Multiple Choice Questions
1. A company should recognize revenue when:
a. The revenue is earned
b. The contract is signed
c. The seller satisfies the performance obligation
d. The consideration is received
2. A contract between one or more parties creates:
a. The date that cash is paid by the customer
b. Enforceable rights and obligations for the parties
c. Revenue for recognition
d. The fixed amount of payments for the good or service
3. Morgan Company and its customer agree to modify their existing contract. Under which of the following situations would the modification result in a new contract?
a. The modification adds distinct goods or services, and the contract price increases by an amount that reflects the stand alone selling price of additional goods or services.
b. The modification only affects the transaction price.
c. The modification adds distinct goods or services but does not change the contract price.
d. The modification does not add distinct goods or services but does not affect the transaction price.
4. Chlorine Corp. has a contract to deliver pool products to the community aquatic center. The contract with the aquatic center states that the first 1,000 gallons of chemicals will cost $ 36 per gallon. However, the cost will drop to $ 30 per gallon for all purchases over 1,000 gallons. Based on its experience, Chlorine Corp. estimates that the aquatic center will use 1,400 gallons of chemicals. What transaction price per gallon should Chlorine use for this contract?
a. $ 36.00
b. $ 33.00
c. $ 34.29
d. $ 30.00
5. Orange Construction Company enters into a long term contract to build a new stadium. The contract is for $ 400 million and work is expected to be completed on June 30, 2019. Orange will receive a $ 20 million bonus if the work is completed by June 30, 2019. Orange has built numerous stadiums and believes that there is a 90% chance that it will complete the project on time. What is the amount of the transaction price?
a. $ 400 million
b. $ 418 million
c. $ 0 because the transaction price is variable
d. $ 420 million
6. On July 15, 2017, Matrix Corp. sells 20,000 snow shovels to a distributor for $ 15 per shovel. The distributor pays the amount on July 15, 2017, and has the right to return any of the snow shovels for any reason within 180 days for a full refund. Matrix uses the expected value method to estimate that 8% of the snow shovels will be returned and it is probable that no more than 8% of the shovels will be returned. How much sales revenue should Matrix recognize on July 15, 2017, for this sale?
a. $ 0
b. $ 300,000
c. $ 24,000
d. $ 276,000
7. In accounting for a long term construction contract in which the performance obligations will be satisfied at a point in time and for which there is a projected profit, the balance in the Construction in Progress account at the end of the first year of work would be:
a. Zero
b. The same as if revenue is recognized over time
c. Lower than if revenue is recognized over time
d. Higher than if revenue is recognized over time
8. Warren Construction Company has consistently recognized revenue from its long term contracts as the performance obligations were met over time. In 2017, Warren started work on a $ 6,000,000 construction contract, which was completed in 2018. The accounting records disclosed the following data:

How much gross profit should Warren have recognized in 2017?
a. $ 200,000
b. $ 220,000
c. $ 300,000
d. $ 400,000
9. On April 1, 2015, Pine Construction Company entered into a fixed price contract to construct an apartment building for $ 6,000,000. Pine will satisfy the performance obligations in the contract over time and appropriately accounts for this contract. Information relating to the contract is as follows:

What is the amount of contract costs incurred during the year ended December 31, 2018?
a. $ 1,200,000
b. $ 1,920,000
c. $ 1,980,000
d. $ 2,880,000
10. A customer obtains control over a good or service when:
a. The customer takes physical possession of the good or service
b. The customer has the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service
c. The customer pays for the good or service
d. The seller receives final payment

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2017 2018 Progress billings Costs incurred Collections Estimaled cost to complete 3,600,000 $2,200,000 $3,800,000 1,800,000 3,600,000 1,400,000 4,600,000 At December 31, 2017 At December 31, 2018 Percentage of 20% completion Estimated costs at completion $4,500,000 $4,800,000 Gross profit recognized (cumulative) $ 300,000 720,000