Multiple Choice Questions
1. Which of the following is not one of the criteria for revenue recognition?
a. Persuasive evidence of an arrangement exists.
b. Collectability is certain.
c. Delivery has occurred or services have been provided.
d. The seller’s price to the buyer is fixed and determinable.
2. Food To Go is a local catering service. Conceptually, when should Food To Go recognize revenue from its catering service?
a. At the date the invoice is mailed to the customer
b. At the date the customer places the order
c. At the date the customer’s payment is received
d. At the date the meals are served
3. When is revenue from the sale of merchandise normally recognized?
a. When the customer pays for the merchandise
b. When the customer takes possession of the merchandise
c. Either on the date the customer takes possession of the merchandise or the date on which the customer pays
d. When the customer takes possession of the merchandise, if sold for cash, or when payment is received, if sold on credit
4. What does the phrase, ‘‘Revenue is recognized at the point of sale’’ mean?
a. Revenue is recorded in the accounting records when the cash is received from a customer, and reported on the income statement when sold to the customer.
b. Revenue is recorded in the accounting records and reported on the income statement when the cash is received from the customer.
c. Revenue is recorded in the accounting records when the goods are sold to a customer, and reported on the income statement when the cash payment is received from the customer.
d. Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to a customer.
5. On August 31, 2011, Montana Corporation signed a four-year contract to provide services for Minefield Company at $30,000 per year. Minefield will pay for each year of services on the first day of each service year, starting with September 1, 2011. Using the accrual basis of accounting, when should Montana recognize revenue?
a. Only at the end of the entire contract
b. Equally throughout the year as services are provided
c. On the first day of each year when the cash is received
d. On the last day of each year after the services have been provided
6. Under the gross method, the seller records discounts taken by the buyer
a. In a contra-revenue account
b. Never; discounts are irrelevant under the gross method
c. After the receivable is collected
d. At the end of the period in question
7. On April 20, McLean Company provides lawn care services to Tazwell Corporation for $3,000 with terms 1/10, n/30. On April 28, Tazwell pays for half of the services provided and on May 19 it pays for the other half. What is the total amount of cash McLean received?
a. $2,700
b. $2,970
c. $2,985
d. $3,000
8. Which of the following statements concerning internal control procedures for merchandise sales is not correct?
a. A sale and its associated receivable are recorded only when the order, shipping, and billing documents are all present.
b. Shipping and billing documents are prepared based on the order document.
c. The order document is not necessary for the buyer to be obligated to accept and pay for the ordered goods.
d. Accounting for a sale begins with the receipt of a purchase order or some similar document from a customer.
9. All of the following are ways in which receivables are commonly distinguished except:
a. Accounts or notes receivable
b. Current or noncurrent
c. Collectible or uncollectible
d. Trade or nontrade receivable
10. Which one of the following best describes the allowance for doubtful accounts?
a. Cash flow account
b. Contra account
c. Income statement account
d. Liability account