Ch.4 Quiz

Instructions
Please read the questions carefully.

This assessment is worth 100 points.

  1. Revenue is not recognized under the realization principle unless the earnings process is complete and there is reasonable certainty about collectibility.   (2 points)

      
      

  2. Net income should provide a measure of periodic performance to help predict future accomplishments.   (2 points)

      
      

  3. The percentage-of-completion method does not properly portray a firm's performance over the construction period.   (2 points)

      
      

  4. Under the percentage-of-completion method, amounts billed and the cash actually received affect income recognition.   (2 points)

      
      

  5. Construction in progress and billings on construction contracts are reported net under both methods of accounting for long-term construction projects.   (2 points)

      
      

  6. The first disclosure note in any set of financial statements is typically the summary of significant accounting policies.   (2 points)

      
      

  7. Estimated losses on long-term contracts are recognized ratably over the contract term regardless of the revenue recognition method used.   (2 points)

      
      

  8. Use of the percentage-of-completion method is dependent on a firm's ability to make dependable forecasts of future costs.   (2 points)

      
      

  9. Use of the installment sales method indicates uncertainty about collection of the receivable.   (2 points)

      
      

  10. The installment sales method defers all gross profit recognition until cash equal to the cost of the item sold has been received.   (2 points)

      
      

  11. Revenue recognition methods are not consistently applied on a global perspective.   (2 points)

      
      

  12. 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.   (2 points)

      
      

  13. Recognition of franchise fee revenue is dependent on judgments of both substantial performance and fee collectibility.   (2 points)

      
      

  14. Franchise fees collected prior to completion of substantial performance increase current liabilities.   (2 points)

      
      

  15. Revenue from the sale of computer software is always recognized at the point of sale.   (2 points)

      
      

  16. Accounting numbers, like net income, are meaningful in and of themselves.   (2 points)

      
      

  17. A decrease in the receivables turnover ratio indicates an increase in the time between credit sales and cash collection.   (2 points)

      
      

  18. An increase in inventory turnover indicates a decrease in the time it takes to sell inventory.   (2 points)

      
      

  19. A Wal-Mart store would probably have a higher profit margin on sales than a Rolex watch store.   (2 points)

      
      

  20. The decomposition of return on assets illustrates why some companies with low profit margins can be very profitable if their asset turnover is high.   (2 points)

      
      

  21. For a typical manufacturing company, the most common critical point for recognizing revenue is the date:   (2 points)

    a.  
    b.  
    c.  
    d.  

  22. The percentage-of-completion method violates the general rule on revenue recognition that:   (2 points)

    a.  
    b.  
    c.  
    d.  

  23. Breaker Moving and Storage provides a comprehensive service of packing, loading, transporting, unloading, and unpacking. Safe delivery is guaranteed. Breaker's revenue recognition method would most likely be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  24. Timeless Magazine sells 12-month, 24-month, and 30-month subscription contracts. The company's method of revenue recognition would most likely be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  25. K.D. Nickles Department Store sells furniture on the installment basis, with terms of 10% down and the balance over 24 months with interest at 12% on the unpaid balance. Losses on installment sales can be satisfactorily estimated. The revenue recognition method Nickles would use is the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  26. Bert's 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:   (2 points)

    a.  
    b.  
    c.  
    d.  

  27. A company is effectively leveraging when:   (2 points)

    a.  
    b.  
    c.  
    d.  

  28. Under the realization principle, revenue should not be recognized until the earnings process is deemed virtually complete and:   (2 points)

    a.  
    b.  
    c.  
    d.  

  29. Merchandise sold FOB shipping point indicates that:   (2 points)

    a.  
    b.  
    c.  
    d.  

  30. Merchandise sold FOB destination indicates that:   (2 points)

    a.  
    b.  
    c.  
    d.  

  31. The most critical event in revenue recognition is the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  32. The percentage-of-completion method is preferable to the completed contract method because it is a better measure of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  33. In 2001, Reding would report gross profit of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  34. In 2003, Reding would report gross profit of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  35. The amount of profit recognized by Day in 2001 would be (to the nearest thousand):   (2 points)

    a.  
    b.  
    c.  
    d.  

  36. The amount of profit recognized by Day in 2002 would be (to the nearest thousand):   (2 points)

    a.  
    b.  
    c.  
    d.  

  37. Assuming Two-Star Construction Company used the completed contract method to recognize revenue, what would gross profit be in 2000 and 2001 (to the nearest thousand)?   (2 points)

    a.  
    b.  
    c.  
    d.  

  38. In its December 31, 2000 balance sheet, Moon View would report:   (2 points)

    a.  
    b.  
    c.  
    d.  

  39. In 2002, WMI would report (to the nearest thousand) gross profit (loss) of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  40. Disregarding any conflicting information, assume that Barnes recorded $200,000 gross profit on this contract in 2000. In 2001, Barnes would report (to the nearest thousand) gross profit (loss) of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  41. In 2001, Quinn would recognize realized gross profit of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  42. In its December 31, 2000 balance sheet, Quinn would report:   (2 points)

    a.  
    b.  
    c.  
    d.  

  43. At December 31, 2001, Quinn would report in its balance sheet:   (2 points)

    a.  
    b.  
    c.  
    d.  

  44. Use the following to answer the next four questions: On December 1, 2000, Haynes Development sold an office building, that cost $4,500,000, for $7,000,000. Haynes appropriately reports the transaction using the installment sales method. Terms of the transaction required 10% down with the balance in 10 equal annual installments beginning on December 1, 2001. Ignore interest charges. Round all answers to the nearest thousand dollars. Haynes would report realized gross profit in 2000 of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  45. In its 2002 year-end balance sheet, Haynes would report:   (2 points)

    a.  
    b.  
    c.  
    d.  

  46. Use the following to answer the next five questions: Pits Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot bereasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Merchandise costing $30,000 was sold for $55,000 in 2000. Collections on this sale were $20,000 in 2000, $15,000 in 2001, and $20,000 in 2002. In 2000, Pits would recognize gross profit of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  47. In its 2001 year-end balance sheet, Pits would report installment receivables (net) of:   (2 points)

    a.  
    b.  
    c.  
    d.  

  48. Holyfield's 2000 inventory turnover is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  49. Holyfield's 2000 profit margin is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  50. Holyfield's 2000 return on assets is:   (2 points)

    a.  
    b.  
    c.  
    d.  



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