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Exam 5: Income Measurement

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Question 31

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If the contract contains multiple performance obligations,revenue must be recognized in an amount equal to the fair value of each of the separate performance obligations.

A) True
B) False

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Question 32

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If the seller is a principal,the seller typically is vulnerable to risks associated with collecting payment from the customer.

A) True
B) False

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Question 33

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In a bill-and-hold arrangement,revenue only can be recognized after the sale of the goods to the end user.

AgriFoods,Inc.prepares and delivers agricultural products to industrial-scale kitchens and food service providers.One of its key customers is Home Kitchen & Co. ,which provides cafeteria solutions for corporations and universities.On January 1,2016,AgriFoods obtained a one-year contract to supply a pre-specified amount of vegetables to Home Kitchen,and received $600,000 in cash.Then,on March 15,AgriFoods hired Home to run one of its employee cafeterias for a period of six months,from April to September,and paid $70,000 in cash.For similar arrangements,Home usually charged $50,000. Required: (a)Prepare the journal entries AgriFoods would record on January 1,2016 and January 31,2016 with respect to the sales contract.Assume revenue is accrued on a monthly basis.(b)Prepare the journal entry to account for AgriFoods' purchase of Home's services.

The amount of revenue that GAAP,regarding software revenue recognition,would require Sullivan to attribute to the software program (as opposed to the technical support) is (rounded) :

Briefly explain how you can determine if a company is effectively using leverage.

Briefly explain how a company that recognized revenue over time by estimating percentage of completion using a cost-to-cost ratio could manage earnings upward to meet a profit projection.What sort of ethical problems could result from that earnings management?

Vendor-specific objective evidence of separate sales prices is required for multiple-element software contracts,but estimated selling prices can be used for other multiple-element contracts under U.S.GAAP.

Revenue likely is recognized over time for all the following arrangements except for

Slick's Used Cars sells pre-owned cars on the installment basis and carries its own notes because its customers typically cannot qualify for a bank loan.Default rates tend to be high or unpredictable.However,in the event of nonpayment,Slick's can usually repossess the cars without loss.The revenue method Slick would use is the:

If the seller is a principal,the seller typically is not vulnerable to risks associated with delivering the product or service.

Which of the following is not true about contract liabilities?

On February 1^st,H&B Bank originated a loan for $50,000 at an interest rate of 7.2%.On March 15^th,an interest payment of $300 was received.Which of the following best describes when interest revenue should be recognized?

When using the cost recovery method of accounting for long-term construction contracts under IFRS:

In 2015,Reliable would recognize gross profit of:

Which of the following is not a characteristic of a distinct good or service?

Use the following to answer questions Excerpts from Dowling Company's December 31,2016 and 2015,financial statements and key ratios are presented below (all numbers are in millions) : -Dowling's average total assets for 2016 is (rounded) :

An option for a customer to purchase additional goods at a discount from list price is always a performance obligation,because it confers a material right.

Use the following to answer questions Sahara Desert Homes (SDH)reports under IFRS and constructed a new subdivision during 2015 and 2016 under contract with Cactus Development Co.Relevant data are summarized below: SDH uses the cost recovery method under IFRS to recognize revenue. -What is the journal entry in 2015 to record revenue?

A warranty that the customer can purchase separately and that covers a long period of time after the purchase date is likely to be a quality-assurance warranty.