financial accounting

 

financial accounting

Research the US GAAP that supports the correct answer for each question you missed. You will write a report that explains the correct answer and cites the appropriate Section from the FASB?s ASC that supports your explanation. You will receive 50% of the points on each question you explain with the appropriate citation (codification). If you fail to provide a logical explanation or cite appropriate GAAP I will not receive any points.

The questions that you need to write a small report that explains the correct answer for are:

2,3,4,5,6,7,10,11,12,13,15,16,17,18,20,21,25,26,27,28,29,31,33,34,35,36,37,38,39,40.

Write the small report under each question.

1. Remington Construction Company uses the percentage-of-completion method. During 2010, the company entered into a fixed-price contract to construct a building for Sherman Company for $30,000,000. The following details pertain to the contract: At December 31, 2010, Percentage of completion 25%; Estimated total cost of contract $22,500,000; Gross profit recognized to date $1,875,000. At December 31, 2011, Percentage of completion 60%; Estimated total cost of contract $25,000,000; Gross profit recognized to date $3,000,000. The amount of construction costs incurred during 2011 was

a. $15,000,000.

b. $9,375,000.

c. $5,625,000.

d. $2,500,000.

e. None of the above

2. The accounting for cash discounts offered on invoiced product sales is

a. Based on volume.

b. Always recorded net.

c. Based on when the invoice is expected to be paid.

d. Always recorded gross.

e. None of the above

3. The percentage-of-completion method must be used when certain conditions exist. Which of the following is not one of those necessary conditions?

a. Estimates of progress toward completion, revenues, and costs are reasonably accurate.

b. The contractor can be expected to perform the contractual obligation.

c. The buyer can be expected to satisfy the obligations under the contract.

d. The contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged, and the manner and terms of settlement.

e. All of the above are required conditions.

4. Reese Construction Corporation contracted to construct a building for $1,500,000. Construction began in 2007 and was completed in 2008. Data relating to the contract are summarized below:

Year ended

December 31,

2013 2014

Costs incurred $750,000 $350,000

Estimated costs to complete 250,000 —

Reese uses the percentage-of-completion method and cost to cost as the basis for income recognition. For the years ended December 31, 2013, and 2014, respectively, Reese should report net income related to this contract of

a. $375,000 and $25,000

b. $0 and $400,000

c. $1,125,000 and $375,000

d. $200,000 and $200,000

e. None of the above

5. Which of the following is not an accurate representation concerning revenue recognition?

a. Revenue from selling products is recognized at the date of sale, usually interpretedto mean the date of delivery to customers

b. Revenue from services rendered is recognized when cash is received or when services have been performed

c. Revenue from permitting others to use enterprise assets is recognized as time passesor as the assets are used

d. Revenue from disposing of assets other than products is recognized at the date ofsale

e. None of the above

Use the following information for the next two questions.

In 2009, Crane Corporation began construction work under a three-year contract. The contract price is $3,500,000. Crane uses the percentage-of-completion method and cost to cost for Financial Reporting. The financial statement presentations relating to this contract at December 31, 2009, follow:

Balance Sheet

Accounts receivable—construction contract billings $300,000

Construction in progress $700,000

Less contract billings 640,000

Costs and recognized profit in excess of billings 60,000

Income Statement

Net Income on the contract recognized in 2009 $60,000

6. How much cash was collected in 2009 on this contract?

a. $640,000

b. $300,000

c. $340,000

d. $700,000

e. None of the above

7. What was the initial estimated total profit on this contract?

a. $200,000

b. $300,000

c. $350,000

d. $400,000

e. None of the above

8. A sale should not be recognized as revenue by the seller at the time of sale if

a. the selling price is less than the normal selling price

b. the buyer has a right to return the product and the amount of future returns cannot be reasonably estimated

c. payment was made by check

d. Any of these

e. None of these

9. Underthe cost-recovery method of revenue recognition,

a. income is recognized on a proportionate basis as the cash is received on the sale of the product

b. income is recognized when the cash received from the sale of the product is greater than the cost of the product

c. income is recognized immediately

d. income will never be recognized

e. none of the above

10. LambersonCompany uses the installment method of accounting since it began operations at the beginning of 2008. The following information pertains to its operations for 2008:

Installment sales $ 1,700,000

Cost of installment sales 1,020,000

Amount collected related to installment sales 360,000

General and administrative expenses 240,000

The amount to be reported on the December 31, 2008 balance sheet as Deferred Gross Profit should be:

a. $144,000

b. $336,000

c. $680,000

d. $536,000

e. None of the above

11. At the close of its first year of operations, December 31, 20X1, Linn Company had accounts receivable of $780,000, after deducting the related allowance for doubtful accounts. During 20X1, the company had charges to bad debt expense of $50,000 and wrote off, as uncollectible, accounts receivable of $20,000. What should the company report on its balance sheet at December 31, 20X1, as accounts receivable before the allowance for doubtful accounts?

a. $750,000

b. $830,000

c. $810,000

d. $800,000

e. None of the above

12. Wellington Corp. has outstanding accounts receivable totaling $3 million as of

December 31 and sales on credit during the year of $15 million. There is also a debit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what amount will be debited to record bad debt expense?

a. $,200,000

b. $ 228,000

c. $ 240,000

d. $ 252,000

e. None of the above

13. The revenue recognition principle from the FASB’s conceptual framework provides that revenue is recognized when

a. it is realized.

b. it is realizable.

c. it is realized or realizable and it is earned.

d. when properly taxable.

e. none of the above.

14. AG Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue?

a. $ 9,800.

b. $ 9,900.

c. $10,000.

d. $10,100.

e. None of the above

15. On January 1 2004, George makes a sale in which the customer is very credit worthy and therefore is assessed as realizable. The products have been legally transferred to the customer and there is no buy back agreement. George will collect $11,431.55 at year-end for three years for his sale of an inventory package. George’s cost of sales for the package is $12,000. George tells you that $34,294.65(3 years of payments multiplied by $11,431.55) is what he will receive for the inventory package. You recognize there is interest inherent in this deal and therefore assume a rate of 7%. The factor for the present value of an annuity with payments at the end of three periods and a 7% rate is 2.6243. How much gross profit would you recognize for the year ending December 31, 2005 from this sale if using the Cost Recovery Method? (Answers rounded to nearest whole dollar.)

a. $0

b. $7,317

c. $11,192

d. $11,432

e. $18,000

16. Rockefeller Corporation had a 1/1/07 balance in the Allowance for Doubtful Accounts of $10,000. During 2007, it wrote off $7,200 of accounts and collected $2,100 on accounts previously written off. The balance in Accounts Receivable was $200,000 at 1/1 and $240,000 at 12/31. At 12/31/07, Rockefeller estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2007?

a. $2,000.

b. $7,100.

c. $9,200.

d. $12,000.

e. None of the above

17. Why is the allowance method preferred over the direct write-off method of accounting for bad debts?

a. Allowance method is used for tax purposes.

b. Estimates are used.

c. Determining worthless accounts under direct write-off method is difficult to do.

d. Improved matching of bad debt expense with revenue.

e. None of the above.

18. What does the SEC require to recognize product revenue that isn’t already required by general US GAAP?

a. There cannot be an unconditional buy back agreement.

b. Collection on the invoice must be reasonably assured.

c. The company can only sell to high credit rated consumers.

d. Delivery must occur to recognize revenue.

e. None of the above.

19. In which of the following cases would a sale be recognized as revenue?

a. Delivery of goods has not occurred, but payment has been received

b. A buyer pays for goods, but has an unconditional buy back agreement allowing return the goods if they don’t buyer is unable to sell them to their customer.

c. A check is issued in exchange for goods, but has not yet been cashed by the seller. The goods have been delivered and all risk of ownership has passed to the buyer.

d. Goods are transferred to a consignee to be sold for a commission.

e. None of these

20. DEF Inc. made a $10,000 sale on account with the following terms: 2/10, n/30. If the company uses the net method to record sales made on credit, what would be the debit(s) to record this sale?

a. DR Accounts Receivable $9,800

b. DR Accounts Receivable, $9,800, DR Sales Discounts $200

c. DRAccounts Receivable $10,000

d. DR Accounts Receivable $10,000, DR Sales Discounts $200.

e. None of the above

21. Raven Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year?

a. $ 532,000.

b. $ 520,000.

c. $1,920,000.

d. $ 508,000.

e. None of the above.

22. ROBB Co.’s allowance for doubtful accounts was $95,000 on December 31, 2011 and $90,000 at December 31, 2010. For the year ended December 31, 2011, ROBB reported bad debt expense of $13,000 in its income statement. What amount did ROBB debit to the appropriate account in 2011 to write off actual bad debts?

a. $5,000

b. $8,000

c. $13,000

d. $18,000

e. None of the above

23. Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account:

a. Increases the allowance for uncollectible accounts

b. No effect on the allowance for uncollectible accounts

c. Has no effect on net income

d. Decreases net income

e. None of the above

Use the following information for the next two questions. ABC Co. uses the percentage-of-completion method. In 2011, ABC began work on a contract for $5,500,000; it was completed in 2014. The following cost data pertain to this contract:

Year ended

December 31,

2011 2014

Costs incurred $1,950,000 $1,400,000

Estimated costs to complete 1,300,000 —

24. The amount of gross profit to be recognized on the income statement for the year ended December 31, 2014 is:

a. $800,000

b. $860,000

c. $900,000

d. $2,150,000

e. None of the above

25. If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2011 and 2014 would be:

a. $0, $2,150,000

b. $2,250,000, $0

c. $2,150,000, ($100,000)

d. $0, $2,250,000

e. None of the above

26. The percentage-of-completion method must be used when certain conditions exist. Which of the following is not one of those necessary conditions?

a. The contractor can be expected to perform the contractual obligation.

b. The buyer can be expected to satisfy the obligations under the contract.

c. Estimates of progress toward completion, revenues, and costs are precise and accurate

d. The contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged, and the manner and terms of settlement.

e. All of the above are required conditions.

27. Under the cost-recovery method of revenue recognition,

a. Income is recognized when the cash received from the sale of the product is greater than the cost of the product

b. Income is recognized on a proportionate basis as the cash is received on the sale of the product

c. Income is recognized immediately

d. Income will never be recognized

e. None of the above

28. On January 1, 2010, HAF Co. sold a used machine to NT, Inc. for $350,000. On this date, the machine had a depreciated cost of $245,000. NT paid $50,000 cash on January 1, 2010 and signed a $300,000 note bearing interest at 10%. The note was payable in three annual installments of $100,000 beginning January 1, 2011. HAF appropriately accounted for the sale under the installment method. NT made a timely payment of the first installment on January 1, 2011 of $130,000, which included interest of $30,000 to date of payment. At December 31, 2011, HAF has deferred gross profit of

a. $51,000.

b. $60,000

c. $66,000.

d. $70,000.

e. None of the above.

29. AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue?

a. $14,700.

b. $14,850.

c. $15,000.

d. $15,150.

e. None of the above.

30. Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is also a debit balance of $3,000 in the allowance for doubtful accounts. If the company estimates that 1% of its net credit sales will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

a. $12,700.

b. $15,700.

c. $61,000.

d. $67,000.

e. None of the above.

31. At the close of its first year of operations, December 31, 2014, Ming Company had accounts receivable of $1,080,000, after deducting the related allowance for doubtful accounts. During 2014, the company had charges to bad debt expense of $180,000 and wrote off, as uncollectible, accounts receivable of $80,000. What should the company report on its balance sheet at December 31, 2014, as accounts receivable before the allowance for doubtful accounts?

a. $1,340,000

b. $1,180,000

c. $980,000

d. $880,000

e. None of the above.

32. Before year-end adjusting entries, Dunn Company’s account balances at December 31, 2014, for accounts receivable and the related allowance for uncollectible accounts were $1,200,000 and $90,000, respectively. An aging of accounts receivable indicated that $125,000 of the December 31 receivables are expected to be uncollectible. The net realizable value of accounts receivable after adjustment is

a. $1,165,000.

b. $1,075,000.

c. $985,000.

d. $1,110,000.

e. None of the above.

33. The following information is available for Murphy Company:

Allowance for doubtful accounts at December 31, 2011 $ 16,000

Credit sales during 2014 800,000

Accounts receivable deemed worthless and written off during 2014 18,000

As a result of a review and aging of accounts receivable in early January 2013, however, it has been determined that an allowance for doubtful accounts of $11,000 is needed at December 31, 2014. What amount should Murphy record as “bad debt expense” for the year ended December 31, 2014?

a. $9,000

b. $11,000

c. $13,000

d. $27,000

e. None of the above

34. Lankton Company has the following account balances at year-end:

Accounts receivable $80,000

Allowance for doubtful accounts 4,800

Sales discounts 3,200

Lankton should report accounts receivable at a net amount of

a. $72,000.

b. $75,200.

c. $76,800.

d. $80,000.

e. None of the above.

35. On December 31, 2014, Flint Corporation sold for $100,000 an old machine having an original cost of $180,000 and a book value of $80,000. The terms of the sale were as follows:

$20,000 down payment

$40,000 payable on December 31 each of the next two years

The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2014 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)

a. $70,364

b. $90,364.

c. $80,000.

d. $140,728.

e. None of the above.

36. Carperter Company has used the installment method of accounting since it began operations at the beginning of 2013.The following information pertains to its operations for 2013:

Installment sales $ 2,100,000

Cost of installment sales 1,470,000

Collections of installment sales 840,000

General and administrative expenses 210,000

The amount to be reported on the December 31, 2013 balance sheet as Deferred Gross Profit should be

a. $ 252,000.

b. $ 378,000.

c. $ 504,000.

d. $1,260,000.

e. None of the above.

Use the following information for the remaining 4 questions:

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $930,000 each quarter. The total contract price is $11,160,000 and Seasons estimates total costs of $10,650,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014.

37. At December 31, 2014, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2013 and what is the balance in the Accounts Receivable account assuming Cannon Cafe has not yet made its last quarterly payment?

Revenue Accounts Receivable

a. $3,720,000 $3,720,000

b. $3,195,000 $ 930,000

c. $3,348,000 $ 930,000

d. $3,195,000 $3,720,000

e. None of the above.

38. At December 31, 2013, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $10,800,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2013?

a. $8,100,000

b. $4,725,000

c. $4,792,500

d. $4,905,000

e. None of the above.

39. At December 31, 2013, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $10,800,000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2013 for Seasons as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit?

Difference between the accounts Debit/Credit

a. $2,535,000 Credit

b. $930,000 Debit

c. $660,000 Debit

d. $930,000 Credit

e. None of the above.

40. Seasons Construction completes the remaining 25% of the building construction on December 31, 2014, as scheduled. At that time the total costs of construction are $11,250,000. What is the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 2014?

Revenue Expenses

a. $11,160,000 $11,250,000

b. $2,790,000 $ 2,812,000

c. $2,790,000 $ 3,150,000

d. $2,812,500 $ 2,812,500

e. None of the above.

 

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