Multiple Choice
1. Real estate sales are recognized by the accrual method if all of the conditions defined by FASB Statement No. 66 are met. Which of the following is not one of the conditions defined by the Statement?
a. The seller has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and does not have a continuing involvement with property.
b. A sale is consummated.
c. The buyer€™s initial and continuing investments are adequate to demonstrate a commitment to pay for the property.
d. The seller€™s receivable is subject to future subordination.

2. Green Company, which began operations on January 1, 2007, appropriately uses the installment method of accounting. The following information is available for 2007:
Gross profit on sales .............40%
Deferred gross profit at 12/31/07 .....$240,000
Cash collected on installment sales ....450,000
What is the total amount of Green€™s installment sales for 2007?
a. $600,000
b. $690,000
c. $850,000
d. $1,050,000

3. When should an indicated loss on a long-term contract be recognized under the completed-contract method and the percentage-of-completion method, respectively?

4. In accounting for a long-term construction contract for which there is a projected profit, the balance in the construction-in-progress asset account at the end of the first year of work using the completed-contract method would be
a. Zero
b. The same as the percentage-of-completion method
c. Lower than the percentage-of-completion method
d. Higher than the percentage-of-completion method

5. Warren Construction Company has consistently used the percentage-of-completion method of recognizing income. In 2007 Warren started work on a $6,000,000 construction contract, which was completed in 2008. The accounting records disclosed the following data:

How much income should Warren have recognized in 2007?
a. $200,000
b. $220,000
c. $300,000
d. $400,000

6. Kramer Manufacturing Company ships goods to Sikes Company on consignment. When the consigned goods are delivered to Sikes, Kramer should record

7. During 2007 Morgan Company recognized $30,000 of sales under the cost recovery method. This is the first time the Morgan Company has used the cost recovery method in recognizing sales. The cost of goods sold related to these sales was $21,000. Cash collections in 2007 were $15,000, in 2008 were $10,000, and in 2009 were $5,000. What amount of gross profit should be recognized in 2007, 2008, and 2009?

8. On January 1, 2006, Bartell Company sold its idle plant facility to Cooper, Inc., for $1,050,000. On this date, the plant had a depreciated cost of $735,000. Cooper paid $150,000 cash on January 1, 2006, and signed a $900,000 note bearing interest at 10%. The note was payable in three annual installments of $300,000 beginning January 1, 2007. Bartell appropriately accounted for the sale under the installment method. Cooper made a timely payment of the first installment on January 1, 2007 of $390,000, which included interest of $90,000 to date of payment. At December 31, 2007, Bartell has deferred gross profit of
a. $153,000
b. $180,000
c. $225,000
d. $270,000

9. The Schmidt Company sells a franchise that requires an initial franchise fee of $50,000. A $10,000 down payment is required, with the balance covered by the issuance of a 12% note, payable in four equal installments. All material services have been substantially performed by the Schmidt Company, the refund period has expired, and the collectibility of the note is reasonably assured. The journal entry recorded by Schmidt Company should be

10. On April 1, 2006, Pine Construction Company entered into a fixed-price contract to construct an apartment building for $6,000,000. Pine appropriately accounts for this contract under the percentage-of-completion method. Information relating to the contract is as follows:

What is the amount of contract costs incurred during the year ended December 31, 2007?
a. $1,200,000
b. $1,920,000
c. $1,980,000
d.$2,880,000

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Completeed Contract Percentage-of a. Immediately b. Immediately c. Contract complete d. Contract complete Completion Over life of project Immediately Over life of project Immediately 2007 2008 Progress billings Costs incurred Collections Estimated cost to complete $2,200,000 $3,800,000 3,600,000 4,600,000 1,800,000 1,400,000 3,600,000 Sale of InventoryRevenue a. No b. No C Yes Yes 0 No Yes d. Yes 2007 2008 2009 a. $9,000 b. $4,500 3,000 $1,500 C. $ 00$9,000 d. $0 $4,000 $5,000 a. Cash 10,000 40,000 Notes Receivable Franchise Revenue Unearned Franchise Fees 10,000 40,000 b. Cash 10,000 40,000 Notes Receivable Franchise Revenue 50,000 c. Cash 10,000 40,000 Notes Receivable Unearned Franchise Fees 50,000 d. Cash 10,000 Franchise Revenue 0,000 At December At December Percentage of Estimated costs Income recognized completion at completion (cumulative) 31, 2006 20% $4,500,000 300,000 31, 2007 60% $4,800,000 720,000