Question: The following questions dealing with income measurement are adap

The following questions dealing with income measurement are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by the Institute of Management Accountants ( provides members with an objective measure of knowledge and competence in the field of management accounting. Determine the response that best completes the statements or questions.
1. On May 28, Markal Company purchased a tooling machine from Arens and Associates for $1,000,000 payable as follows: 50 percent at the transaction closing date and 50 percent due June 28. The cost of the machine to Arens is $800,000. Markal paid Arens $500,000 at the transaction closing date and took possession of the machine. On June 10, Arens determined that a change in the business environment has created a great deal of uncertainty regarding the collection of the balance due from Markal, and the amount is probably uncollectible. Arens and Markal have a fiscal year-end of May 31. The revenue recognized by Arens and Associates on May 28 is
a. $200,000.
b. $800,000.
c. $1,000,000.
d. $0.

2. The percentage-of-completion method of accounting for long-term construction contracts is an exception to the
a. Matching principle.
b. Going-concern assumption.
c. Economic-entity assumption.
d. Revenue recognition principle.

3. Roebling Construction signed a $24 million contract on August 1, 2010, with the city of Candu to construct a bridge over the Vine River. Roebling's estimated cost of the bridge on that date was $18 million. The bridge was to be completed by April 2013. Roebling uses the percentage-of-completion method for income recognition. Roebling's fiscal year ends May 31. Data regarding the bridge contract are presented in the schedule below.

The gross profit or loss recognized in the fiscal year ended May 31, 2011, from this bridge contract is
a. $6,000,000 gross profit.
b. $2,000,000 gross profit.
c. $3,000,000 gross profit.
d. $1,000,000 grossprofit.

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