Question

The following questions are used in the Kaplan CPA Review Course to study revenue recognition while preparing for the CPA examination. Determine the response that best completes the statements or questions.
1. On October 1, 2011, Acme Fuel Co. sold 100,000 gallons of heating oil to Karn Co. at $3 per gallon. Fifty thousand gallons were delivered on December 15, 2011, and the remaining 50,000 gallons were delivered on January 15, 2012. Payment terms were 50% due on October 1, 2011, 25% due on first delivery, and the remaining 25% due on second delivery. What amount of revenue should Acme recognize from this sale during 2012?
a. $ 75,000
b. $150,000
c. $225,000
d. $300,000

2. Since there is no reasonable basis for estimating the degree of collectability, Astor Co. uses the installment sales method of revenue recognition for the following sales:

What amount should Astor report as deferred gross profit in its December 31, 2012, balance sheet for the 2011 and 2012 sales?
a. $225,000
b. $150,000
c. $160,000
d. $250,000

3. Dolce Co., which began operations on January 1, 2011, appropriately uses the installment sales method of accounting to record revenues. The following information is available for the years ended December 31, 2011 and 2012:

What amount of installment accounts receivable should Dolce report in its December 31, 2012, balance sheet?
a. $1,700,000
b. $1,225,000
c. $1,300,000
d. $1,775,000

4. Which of the following statements regarding the percentage-of-completion method of accounting is FALSE? The construction-in-progress account:
a. is shown net of advance billings as a liability if the amount is less than the amount of advance billings.
b. is an asset.
c. is shown net of advance billings on the balance sheet.
d. does not include the cumulative effect of gross profit recognition.

5. The following data relates to a construction job started by Syl Co. during 2011:
Total contract price ......... $100,000
Actual costs during 2011 ........ 20,000
Estimated remaining costs ........ 40,000
Billed to customer during 2011 ..... 30,000
Received from customer during 2011 .... 10,000

Under the percentage-of-completion method, how much should Syl recognize as gross profit for 2011?
a. $26,667
b. $0
c. $13,333
d. $33,333

6. Hansen Construction, Inc., has consistently used the percentage-of-completion method of recognizing income. During 2011, Hansen started work on a $3,000,000 fixed-price construction contract. The accounting records disclosed the following data for the year ended December 31, 2011:
Costs incurred ....... $ 930,000
Estimated cost to complete .. 2,170,000
Progress billings .... 1,100,000
Collections ....... 700,000

How much loss should Hansen have recognized in 2011?
a. $180,000
b. $230,000
c. $30,000
d. $100,000



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  • CreatedJune 24, 2013
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