1)The concept of commercial substance in purchase and sales transactions means that

1. the entity's cash flows are expected to change.
2. the transaction is a bona fide purchase and sale, and the entity's cash flows are expected to change.
3. the transaction must involve tangible assets.
4. the transaction is a bona fide purchase and sale.

2)Under the earnings approach, if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction should be recognized at the time of sale if

1. the amount of future returns can be reasonably estimated.
2. the market for returnable goods is untested.
3. the amount of goods returned is likely to be high.
4. there is a transfer of the risks and rewards of ownership.

3)Construction Corp. has consistently used the percentage-of-completion method. In 2017, Punk started work on a $7,000,000 construction contract that was completed in 2018. The following information was taken from Cymbal’s 2017 accounting records:

Billings to date

$2,200,000

Costs incurred

2,100,000

Collections to date

1,400,000

Estimated costs to complete

4,200,000

Under the earnings approach, what amount of gross profit should Cymbal recognize in 2017 on this contract?

1. $700,000
2. $466,667
3. $350,000
4. $233,333

4) During 2017, Indie Corp. started a construction job with a total contract price of $700,000. Indie has consistently used the completed contract method. The job was completed on December 15, 2018. Additional data are as follows:

		2017		2018
Actual costs incurred		$270,000		$305,000
Estimated remaining costs		270,000		—
Billings to date		240,000		460,000
Collections to date		200,000		480,000

For 2017, what amount should Horn recognize as gross profit?

1. $0
2. $80,000
3. $95,000
4. $125,000

5) When there is a continuous earnings process, but the progress toward completion is not measurable, ASPE requires the use of the

1. completed-contract method.
2. percentage-of-completion method.
3. zero-profit method.
4. discrete earnings method.

6) Under the percentage-of-completion method, how should earned but unbilled revenues on a long-term contract be disclosed on the statement of financial position?

1. As construction in process in the noncurrent asset section.
2. As a receivable in the noncurrent asset section.
3. As construction in process in the current asset section.
4. In a note to the financial statements until the customer is formally billed for the portion of work completed.