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web.groovymark@gmail.com
- December 8, 2024
Question 01
On January 1, 2021, Wooten Technology Associates sold equipment for $10,000 with payment due on December 31, 2021. If the time value of money is considered and the interest rate is 8%, how much sales revenue is recognized on January 1, 2021?
A) $10,000
B) $9,259
C) $8,800
D) $9,000
Answer: B) $9,259
Explanation:
Wooten Technology recognizes the sales revenue on January 1, 2021, considering the time value of money. The payment of $10,000 is discounted using an 8% interest rate. The present value calculation of $10,000 using an 8% interest rate for one year results in $9,259, which is the amount recognized as revenue on January 1.
Question 02
Long Construction Corporation began construction under a three-year contract in 2021. The contract price is $2,100,000, and Long recognizes revenue over time using the percentage of completion method. What was the cost of construction incurred in 2021?
A) $150,000
B) $125,000
C) $143,000
D) $108,000
Answer: B) $125,000
Explanation:
The cost of construction actually incurred in 2021 is calculated based on the percentage of completion for revenue recognition. The financial statement shows income of $25,000 and billings of $143,000, from which the actual cost of construction can be derived as $125,000.
Question 03
How much cash was collected in 2021 by Long Construction Corporation on the three-year contract?
A) $125,000
B) $108,000
C) $143,000
D) $150,000
Answer: B) $108,000
Explanation:
The cash collected on the contract is shown as $108,000, which reflects the amount of cash received from construction progress billings.
Question 04
What was the estimated cost to complete as of the end of 2021 for Long Construction Corporation’s three-year contract?
A) $150,000
B) $108,000
C) $1,625,000
D) $1,200,000
Answer: C) $1,625,000
Explanation:
The estimated cost to complete the contract is calculated based on the progress made and the total expected costs, which is $1,625,000 at the end of 2021.
Question 05
What was the estimated percentage of completion used to calculate revenue in 2021 for Long Construction Corporation?
A) 5.14%
B) 7.14%
C) 10%
D) 12%
Answer: B) 7.14%
Explanation:
The percentage of completion is calculated by dividing the cost incurred in 2021 by the total estimated cost of the project. The resulting percentage is 7.14%.
Question 06
Finerly Corporation ships cosmetics to independent distributors. It is unsure if the distributors can sell a new line of cosmetics and is committed to accepting returns. How much revenue should Finerly recognize upon delivery?
A) $740,000
B) $370,000
C) $0
D) $100,000
Answer: C) $0
Explanation:
Because Finerly is unsure if the cosmetics can be sold and is committed to accepting returns, no revenue should be recognized upon delivery. The revenue will be recognized when it becomes probable that the sales will not be reversed.
Question 07
What is amortized cost?
A) Acquisition cost adjusted for amortization of discount or premium
B) Fair value of an asset
C) Historical cost minus depreciation
D) Replacement cost
Answer: A) Acquisition cost adjusted for amortization of discount or premium
Explanation:
Amortized cost refers to the acquisition cost of an asset adjusted for the amortization of any discount or premium, where applicable.
Question 08
What is the Asset-Liability Approach?
A) Recognizing and measuring revenue based on changes in assets and liabilities
B) Measuring assets at fair value
C) Recognizing revenue only when cash is received
D) Recording assets and liabilities at historical cost
Answer: A) Recognizing and measuring revenue based on changes in assets and liabilities
Explanation:
The Asset-Liability Approach involves recognizing revenue based on changes in assets and liabilities rather than purely on the cash received.
Question 09
What is an Assurance-type Warranty?
A) A warranty providing additional services beyond the agreed-upon specifications
B) A warranty ensuring the product meets the agreed-upon specifications at the time of sale
C) A warranty that provides post-sale customer support
D) A warranty that guarantees product replacements for any reason
Answer: B) A warranty ensuring the product meets the agreed-upon specifications at the time of sale
Explanation:
An assurance-type warranty guarantees that the product meets the agreed-upon specifications at the time of sale, as opposed to providing any additional services.
Question 10
What are Available-for-sale securities?
A) Securities bought and held primarily for sale in the short term
B) Securities classified neither as held-to-maturity nor trading
C) Securities held for indefinite future sale
D) Securities sold within the next three months
Answer: B) Securities classified neither as held-to-maturity nor trading
Explanation:
Available-for-sale securities are those not classified as held-to-maturity or trading securities. These are typically debt or equity securities expected to be sold in the medium to long term.
Question 11
What is a Bargain Purchase Option (BPO)?
A) An option that allows the lessee to purchase the leased asset at fair market value
B) An option allowing the lessee to purchase the asset for a price significantly lower than the asset’s expected fair value at the exercise date
C) An option allowing the lessee to renew the lease at market rates
D) An option allowing the lessee to sell the asset at the end of the lease
Answer: B) An option allowing the lessee to purchase the asset for a price significantly lower than the asset's expected fair value at the exercise date
Explanation:
A Bargain Purchase Option (BPO) gives the lessee the right to purchase the leased asset at a price significantly lower than its expected fair value at the exercise date, incentivizing the purchase at the end of the lease term.
Question 12
What is a Bill-and-Hold Arrangement?
A) A contract where a customer purchases goods but the seller retains physical possession until the customer requests delivery
B) A contract where the customer receives goods and pays for them later
C) A contract where the seller delivers goods but retains legal ownership until payment is made
D) A contract where goods are delivered immediately and payment is made after inspection
Answer: A) A contract where a customer purchases goods but the seller retains physical possession until the customer requests delivery
Explanation:
A Bill-and-Hold Arrangement allows the seller to bill the customer for a product, but the seller retains physical possession until a later date, usually until the customer requests delivery.
Question 13
What is a Billings Account?
A) An account used to record cash receipts from customers
B) An account used to record payments made to suppliers
C) An account used under the percentage-of-completion method to avoid double-counting inventory
D) An account used to track overdue payments
Answer: C) An account used under the percentage-of-completion method to avoid double-counting inventory
Explanation:
Under the percentage-of-completion method, a Billings Account is used to subtract billings on the construction contract from Construction in Process to avoid double-counting inventory.
Question 14
What is a Change in Accounting Principle?
A) Changing from one generally accepted accounting principle to another
B) Changing financial reporting from cash basis to accrual basis
C) Adjusting financial estimates due to new information
D) Changing accounting for income taxes
Answer: A) Changing from one generally accepted accounting principle to another
Explanation:
A Change in Accounting Principle occurs when a company switches from one generally accepted accounting principle (GAAP) to another, such as switching from FIFO to LIFO for inventory accounting.
Question 15
What is a Change in Accounting Estimate?
A) Changing from one generally accepted accounting principle to another
B) Adjusting an estimate due to new information or additional experience
C) Restating prior period financial statements
D) Changing the reporting entity
Answer: B) Adjusting an estimate due to new information or additional experience
Explanation:
A Change in Accounting Estimate occurs when new information or additional experience prompts a company to revise its previous estimates, such as revising the useful life of an asset.
Question 16
What is Collectibility?
A) The ability to collect payments from customers as outlined in the contract
B) The risk that customers will pay late
C) The ability to collect cash from suppliers
D) The cost associated with collecting overdue payments
Answer: A) The ability to collect payments from customers as outlined in the contract
Explanation:
Collectibility refers to the risk or likelihood that the customer will be able to pay the amount of consideration as stipulated in the contract.
Question 17
What is the Completed Contract Method?
A) Accounting for long-term construction contracts where revenues and gross profit are recognized only when the contract is completed
B) A method of accounting that recognizes revenue at different stages of completion
C) A method where revenue is recognized at the time of billing
D) Accounting for contracts by recognizing revenues and gross profit periodically
Answer: A) Accounting for long-term construction contracts where revenues and gross profit are recognized only when the contract is completed
Explanation:
The Completed Contract Method defers revenue recognition until the completion of the contract, as opposed to recognizing revenue as work progresses.
Question 18
What is a Consignee?
A) The party that ships goods to a consignee under consignment
B) The party that receives goods from a consignor under consignment
C) The party that purchases goods directly from the manufacturer
D) The party that finances the sale of consigned goods
Answer: B) The party that receives goods from a consignor under consignment
Explanation:
A Consignee is the party that receives goods from the consignor with the responsibility to sell them on behalf of the consignor.
Question 19
What is a Consignment?
A) A direct sale between a manufacturer and retailer
B) A sale where goods are shipped directly to the customer
C) An arrangement where the consignor ships goods to a consignee to sell on their behalf
D) A long-term contract to supply goods over time
Answer: C) An arrangement where the consignor ships goods to a consignee to sell on their behalf
Explanation:
Consignment refers to an arrangement where a consignor sends goods to a consignee, who acts as an agent to sell the goods.
Question 20
What is a Contract Asset?
A) The physical goods shipped to a customer
B) An unconditional right to receive payment because a performance obligation has been satisfied
C) A liability for goods received but not yet paid for
D) An asset representing the value of goods sold on credit
Answer: B) An unconditional right to receive payment because a performance obligation has been satisfied
Explanation:
A Contract Asset represents the company's unconditional right to receive consideration because it has satisfied a performance obligation, but the payment is conditional on fulfilling additional obligations.
