ch.18 quiz

Created by srsalin 

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46 terms

The first premise of the revenue recognition principle provides that companies should recognize revenue

when it is realized or realizable

The Second premise of the revenue recognition principle provides that companies should recognize revenue

when it is earned.

Earlier recognition is appropriate if

there is a high degree of certainty about the revenue earned

The first situation were delayed recognition is appropriate

degree of uncertainty concerning the amount of revenue or costs is sufficiently high

The 2nd situation were delayed recognition is appropriate

sale does not represent substantial completion of the earnings process.

Trade loading

manufactures try to show sales, profits, and market share they don't actually have—induce their wholesale customers, known as trade, to buy more product than they can promptly resell.

Channel surfing

software maker offers deep discounts to distributors to overbuy, and recorded revenue when the software left the loading to make fnr results look good.

Most notable example of revenue recognition before delivery

long tern construction contract accounting

Rationale to the percentage of completion method

that buyer and seller have enforceable rights.

What is first condition of the percentage of completion method

contract clearly specifies the enforceable rights regarding goods or services by the parties, the consideration to be exchanged, and the manner and terms of settlement.

What is the 2nd condition of the percentage of completion method

buyer can be expected to satisfy all obligations.

What is the 3rd condition of the percentage of completion method

contractor can be expect to perform under the contract.

When estimates of progress toward completion, revenue, and costs are reasonable is one requirement of the completed contract method

false percentage of completion method.

Short term contracts use what kind of revenue recognition method

completed contract

If the company cant meet the conditions of the percentage of completion what method is used

the completed contract method.

What happens is there are inherent hazards in the contract beyond the normal, recurring business risk

then the completed contract method is used.

What journal entry do you make once the project is completed under the percentage of completion method

debit to billing on cip for contract price and credit to cip for same amount

What is the completed contract method

companies recognize revenue and gross profit only at point of sale- that is, when the contract is completed.

Under the completed contract method do companies make interim charges or credits to the income statement accounts for revenues, costs, or gross profit

no

What is required on a loss in the current period on a profitable contract

the estimated cost increase requires a current period adjustment of gross profit recognized in prior periods.

What method recognized a loss in the current period on a profitable contract

the percent of completion method.

What method recognizes a loss on an unprofitable contract

the percentage of completion method and completed contract method.

What is required on the loss of an unprofitable contract

the company must recognize in the current period the entire expected contract loss.

How would you recognize a loss on unprofitable contract

debit loss on construction contract and credit CIP account.

Should construction contractors disclose the method of recognizing revenue

yes

Should construction contractors disclose the basis used to classify assets and liabilities as current (nature and length of the operating cycle)

yes

Should construction contractors disclose the basis for recording inventory

yes

Should construction contractors disclose the effects of any revision of estimated

yes

Should construction contractors disclose the amount of backlog and uncompleted contracts

yes

Should construction contractors disclose the details about receivables

yes

What is the completion of production basis

in certain cases companies recognize revenue at the completion of production even though no sale has been made.

Examples of completion of production basis products

precious metals or agricultural products.

When is the revenue recognized after delivery (deferred)

when the collection of the sales price is not reasonably assured

What are the first two methods of deferring revenue

the installment sales method, and cost recovery method.

What is the last method to defer revenue

the deposit method

How does the installment-sale method recognize income

in the periods of collection rather than in the period of the sale.

How does the installment sale method recognize cost and revenues

in the period of the sale

How does the installment handle gross profit

defer gross profit to periods in which cash is collected

Dose the installment sales method defer selling and administrative expenses

no

Why is the installment sales method not acceptable by the profession

because it does not recognized any income until cash and not inline with the accrual concept.

When is the installment method acceptable

in special circumstances

How does the cost recovery method recognized profit

when cash pymts by the buyer exceed the cost of the merchandise sold.

When it is permitted to use the cost recovery method

there is reasonable basis for estimating collectability.

What is the cost recovery required

where there is a high degree of uncertainty exists related to the collection of receivables.

How does the seller in the deposit method report cash received from the buyer

as a deposit on the contract and classifies it on the balance sheet as a liability.

According to the deposit method, when doses the seller recognize revenue

when the sale is complete...

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