ? ? true false 20. when the cost recovery method is used to account for a long-term contract under ifrs, an equal amount of cost and revenue is typically recognized during the early life of the contract, such that high initial gross profit is recognized in net income. ? ? true false 21. estimated losses on long-term contracts are recognized ratably over the contract term regardless of the revenue recognition method used. ? ? true false 22. revenue from the sale of computer software is always recognized at the point of sale. ? ? true false 23. revenue on a multiple-deliverable contract typically is allocated to independent parts of the contract based on their relative selling prices. ? ? true false 24. ifrs provides detailed guidance concerning accounting for revenue with respect to multiple-deliverable contracts. ? ? true false 25. vender-specific objective evidence of separate sales prices is required for multipart software contracts, but estimated selling prices can be used for other multiple-deliverable contracts under u.s. gaap. ? ? true false 26. recognition of franchise fee revenue is dependent on judgments of both substantial performance and fee collectibility. ? ? true false 27. initial franchise fees are always recognized on the date they are received. ? ? true false 28. when accounting for multiple-element software arrangements, the revenue for each element is based on the separate prices stated for each element in the software contract. ? ? true false 29. when accounting for multiple-deliverable arrangements, gaap indicates that sellers can separately record revenue for a part of an arrangement even if the part does not have value to the customer on a stand-alone basis. ? ? true false 30. a decrease in the receivables turnover ratio indicates a decrease in the time between credit sales and cash collection. ? ? true false 31. the decomposition of return on assets illustrates why some companies with low profit margins can be very profitable if their asset turnover is high. ? ? true false 32. a company could improve its return on assets by increasing its income or by increasing its total assets. ? ? true false 33. return on shareholders equity is increased if a firm can maintain its return on assets but increase its leverage. ? ? true false 34. match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. ? ? 1. sales revenue recorded when realization principle is met. _ 2. billings on construction contract recognized over time as services are performed. _ 3. interim reports two-criteria guide to revenue recognition. _ 4. realization principle statements covering less than a year. _ 5. continuing franchise fees contra-account to construction in progress. _ 35. match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. ? ? 1. sab 101 revenue received but not recognized. _ _ 2. unearned revenue uses vendor-specific objective evidence of fair values. _ _ 3. software revenue recognition sec guidelines on revenue recognition. _ _ 4. billings in excess of cost always reported as a current liability. _ _ 5. long-term contract losses recognized immediately. _ _ 36. match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. ? ? 1. receivables turnover profit margin x asset turnover x equity multiplier _ 2. ratio analysis cost of goods sold divided by average inventory _ 3. asset turnover net sales divided by average assets. _ 4. dupont framework net sales divided by average receivables. _ 5. inventory turnover adjusts for size when comparing between firms. _ 37. match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. ? ? 1. profit margin on sales net income divided by net sales. _ _ 2. return on shareholders equity net income divided by average assets. _ _ 3. return on assets return on assets divided by profit margin. _ _ 4. asset turnover net income divided by average shareholders equity. _ _ 5. equity multiplier return on equity divided by return on assets. _ _ 38. match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. ? ? 1. completed contract method criterion for recognizing initial franchise fee revenue. _ _ 2. installment sales method includes estimated gross profit under percentage-of-completion method. _ _ 3. construction in progress recognition is in proportion to cash received. _ _ 4. billings in excess of construction in progress shown as a liability on the balance sheet _ _ 5. substantial performance defers recognition until project is complete. _ _ 39. match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. ? ? 1. right of return defers gross profit until cash collected equals costs. _ _ 2. billings on construction contract requires deferral of revenue if cant estimate returns accurately. _ _ 3. cost recovery method recognition is in proportion to work completed. _ _ 4. cost-to-cost ratio contra account to construction in progress. _ _ 5. percentage-of- completion method assumes cost incurred is a measure of completion. _ _ 40. under the realization principle, revenue should not be recognized until the earnings process is deemed virtually complete and: ? ? a. revenue is realized. b. any receivable is collected. c. collection is reasonably certain. d. collection is absolutely assured. 41. under ifrs, which of the following is not a condition for recognizing revenue? ? ? a. the amount of revenue and costs associated with the transaction can be measured reliably. b. it is reasonably possible that the economic benefits associated with the transaction will flow to the seller. c . (for sales of goods) the seller has transferred to the buyer the risks and rewards of ownership, and doesnt effectively manage or control the goods. d. (for sales of services) the stage of completion can be measured reliably. 42. under ifrs, revenue for a product sale should occur when: ? ? a. inventory production is complete. b. warrantee fulfillment is viewed as unlikely. c. the seller has transferred to the buyer the risks and rewards of ownership, and doesnt effectively manage or control the goods. d. the buyer has paid a preponderance of installment amounts due. 43. merchandise sold fob shipping point indicates that: ? ? a. the seller pays the freight. b. the buyer holds title after the merchandise leaves the sellers location. c. the common carrier holds title until the merchandise is delivered. d. the sale is not consummated until the merchandise reaches the point to which it is being shipped. 44. merchandise sold fob destination indicates that: ? ? a. the seller holds title until the merchandise is received at the buyers location. b. the buyer is responsible for delivery of the merchandise to the destination. c. the full order is back ordered to its destination. d. the buyer pays the freight to the destination. 45. which of the following was not a criterion for revenue recognition in sab 101? ? ? a. cash has been collected. b. collectiblity is reasonably assured. c. persuasive evidence of an arrangement exists. d. the sellers price to the buyer is fixed or determinable. 46. for a typical manufacturing company, the most common critical point for recognizing revenue is the date: ? ? a. an order is received. b. production is completed. c. the product is delivered. d. payment is received. 47. slicks used cars sells pre-owned cars on the installment basis and carries its own notes because its customers typically cannot qualify for a bank loan. default rates tend to be high or unpredictable. however, in the event of nonpayment, slicks can usually repossess the cars without loss. the revenue method slick would use is the: ? ? a. installment sales method. b. point of sales method. c. cost recovery method. d. answer a or c is correct. 48. berts meat market sells quarters and sides of beef on the installment basis. losses on receivables are very difficult to predict, and meat products cannot be repossessed. the revenue recognition method used by bert would be: ? ? a. point of sale. b. installment sales. c. cost recovery. d. answer b or c is correct. on december 15, 2011, rigsby sales co. sold a tract of land that cost $3,600,000 for $4,500,000. rigsby appropriately uses the installment sale method of accounting for this transaction. terms called for a down payment of $500,000 with the balance in two equal annual installments payable on december 15, 2012, and december 15, 2013. ignore interest charges. rigsby has a december 31 year-end. 49. in 2011, rigsby would recognize realized gross profit of: ? ? a. $500,000. b. $0. c. $900,000. d. $100,000. 50. in 2012, rigsby would recognize realized gross profit of: ? ? a. $0. b. $450,000. c. $300,000. d. $400,000. 51. in its december 31, 2011, balance sheet, rigsby would report: ? ? a. realized gross profit of $100,000. b. deferred gross profit of $100,000. c. installment receivables (net) of $3,200,000. d. installment receivables (net) of $4,000,000. 52. at december 31, 2012, rigsby would report in its balance sheet: ? ? a. realized gross profit of $500,000. b. deferred gross profit of $400,000. c. realized gross profit of $400,000. d. cost of installment sales $1,600,000. reliable enterprises sells distressed merchandise on extended credit terms. collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. it is unlikely that repossessed merchandise will be in salable condition. therefore, reliable uses the cost recovery method. merchandise costing $30,000 was sold for $55,000 in 2010. collections on this sale were $20,000 in 2010, $15,000 in 2011, and $20,000 in 2012. 53. in 2010, reliable would recognize gross profit of: ? ? a. $0. b. $25,000. c. $8,090. d. $8,333. 54. in 2011, reliable would recognize gross profit of: ? ? a. $0. b. $6,000. c. $5,000. d. $10,000. 55. in 2012, reliable would recognize gross profit of: ? ? a. $0. b. $6,000. c. $8,000. d. $20,000. 56. in its 2010 year-end balance sheet, reliable would report installment receivables (net) of: ? ? a. $20,000. b. $35,000. c. $25,909. d. $10,000. 57. in its 2011 year-end balance sheet, reliable would report installment receivables (net) of: ? ? a. $0. b. $20,000. c. $4,000. d. $15,000. lake power sports sells jet skis and other powered recreational equipment. customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. because lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. in 2010 lake began operations and sold jet skis with a total price of $900,000 that cost lake $450,000. lake collected $300,000 in 2010, $300,000 in 2011, and $300,000 in 2012 associated with those sales. in 2011 lake sold jet skis with a total price of $1,500,000 that cost lake $900,000. lake collected $500,000 in 2011, $400,000 in 2012, and $400,000 in 2013 associated with those sales. in 2013 lake also repossessed $200,000 of jet skis that were sold in 2011. those jet skis had a fair value of $75,000 at the time they were repossessed. 58. total cash collections on installment sales during 2011 would be: ? ? a. $700,000. b. $300,000. c. $800,000. d. $0 59. in 2010, lake would recognize realized gross profit of: ? ? a. $150,000. b. $0. c. $300,000. d. $450,000. 60. in 2012, lake would recognize realized gross profit of: ? ? a. $0. b. $450,000. c. $310,000. d. $700,000. 61. in its december 31, 2011, balance sheet, lake would report: ? ? a. deferred gross profit of $700,000. b. deferred gross profit of $1,050,000. c. installment receivables (net) of $750,000. d. installment receivables (net) of $900,000. 62. in 2013, lake would record a loss on repossession of: ? ? a. $45,000. b. $200,000. c. $120,000. d. $80,000. lake power sports sells jet skis and other powered recreational equipment. customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. because lake has little information about collectibility of these receivables, they use the cost recovery method to recognize revenue on these installment sales. in 2010 lake began operations and sold jet skis with a total price of $900,000 that cost lake $450,000. lake collected $300,000 in 2010, $300,000 in 2011, and $300,000 in 2012 associated with those sales. in 2011 lake sold jet skis with a total price of $1,500,000 that cost lake $900,000. lake collected $500,000 in 2011, $400,000 in 2012, and $400,000 in 2013 associated with those sales. in 2013 lake also repossessed $200,000 of jet skis that were sold in 2011. those jet skis had a fair value of $75,000 at the time they were repossessed. 63. in 2010, lake would recognize realized gross profit of: ? ? a. $150,000. b. $0. c. $300,000. d. $450,000. 64. in 2012, lake would recognize realized gross profit of: ? ? a. $0. b. $300,000. c. $310,000. d. $700,000. 65. in its december 31, 2011, balance sheet, lake would report: ? ? a. deferred gross profit of $700,000. b. deferred gross profit of $600,000. c. installment receivables (net) of $700,000. d. installment receivables (net) of $400,000. 66. boomerang computer company sells computers with an unconditional right to return the computer if the customer is not satisfied. boomerang has a long history selling these computers under this returns policy, and can provide precise estimates of the amount of returns associated with each sale. boomerang most likely should recognize revenue: ? ? a. when boomerang delivers a computer to a customer. b. when boomerang receives cash from the customer. c. when a customer returns a computer. d. never, because the right of return is unconditional. 67. gunk goblin sells vacuums and just launched a policy where customers have the right to return a vacuum during a three-year period following purchase. gunk management has no experience under this sort of policy, and does not believe it can accurately estimate returns. what is the longest period of time that gunk may have to wait before recognizing gross profit associated with one of these sales? ? ? a. no time delay, recognize gross profit upon delivery. b. gunk should recognize gross profit as cash is received under the installment method. c. gunk should defer gross until costs are recovered under the cost recovery metho