So there were some changes in "Kieso intermediate accounting 15th edition"chapter 18 (revenue recognition).

Is the test bank the same as before?

If not when and what year did the update occur?

Please provide the latest test bank for chapter 18 revenue recognition.

There is the testbank I have for ch18, please confirm it is the latest and most updated version. 

questions are available at the end of this chapter. TRUE-FALSEConceptual Answer F T T F T F T T F F T F F T F F T T F T No. Description 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Recognition of revenue. Realization of revenue. Trade loading and channel stuffing. Recognizing revenue when right of return exists. Recognizing revenue prior to product completion. Multiple-deliverable arrangements. Input measure for contract progress. Reporting Construction in Process and Billings on Construction in Process. Construction in Process account balance. Recognition of revenue under completed-contract method. Principal advantage of completed-contract method. Recognizing loss on an unprofitable contract. Recognizing current period loss on a profitable contract. Recognizing revenue under completion-of-production basis. Recording a loss on an unprofitable contract. Deferring revenue under installment-sales method. Deferring gross profit under installment-sales method. Classification of deferred gross profit. Recognizing revenue under cost-recovery method. Recognizing profit under cost-recovery method. MULTIPLE CHOICEConceptual Answer c b a b d b d d c d b c b c b a b d No. Description 21. 22. 23. S 24. P 25. P 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. S 38. Revenue recognition principle. Definition of "realized." Definition of "earned." Revenue recognition representations. Definition of recognition. Revenue recognition principle. Recognizing revenue at point of sale. Recording sales when right of return exists. Revenue recognition when right of return exists. Revenue recognition when right of return exists. Multiple-deliverable arrangements. Percentage-of-completion method. Appropriate accounting method for long-term contracts. Classification of progress billings and construction in process. Calculation of gross profit using percentage-of-completion. Disclosure of earned but unbilled revenues. Disadvantage of using percentage-of-completion. Percentage-of-completion input measures. 18 - 2 Test Bank for Intermediate Accounting, Fifteenth Edition MULTIPLE CHOICEConceptual (cont.) Answer a c a c d a d b c c b b c d b b b b d a d b a b a No. S 39. 40. 41. 42. 43. 44. S 45. S 46. 47. 48. 49. 50. S 51. P 52. 53. 54. 55. 56. 57. *58. *59. *60. *61. *62. *63. Description Advantage of completed-contract method Revenue, cost, and gross profit under the completed-contract method. Loss recognition on a long-term contract. Accounting for long-term contract losses. Criteria for revenue recognition of completion of production. Completion-of-production basis. Revenue recognition of completion of production. Treatment of estimated contract cost increase. Presentation of deferred gross profit. Appropriate use of the installment-sales method. Valuing repossessed assets. Gross profit deferred under the installment-sales method. Income realization on installment sales. Conservative revenue recognition method. Income recognition under the cost-recovery method. Income recognition under the cost-recovery method. Deposit method of revenue recognition. Deposit method of revenue recognition. Cost recovery method. Cost-recovery method. Accounting for consignment sales. Types of franchising arrangements. Recognition of continuing franchise fees. Future bargain purchase option. Option to purchase franchisee's business agreement. P These questions also appear in the Problem-Solving Survival Guide. These questions also appear in the Study Guide. *This topic is dealt with in an Appendix to the chapter. S MULTIPLE CHOICEComputational Answer a c d b c b c c c b d c b c a No. Description 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. Multiple-deliverable arrangements. Computation of total revenue and accounts receivable. Computation of total construction expenses. Computation of costs and profits in excess of billings balance. Computation of total revenue and construction expenses. Gross profit recognized under percentage-of-completion. Computation of construction in process amount. Percentage-of-completion method. Percentage-of-completion method. Determine cash collected on long-term construction contract. Determine gross profit using percentage-of-completion. Gross profit to be recognized using percentage-of-completion. Gross profit to be recognized using percentage-of-completion. Profit to be recognized using completed-contract method. Gross profit to be recognized using percentage-of-completion. Revenue Recognition MULTIPLE CHOICEComputational (cont.) Answer b a c b c a b c c a d b a b b b d d a d a d a c b a d c b d a No. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. *106. *107. *108. *109. Description Profit to be recognized using completed-contract method. Gross profit to be recognized using percentage-of-completion. Gross profit to be recognized using completed-contract method. Computation of construction costs incurred. Gross profit recognized under percentage-of-completion. Computation of construction in process amount. Loss recognized using completed-contract method. Revenue recognition using completed-contract method. Reporting a current liability with completed-contract-method. Reporting inventory under completed-contract method. Gain recognized on repossessioninstallment sale. Calculate loss on repossessed merchandise. Calculate loss on repossessed merchandise. Interest recognized on installment sales. Calculation of deferred gross profit amount. Computation of realized gross profit amount. Computation of loss on repossession. Calculation of gross profit rate. Computation of net income from installment sales. Computation of realized and deferred gross profit. Calculation of gross profit rate. Computation of net income from installment sales. Computation of realized and deferred gross profit. Computation of realized gross profit amount. Computation of realized gross profit-cost recovery method. Revenue recognized under the cost-recovery method. Cost-recovery method. Accounting for initial and annual continuing franchise fees. Franchise fee with a bargain purchase option. Sales on consignment. Reporting inventory on consignment. MULTIPLE CHOICECPA Adapted Answer a b d d c b c c c c a No. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. Description FASB's definition of "recognition." Determine contract costs incurred during year. Gross profit to be recognized using percentage-of-completion. Profit to be recognized using completed-contract method. Revenue recognized under completed-production method. Determine balance of installment accounts receivable. Calculate deferred gross profitinstallment sales. Calculate deferred gross profitinstallment sales. Balance of deferred gross profitinstallment sales. Reporting deferred gross profitinstallment sales. Effect of collections received on service contracts. 18 - 3 Test Bank for Intermediate Accounting, Fifteenth Edition 18 - 4 BRIEF EXERCISES Item BE18-121 BE18-122 BE18-123 Description Revenue recognition (essay). Revenue recognition (essay). Long-term contracts (essay). EXERCISES E18-124 E18-125 E18-126 E18-127 E18-128 E18-129 E18-130 *E18-131 Journal entriespercentage-of-completion. Percentage-of-completion method. Percentage-of-completion method. Percentage-of-completion and completed-contract methods. Installment sales. Installment sales. Installment sales. Franchises. PROBLEMS Item P18-132 P18-133 P18-134 P18-135 Description Long-term construction project accounting. Accounting for long-term construction contracts. Long-term contract accountingcompleted-contract. Installment sales. CHAPTER LEARNING OBJECTIVES 1. Describe and apply the revenue recognition principle. 2. Describe accounting issues for revenue recognition at point of sale. 3. Apply the percentage-of-completion method for long-term contracts. 4. Apply the completed-contract method for long-term contracts. 5. Identify the proper accounting for losses on long-term contracts. 6. Describe the installment-sales method of accounting. 7. Explain the cost-recovery method of accounting. *8. 9. Explain revenue recognition for franchises. Compare the accounting procedures related to revenue recognition under GAAP and IFRS. Revenue Recognition 18 - 5 SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS Item Type Item Type Item 1. 2. TF TF 21. 22. MC MC 3. 4. TF TF 5. 6. TF TF 27. 28. 7. 8. 9. 32. 33. 34. TF TF TF MC MC MC 35. 36. 37. S 38. 65. 66. MC MC MC MC MC MC 67. 68. 69. 70. 71. 72. 10. 11. S 39. TF TF MC 40. 77. 79. MC MC MC 81. 85. 86. 12. 13. TF TF 14. 15. TF TF 41. 42. 16. 17. 18. 47. 48. TF TF TF MC MC 49. 50. S 51. 89. 90. MC MC MC MC MC 91. 92. 93. 94. 95. 19. 20. TF TF P 52. 53. MC MC 54. 55. 59. 60. MC MC 61. 62. MC MC 63. 64. 1. 2. TF TF 3. 4. TF TF 5. 6. Note: TF = True-False MC = Multiple Choice BE = Brief Exercise E = Exercise P = Problem S 23. 24. Type Item Type Item Learning Objective 1 P MC 25. MC 110. P MC 26. MC 121. Learning Objective 2 MC 29. MC 31. MC 30. MC 64. Learning Objective 3 MC 73. MC 82. MC 74. MC 83. MC 75. MC 84. MC 76. MC 111. MC 78. MC 112. MC 80. MC 123. Learning Objective 4 MC 87. MC 123. MC 88. MC 127. MC 113. MC 133. Learning Objective 5 S MC 43. MC 45. S MC 44. MC 46. Learning Objective 6 MC 96. MC 101. MC 97. MC 102. MC 98. MC 115. MC 99. MC 116. MC 100. MC 117. Learning Objective 7 MC 56. MC 58. MC 57. MC 103. Learning Objective 8* MC 106. MC 108. MC 107. MC 109. Type Item Type Item Type MC MC 122. BE MC MC MC MC MC BE 124. 125. 126. 127. 132. 133. E E E E P P BE E P 134. P MC MC 114. 132. MC P 133. P MC MC MC MC MC 118. 119. 120. 128. 129. MC MC MC E E 130. 135. E P MC MC 104. 105. MC MC MC MC 131. E 11. 12. SA SA MC BE Learning Objective 9 - IFRS TF 7. MC 9. MC MC 8. 10. MC 18 - 6 Test Bank for Intermediate Accounting, Fifteenth Edition TRUE-FALSEConceptual 1. Companies should recognize revenue when it is realized and when cash is received. F 2. Revenues are realized when a company exchanges goods and services for cash or claims to cash. T 3. Trade loading is a practice through which manufacturers try to show sales, profits, and market share they don't actually have. T 4. If a company sells its product but gives the buyer the right to return it, the company should not recognize revenue until the sale is collected. F 5. Companies can recognize revenue prior to completion and delivery of the product under certain circumstances. T 6. Once the separate units of accounting are determined under multiple-deliverable arrangement, the amount paid for the arrangement is allocated among the separate units based on cost of manufacturing the separate unit. F 7. The most popular input measure used to determine the progress toward completion in long-term contracts is the cost-to-cost basis. T 8. If the difference between the Construction in Process and the Billings on Construction in Process account balances is a debit, the difference is reported as a current asset. T 9. The Construction in Process account includes only construction costs under the percentage-of-completion method. F 10. Under the completed-contract method, companies recognize costs only when the contract is completed. F 11. The principal advantage of the completed-contract method is that reported revenue reflects final results rather than estimates. T 12. Companies must recognize the entire expected loss on an unprofitable contract in the current period under the percentage-of-completion method but not the completed-contract method. F 13. A loss in the current period on a profitable contract must be recognized under both the percentage-of-completion and completed-contract method. F 14. Under the completion-of-production basis, companies recognize revenue when agricultural crops are harvested since the sales price is reasonably assured and no significant costs are involved in product distribution. T 15. The provision for a loss on an unprofitable contract may be combined with the Construction in Process account balance under percentage-of-completion but not completed-contract. F 16. Under the installment-sales method, companies defer revenue and income recognition until the period of cash collection. F Revenue Recognition 18 - 7 17. The installment-sales method defers only the gross profit instead of both the sales price and cost of goods sold. T 18. Deferred gross profit is generally treated as unearned revenue and classified as a current liability under the installment-sales method. T 19. Under the cost-recovery method, a company recognizes no revenue until cash payments by the buyer exceed the cost of the merchandise sold. F 20. Companies recognize profit under the cost-recovery method only when cash collections exceed the total cost of the goods sold. T True-False AnswersConceptual Item 1. 2. 3. 4. 5. Ans. F T T F T Item 6. 7. 8. 9. 10. Ans. F T T F F Item 11. 12. 13. 14. 15. Ans. T F F T F Item 16. 17. 18. 19. 20. Ans. F T T F T MULTIPLE CHOICEConceptual 21. The revenue recognition principle provides that revenue is recognized when a. it is realized. b. it is realizable. c. it is realized or realizable and it is earned. d. None of these answers are correct. 22. When goods or services are exchanged for cash or claims to cash (receivables), revenues are considered a. earned. b. realized. c. recognized. d. All of these answers are correct. 23. When the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, revenues are considered a. earned. b. realized. c. recognized. d. All of these answers are correct. 18 - 8 Test Bank for Intermediate Accounting, Fifteenth Edition S 24. Which of the following is not an accurate representation concerning revenue recognition? a. Revenue from selling products is recognized at the date of sale, usually interpreted to mean the date of delivery to customers. b. Revenue from services rendered is recognized when cash is received or when services have been performed. c. Revenue from permitting others to use enterprise assets is recognized as time passes or as the assets are used. d. Revenue from disposing of assets other than products is recognized at the date of sale. P 25. The process of formally recording or incorporating an item in the financial statements of an entity is a. allocation. b. articulation. c. realization. d. recognition. P 26. Dot Point, Inc. is a retailer of washers and dryers and offers a three-year service contract on each appliance sold. Although Dot Point sells the appliances on an installment basis, all service contracts are cash sales at the time of purchase by the buyer. Collections received for service contracts should be recorded as a. service revenue. b. deferred service revenue. c. a reduction in installment accounts receivable. d. a direct addition to retained earnings. 27. Which of the following is not a reason why revenue is recognized at the time of sale? a. Realization has occurred. b. The sale is the critical event. c. Title legally passes from seller to buyer. d. All of these are reasons to recognize revenue at the time of sale. 28. An alternative available when the seller is exposed to continued risks of ownership through return of the product is a. recording the sale, and accounting for returns as they occur in future periods. b. not recording a sale until all return privileges have expired. c. recording the sale, but reducing sales by an estimate of future returns. d. All of these answers are correct. 29. A sale should not be recognized as revenue by the seller at the time of sale if a. payment was made by check. b. the selling price is less than the normal selling price. c. the buyer has a right to return the product and the amount of future returns cannot be reasonably estimated. d. None of these answers are correct. Revenue Recognition 18 - 9 30. The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions? a. The amount of future returns can be reasonably estimated. b. The seller's price is substantially fixed or determinable at time of sale. c. The buyer's obligation to the seller would not be changed in the event of theft or damage of the product. d. The buyer is obligated to pay the seller upon resale of the product. 31. All units in a multiple-deliverable arrangement are considered separate units of accounting, provided that: a. the customer can avail the unit from a third party. b. the arrangement includes a general right of repurchase relative to the delivered item. c. the seller is the sole manufacturer of the separate unit. d. performance of the undelivered item is in the control of the buyer. 32. The percentage-of-completion method must be used when certain conditions exist. Which of the following is not one of these necessary conditions? a. Estimates of progress toward completion, revenues, and costs are reasonably dependable. b. The contractor can be expected to perform the contractual obligation. c. The buyer can be expected to satisfy some of the obligations under the contract. d. The contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged, and the manner and terms of settlement. 33. In selecting an accounting method for a newly contracted long-term construction project, the principal factor to be considered should be a. the terms of payment in the contract. b. the degree to which a reliable estimate of the costs to complete and extent of progress toward completion is practicable. c. the method commonly used by the contractor to account for other long-term construction contracts. d. the inherent nature of the contractor's technical facilities used in construction. 34. How should the balances of progress billings and construction in process be shown at reporting dates prior to the completion of a long-term contract? a. Progress billings as deferred income, construction in progress as a deferred expense. b. Progress billings as income, construction in process as inventory. c. Net balance, as a current asset if debit balance, and current liability if credit balance. d. Net balance, as income from construction if credit balance, and loss from construction if debit balance. 35. In accounting for a long-term construction-type contract using the percentage-ofcompletion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the a. total costs incurred to date. b. total estimated cost. c. unbilled portion of the contract price. 18 - 10 Test Bank for Intermediate Accounting, Fifteenth Edition d. total contract price. Revenue Recognition 18 - 11 36. How should earned but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage-of-completion method of revenue recognition is used? a. As construction in process in the current asset section of the balance sheet. b. As construction in process in the noncurrent asset section of the balance sheet. c. As a receivable in the noncurrent asset section of the balance sheet. d. In a note to the financial statements until the customer is formally billed for the portion of work completed. 37. The principal disadvantage of using the percentage-of-completion method of recognizing revenue from long-term contracts is that it a. is unacceptable for income tax purposes. b. gives results based upon estimates which may be subject to considerable uncertainty. c. is likely to assign a small amount of revenue to a period during which much revenue was actually earned. d. None of these answers are correct. S 38. One of the more popular input measures used to determine the progress toward completion in the percentage-of-completion method is the a. revenue-percentage basis. b. cost-percentage basis. c. progress completion basis. d. cost-to-cost basis. S 39. The principal advantage of the completed-contract method is that a. reported revenue is based on final results rather than estimates of unperformed work. b. it reflects current performance when the period of a contract extends into more than one accounting period. c. it is not necessary to recognize revenue at the point of sale. d. a greater amount of gross profit and net income is reported than is the case when the percentage-of-completion method is used. 40. Under the completed-contract method a. revenue, cost, and gross profit are recognized during the production cycle. b. revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed. c. revenue, cost, and gross profit are recognized at the time the contract is completed. d. None of these answers are correct. 41. Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected loss should be a. recognized in the current period, regardless of whether the percentage-ofcompletion or completed-contract method is employed. b. recognized in the current period under the percentage-of-completion method, but the completed-contract method defers recognition of the loss to the time when the contract is completed. c. recognized in the current period under the completed-contract method, but the percentage-of-completion method defers the loss until the contract is completed. 18 - 12 Test Bank for Intermediate Accounting, Fifteenth Edition d. deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or completed-contract method is employed. Revenue Recognition 18 - 13 42. Cost estimates at the end of the second year indicate that a loss will result on completion of the entire contract. Which of the following statements is correct? a. Under the completed-contract method, the loss is not recognized until the year the construction is completed. b. Under the percentage-of-completion method, the gross profit recognized in the first year must not be changed. c. Under the completed-contract method, when the billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability. d. Under the completed-contract method, when the Construction in Process balance exceeds the billings, the estimated loss is added to the accumulated costs. 43. The criteria for recognition of revenue at the completion of production of precious metals and farm products include a. an established market with quoted prices. b. low additional costs of completion and selling. c. units are interchangeable. d. All of these answers are correct. 44. In certain cases, revenue is recognized at the completion of production even though no sale has been made. Which of the following statements is not true? a. Examples involve precious metals or farm equipment. b. The products possess immediate marketability at quoted prices. c. No significant costs are involved in selling the product. d. All of these statements are true. S 45. For which of the following products is it appropriate to recognize revenue at the completion of production even though no sale has been made? a. Automobiles b. Large appliances c. Single family residential units d. Precious metals S 46. When there is a significant increase in the estimated total contract costs but the increase does not eliminate all profit on the contract, which of the following is correct? a. Under both the percentage-of-completion and the completed-contract methods, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods. b. Under the percentage-of-completion method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods. c. Under the completed-contract method only, the estimated cost increase requires a current period adjustment of excess gross profit recognized on the project in prior periods. d. No current period adjustment is required. 47. Deferred gross profit on installment sales is generally treated as a(n) a. deduction from installment accounts receivable. b. deduction from installment sales. c. unearned revenue and classified as a current liability. d. deduction from gross profit on sales. 18 - 14 Test Bank for Intermediate Accounting, Fifteenth Edition 48. The installment-sales method of recognizing profit for accounting purposes is acceptable if a. collections in the year of sale do not exceed 30% of the total sales price. b. an unrealized profit account is credited. c. collection of the sales price is not reasonably assured. d. the method is consistently used for all sales of similar merchandise. 49. The method most commonly used to report defaults and repossessions is a. provide no basis for the repossessed asset thereby recognizing a loss. b. record the repossessed merchandise at fair value, recording a gain or loss if appropriate. c. record the repossessed merchandise at book value, recording no gain or loss. d. None of these answers are correct. 50. Under the installment-sales method, a. revenue, costs, and gross profit are recognized proportionate to the cash that is received from the sale of the product. b. gross profit is deferred proportionate to cash uncollected from sale of the product, but total revenues and costs are recognized at the point of sale. c. gross profit is not recognized until the amount of cash received exceeds the cost of the item sold. d. revenues and costs are recognized proportionate to the cash received from the sale of the product, but gross profit is deferred until all cash is received. S 51. The realization of income on installment sales transactions involves a. recognition of the difference between the cash collected on installment sales and the cash expenses incurred. b. recording the net income related to installment sales and recognizing the income as cash is collected. c. deferring gross profit while recognizing operating or financial expenses in the period incurred. d. deferring gross profit and all additional expenses related to installment sales until cash is ultimately collected. P 52. A manufacturer of large equipment sells on an installment basis to customers with questionable credit ratings. Which of the following methods of revenue recognition is least likely to overstate the amount of gross profit reported? a. At the time of completion of the equipment (completion of production method) b. At the date of delivery (sales method) c. The installment-sales method d. The cost-recovery method 53. A seller is using the cost-recovery method for a sale. Interest will be earned on the future payments. Which of the following statements is not correct? a. After all costs have been recovered, any additional cash collections are included in income. b. Interest revenue may be recognized before all costs have been recovered. c. The deferred gross profit is offset against the related receivable on the balance sheet. d. Subsequent income statements report the gross profit as a separate item of revenue when it is recognized as earned. Revenue Recognition 18 - 15 54. Under the cost-recovery method of revenue recognition, a. income is recognized on a proportionate basis as the cash is received on the sale of the product. b. income is recognized when the cash received from the sale of the product is greater than the cost of the product. c. income is recognized immediately after the sale is made. d. None of these answers are correct. 55. Under the deposit method a. the seller recognizes revenue or income on the receipt of cash. b. a company receives cash from the buyer before it transfers the goods or property. c. the buyer reports the property as an asset on its balance sheet. d. the seller has performed on the contract and a legitimate claim exists. 56. The deposit method of revenue recognition is used when a. the product can be marketed at quoted prices and units are interchangeable. b. cash is received before the sales transaction is complete. c. the contract is short-term or the percentage-of-completion method can't be used. d. there are no significant costs of distribution. 57. The cost-recovery method a. is prohibited under current GAAP due to its conservative nature. b. requires a company to defer profit recognition until all cash payments are received from the buyer. c. is used by sellers when there is a reasonable basis for estimating collectibility. d. recognizes total revenue and total cost of goods sold in the period of sale. *58. Which of the following methods to account for sales is used when a high degree of uncertainty exists related to the collection of receivables? a. Cost-recovery method. b. Percentage-of-completion method. c. Deposit method. d. Completed-contract method. *59. In consignment sales, the consignee a. records the merchandise as an asset on its books. b. records a liability for the merchandise held on consignment. c. recognizes revenue when it ships merchandise to the consignor. d. prepares an "account report" for the consignor which shows sales, expenses, and cash receipts. *60. Types of franchising arrangements include all of the following except a. service sponsor-retailer. b. wholesaler-service sponsor. c. manufacturer-wholesaler. d. wholesaler-retailer. 18 - 16 Test Bank for Intermediate Accounting, Fifteenth Edition *61. Continuing franchise fees should be recorded by the franchisor a. as revenue when earned and receivable from the franchisee. b. as revenue when received. c. in accordance with the accounting procedures specified in the franchise agreement. d. as revenue only after the balance of the initial franchise fee has been collected. *62. Occasionally a franchise agreement grants the franchisee the right to make future bargain purchases of equipment or supplies. When recording the initial franchise fee, the franchisor should a. increase revenue recognized from the initial franchise fee by the amount of the expected future purchases. b. record a portion of the initial franchise fee as unearned revenue which will increase the selling price when the franchisee subsequently makes the bargain purchases. c. defer recognition of any revenue from the initial franchise fee until the bargain purchases are made. d. None of these. *63. A franchise agreement grants the franchisor an option to purchase the franchisee's business. It is probable that the option will be exercised. When recording the initial franchise fee, the franchisor should a. record the entire initial franchise fee as a deferred credit which will reduce the franchisor's investment in the purchased outlet when the option is exercised. b. record the entire initial franchise fee as unearned revenue which will reduce the amount of cash paid when the option is exercised. c. record the portion of the initial franchise fee which is attributable to the bargain purchase option as a reduction of the future amounts receivable from the franchisee. d. None of these. Multiple Choice AnswersConceptual Item 21. 22. 23. 24. 25. 26. 27. Ans. c b a b d b d Item 28. 29. 30. 31. 32. 33. 34. Ans. d c d b c b c Item 35. 36. 37. 38. 39. 40. 41. Ans. b a b d a c a Item 42. 43. 44. 45. 46. 47. 48. Ans. c d a d b c c Item 49. 50. 51. 52. 53. 54. 55. Ans. Item Ans. Item Ans. b b c d b b b 56. 57. *58. *59. *60. *61. *62. b d a d b a b *63. a Revenue Recognition 18 - 17 MULTIPLE CHOICEComputational 64. Dexter purchases equipment from Ray Company for a price of $5,000,000 and chooses Ray to do the installation. Ray doesn't charge for the installation of equipment. The price of the installation service is estimated to have a fair value of $60,000. Assuming the transaction to be multiple-deliverable arrangement, compute the amount to be allocated to installation. a. $59,289 b. $60,720 c. $60,000 d. $61,457 Use the following information for questions 65-68: Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of $1,240,000 each quarter. The total contract price is $14,880,000 and Seasons estimates total costs of $14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014. 65. At December 31, 2014, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2014 and what is the balance in the Accounts Receivable account assuming Cannon Cafe has not yet made its last quarterly payment? Revenue Accounts Receivable a. $4,960,000 $4,960,000 b. $4,260,000 $ 1,240,000 c. $4,464,000 $ 1,240,000 d. $4,260,000 $4,960,000 66. At December 31, 2015, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $14,400,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2015? a. $10,800,000 b. $6,300,000 c. $6,390,000 d. $6,540,000 67. At December 31, 2015, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $14,400,000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2015 for Seasons as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit? Difference between the accounts Debit/Credit a. $3,380,000 Credit b. $1,240,000 Debit c. $880,000 Debit d. $1,240,000 Credit 68. Seasons Construction completes the remaining 25% of the building construction on December 31, 2016, as scheduled. At that time the total costs of construction are 18 - 18 Test Bank for Intermediate Accounting, Fifteenth Edition $15,000,000. What is the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 2016? Revenue Expenses a. $14,880,000 $15,000,000 b. $3,720,000 $ 3,750,000 c. $3,720,000 $ 4,200,000 d. $3,750,000 $ 3,750,000 Revenue Recognition 18 - 19 The following information relates to questions 69 and 70. Cooper Construction Company had a contract starting April 2015, to construct a $18,000,000 building that is expected to be completed in September 2017, at an estimated cost of $16,500,000. At the end of 2015, the costs to date were $7,590,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $3,600,000 and the cash collected during 2015 was 2,400,000. 69. For the year ended December 31, 2015, Cooper would recognize gross profit on the building of: a. $632,500 b. $690,000 c. $810,000 d. $0 70. At December 31, 2015 Cooper would report Construction in Process in the amount of: a. $690,000 b. $7,590,000 c. $8,280,000 d. $7,080,000 71. Hayes Construction Corporation contracted to construct a building for $4,500,000. Construction began in 2014 and was completed in 2015. Data relating to the contract are summarized below: Year ended December 31, 2014 2015 Costs incurred $1,800,000 $1,350,000 Estimated costs to complete 1,200,000  Hayes uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2014, and 2015, respectively, Hayes should report gross profit of a. $810,000 and $540,000. b. $2,700,000 and $1,800,000. c. $900,000 and $450,000. d. $0 and $1,350,000. 72. Monroe Construction Company uses the percentage-of-completion method of accounting. In 2015, Monroe began work on a contract it had received which provided for a contract price of $25,000,000. Other details follow: 2015 Costs incurred during the year $12,000,000 Estimated costs to complete as of December 31 8,000,000 Billings during the year 11,000,000 Collections during the year 6,500,000 What should be the gross profit recognized in 2015? a. $1,000,000 b. $13,000,000 c. $3,000,000 d. $5,000,000 18 - 20 Test Bank for Intermediate Accounting, Fifteenth Edition Use the following information for questions 73 and 74. In 2015, Fargo Corporation began construction work under a three-year contract. The contract price is $4,800,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2015, follow: Balance Sheet Accounts receivableconstruction contract billings Construction in progress Less contract billings Costs and recognized profit in excess of billings $200,000 $600,000 480,000 Income Statement Income (before tax) on the contract recognized in 2015 120,000 $120,000 73. How much cash was collected in 2015 on this contract? a. $200,000 b. $280,000 c. $40,000 d. $480,000 74. What was the initial estimated total income before tax on this contract? a. $600,000 b. $640,000 c. $800,000 d. $960,000 75. Adler Construction Co. uses the percentage-of-completion method. In 2014, Adler began work on a contract for $6,600,000 and it was completed in 2015. Data on the costs are: Year Ended December 31 2014 2015 Costs incurred $2,340,000 $1,680,000 Estimated costs to complete 1,560,000  For the years 2014 and 2015, Adler should recognize gross profit in 2014 and 2015 of a. b. c. d. 2014 $0 $1,548,000 $1,620,000 $1,620,000 2015 $2,580,000 $1,032,000 $960,000 $2,580,000 Use the following information for questions 76 and 77. Gomez, Inc. began work in 2014 on contract #3814, which provided for a contract price of $14,400,000. Other details follow: 2014 2015 Costs incurred during the year $2,400,000 $7,350,000 Estimated costs to complete, as of December 31 7,200,000 0 Billings during the year 2,700,000 10,800,000 Collections during the year 1,800,000 11,700,000 Revenue Recognition 18 - 21 76. Assume that Gomez uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2014 is a. $900,000. b. $1,200,000. c. $3,600,000. d. $4,800,000. 77. Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2015 is a. $1,800,000. b. $2,700,000. c. $4,650,000. d. $14,400,000. Use the following information for questions 78 and 79. Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows: 2014 2015 Costs incurred to date $7,200,000 $11,200,000 Estimated costs to complete 4,800,000  Billings to date 5,600,000 16,800,000 Collections to date 4,000,000 14,400,000 78. If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2014 is a. $2,880,000. b. $3,200,000. c. $4,320,000. d. $4,800,000. 79. If Kiner uses the completed-contract method, the gross profit to be recognized in 2015 is a. $2,720,000. b. $5,600,000. c. $2,800,000. d. $11,200,000. Use the following information for questions 80 and 81. 80. Horner Construction Co. uses the percentage-of-completion method. In 2014, Horner began work on a contract for $16,500,000; it was completed in 2015. The following cost data pertain to this contract: Year Ended December 31 2014 2015 Cost incurred during the year $5,850,000 $4,200,000 Estimated costs to complete at the end of year 3,900,000  The amount of gross profit to be recognized on the income statement for the year ended December 31, 2015 is a. $2,400,000. b. $2,580,000. c. $2,700,000. d. $6,450,000. 18 - 22 Test Bank for Intermediate Accounting, Fifteenth Edition 81. If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2014 and 2015 would be a. b. c. d. 82. 2014 $6,750,000. $6,450,000. $0. $0. 2015 $0. $(300,000). $6,450,000. $6,750,000. Remington Construction Company uses the percentage-of-completion method. During 2014, the company entered into a fixed-price contract to construct a building for Sherman Company for $24,000,000. The following details pertain to the contract: Percentage of completion Estimated total cost of contract Gross profit recognized to date At December 31, 2014 25% $18,000,000 1,500,000 At December 31, 2015 60% $20,000,000 2,400,000 The amount of construction costs incurred during 2015 was a. $12,000,000. b. $7,500,000. c. $4,500,000. d. $2,000,000. Use the following information for questions 83 and 84. Eilert Construction Company had a contract starting April 2015, to construct a $21,000,000 building that is expected to be completed in September 2016, at an estimated cost of $19,250,000. At the end of 2015, the costs to date were $8,855,000 and the estimated total costs to complete had not changed. The progress billings during 2015 were $4,200,000 and the cash collected during 2015 was $2,800,000. Eilert uses the percentage-of-completion method. 83. For the year ended December 31, 2015, Eilert would recognize gross profit on the building of a. $0. b. $737,917. c. $805,000. d. $945,000. 84. At December 31, 2015, Eilert would report Construction in Process in the amount of a. $9,660,000. b. $8,855,000. c. $8,260,000. d. $805,000. Revenue Recognition 85. 18 - 23 Hiser Builders, Inc. is using the completed-contract method for a $9,800,000 contract that will take two years to complete. Data at December 31, 2015, the end of the first year, are as follows: Costs incurred to date Estimated costs to complete Billings to date Collections to date $4,480,000 5,740,000 4,200,000 3,500,000 The gross profit or loss that should be recognized for 2015 is a. $0. b. a $420,000 loss. c. a $210,000 loss. d. a $184,800 loss. Use the following information for questions 86 through 88. Gorman Construction Co. began operations in 2015. Construction activity for 2015 is shown below. Gorman uses the completed-contract method. Contract 1 2 3 Contract Price $4,800,000 3,600,000 3,300,000 Billings Through 12/31/15 $4,725,000 1,500,000 1,900,000 Collections Through 12/31/15 $3,900,000 1,000,000 1,800,000 Costs to 12/31/15 $3,225,000 820,000 2,250,000 Estimated Costs to Complete  $1,880,000 1,200,000 86. Which of the following should be shown on the income statement for 2015 related to Contract 1? a. Gross profit, $675,000 b. Gross profit, $1,500,000 c. Gross profit, $1,575,000 d. Gross profit, $900,000 87. Which of the following should be shown on the balance sheet at December 31, 2015 related to Contract 2? a. Inventory, $680,000 b. Inventory, $820,000 c. Current liability, $680,000 d. Current liability, $1,500,000 88. Which of the following should be shown on the balance sheet at December 31, 2015 related to Contract 3? a. Inventory, $200,000 b. Inventory, $350,000 c. Inventory, $2,100,000 d. Inventory, $2,250,000 18 - 24 Test Bank for Intermediate Accounting, Fifteenth Edition 89. Oliver Co. uses the installment-sales method to record the sale of dining room sets. When an account had a balance of $14,000, no further collections could be made and the dining room set was repossessed. At that time, it was estimated that the dining room set could be sold for $4,000 as repossessed, or for $5,000 if the company spent $500 reconditioning it. The gross profit rate on this sale was 70%. The gain or loss on repossession was a a. $9,800 loss. b. $10,000 loss. c. $1,000 gain. d. $300 gain. 90. Spicer Corporation has a normal gross profit on installment sales of 30%. A 2013 sale resulted in a default early in 2015. At the date of default, the balance of the installment receivable was $32,000, and the repossessed merchandise had a fair value of $18,000. Assuming the repossessed merchandise is to be recorded at fair value, the gain or loss on repossession should be a. $0. b. a $4,400 loss. c. a $4,400 gain. d. a $10,000 loss. 91. Fryman Furniture uses the installment-sales method. No further collections could be made on an account with a balance of $24,000. It was estimated that the repossessed furniture could be sold as is for $7,200, or for $8,400 if $400 were spent reconditioning it. The gross profit rate on the original sale was 40%. The loss on repossession was a. $6,400. b. $6,000. c. $16,000. d. $16,800. 92. Melton Company sold some machinery to Addison Company on January 1, 2014. The cash selling price would have been $947,700. Addison entered into an installment sales contract which required annual payments of $250,000, including interest at 10%, over five years. The first payment was due on December 31, 2014. What amount of interest income should be included in Melton's 2015 income statement (the second year of the contract)? a. $25,000 b. $79,247 c. $50,000 d. $69,770 Revenue Recognition 93. 18 - 25 Carperter Company has used the installment method of accounting since it began operations at the beginning of 2015. The following information pertains to its operations for 2015: Installment sales $ 2,800,000 Cost of installment sales 1,960,000 Collections of installment sales 1,120,000 General and administrative expenses 280,000 The amount to be reported on the December 31, 2015 balance sheet as Deferred Gross Profit should be a. $ 336,000. b. $ 504,000. c. $ 672,000. d. $1,680,000. 94. Daily, Inc. appropriately used the installment method of accounting to recognize income in its financial statement. Some pertinent data relating to this method of accounting include: 2014 2015 Installment sales $750,000 $900,000 Cost of sales 450,000 630,000 Gross profit $300,000 $270,000 Collections during year: On 2014 sales On 2015 sales 200,000 200,000 240,000 What amount to be realized gross profit should be reported on Daily's income statement for 2015? a. $132,000 b. $152,000 c. $176,000 d. $216,000 95. Sutton Company sells plasma-screen televisions on an installment basis and appropriately uses the installment-sales method of accounting. A customer with an account balance of $2,400 refuses to make any more payments and the merchandise is repossessed. The gross profit rate on the original sale is 40%. Sutton estimates that the television can be sold as is for $750, or for $900 if $60 is spent to refurbish it. The loss on repossession is a. $1,650. b. $960. c. $ 690. d. $ 600. Use the following information for questions 96-98. During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. 18 - 26 Test Bank for Intermediate Accounting, Fifteenth Edition 96. What is the rate of gross profit on the installment sales made by Vaughn Corporation during 2014? a. 75% b. 60% c. 40% d. 25% 97. If expenses, other than the cost of the merchandise sold, related to the 2014 installment sales amounted to $135,000, by what amount would Vaughn's net income for 2014 increase as a result of installment sales? a. $ 165,000 b. $ 266,250 c. $ 300,000 d. $1,065,000 98. What amount would be shown in the December 31, 2015 financial statement for realized gross profit on 2014 installment sales, and deferred gross profit on 2014 installment sales, respectively? a. $262,500 and $562,500 b. $487,500 and $262,500 c. $562,500 and $187,500 d. $262,500 and $187,500 Use the following information for questions 99 - 101. During 2014, Martin Corporation sold merchandise costing $3,500,000 on an installment basis for $5,000,000. The cash receipts related to these sales were collected as follows: 2014, $2,000,000; 2015, $1,750,000; 2016, $1,250,000. 99. What is the rate of gross profit on the installment sales made by Martin Corporation during 2014? a. 30% b. 40% c. 60% d. 70% 100. If expenses, other than the cost of the merchandise sold, related to the 2014 installment sales amounted to $200,000, by what amount would Martin's net income for 2014 increase as a result of installment sales? a. $1,800,000 b. $ 600,000 c. $ 450,000 d. $ 400,000 101. What amount would be shown in the December 31, 2015 financial statements for realized gross profit on 2014 installment sales, and deferred gross profit on 2014 installment sales, respectively? a. $525,000 and $375,000 b. $975,000 and $525,000 c. $375,000 and $1,125,000 d. $525,000 and $1,125,000 Revenue Recognition 18 - 27 Use the following information for questions 102 and 103. Coaster manufactures and sells logging equipment. Due to the nature of its business, Coaster is unable to reliably predict bad debts. During 2014, Coaster sold equipment costing $4,800,000 for $7,200,000. The terms of the sale were 20% down, with equal payments due quarterly over the next 3 years. All payments for 2014 were made on schedule. Round answers to two places. 102. Assuming that Coaster uses the installment-sales method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for the year ended December 31, 2014? a. $3,360,000 b. $2,240,000 c. $1,120,000 d. $ 739,200 103. Assuming that Coaster uses the cost-recovery method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for the year ended December 31, 2015? a. $0 b. $ 480,000 c. $ 633,600 d. $1,920,000 104. On January 1, 2015, Shaw Co. sold land that cost $840,000 for $1,120,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of $450,380 starting on December 31, 2015. Because collection of the note is very uncertain, Shaw will use the cost-recovery method. How much revenue from this sale should Shaw recognize in 2015? a. $0 b. $84,000 c. $112,000 d. $280,000 105. In 2012, Concord Inc. sells inventory with a cost of $32,000 for $50,000. Concord will receive payments of $14,000 in 2012, $26,000 in 2013, and $10,000 in 2014. If the costrecovery method applies to this transaction, what would be the journal entry to recognize gross profit at the end of 2013? a. Deferred Gross Profit............................................................. 10,000 Realized Gross Profit................................................. 10,000 b. Realized Gross Profit............................................................. 18,000 Deferred Gross Profit................................................. 18,000 c. Sales Revenue....................................................................... 50,000 Cost of sales.............................................................. 32,000 Deferred Gross Profit................................................. 18,000 d. Deferred Gross Profit.......................................................... 8,000 Realized Gross Profit.............................................. 8,000 *106. On January 1, 2015 Dairy Treats, Inc. entered into a franchise agreement with a company allowing the company to do business under Dairy Treats's name. Dairy Treats had performed substantially all required services by January 1, 2015, and the franchisee paid the initial franchise fee of $840,000 in full on that date. The franchise agreement specifies that the franchisee must pay a continuing franchise fee of $72,000 annually, of which 20% must be spent on advertising by 18 - 28 Test Bank for Intermediate Accounting, Fifteenth Edition Dairy Treats. What entry should Dairy Treats make on January 1, 2015 to record receipt of the initial franchise fee and the continuing franchise fee for 2015? a. Cash....................................................................................... 912,000 Franchise Fee Revenue............................................ 840,000 Revenue from Franchise Fees.................................. 72,000 b. Cash....................................................................................... 912,000 Unearned Franchise Fees......................................... 912,000 c. Cash....................................................................................... 912,000 Franchise Fee Revenue........................................... 840,000 Revenue from Franchise Fees............................... 57,600 Unearned Franchise Fees....................................... 14,400 d. Prepaid Advertising................................................................ 14,400 Cash....................................................................................... 912,000 Franchise Fee Revenue............................................ 840,000 Revenue from Franchise Fees.................................. 72,000 Unearned Franchise Fees......................................... 14,400 *107. Wynne Inc. charges an initial franchise fee of $1,840,000, with $400,000 paid when the agreement is signed and the balance in five annual payments. The present value of the future payments, discounted at 10%, is $1,091,744. The franchisee has the option to purchase $240,000 of equipment for $192,000. Wynne has substantially provided all initial services required and collectibility of the payments is reasonably assured. The amount of revenue from franchise fees is a. $ 400,000. b. $1,443,744. c. $1,491,744. d. $1,840,000. Use the following information for questions 108 and 109. On May 1, 2015, TV Inc. consigned 80 TVs to Ed's TV. The TVs cost $450. Freight on the shipment paid by Ed's TV was $1,000. On July 10, TV Inc. received an account sales and $21,500 from Ed's TV. Thirty TVs had been sold and the following expenses were deducted: Freight $1,000 Commission (20% of sales price) ? Advertising 650 Delivery 350 *108. The total sales price of the TVs sold by Ed's TV was a. $25,625. b. $26,875. c. $27,313. d. $29,375. Revenue Recognition 18 - 29 *109. The inventory of TVs will be reported on whose balance sheet and at what amount? Balance Sheet of TV Inc. TV Inc. Ed's TV Ed's TV a. b. c. d. Amount of Inventory $23,125 $22,500 $23,125 $22,500 Multiple Choice AnswersComputational Item 64. 65. 66. 67. 68. 69. 70. 71. Ans. a c d b c b c c Item 72. 73. 74. 75. 76. 77. 78. 79. Ans. c b d c b c a b Item 80. 81. 82. 83. 84. 85. 86. 87. Ans. a c b c a b c c Item 88. 89. 90. 91. 92. 93. 94. 95. Ans. Item Ans. Item Ans. a d b a b b b d 96. 97. 98. 99. 100. 101. 102. 103. d a d a d a c b 104. 105. *106. *107. *108. *109. a d c b d a MULTIPLE CHOICECPA Adapted 110. According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is a. recognition. b. realization. c. allocation. d. matching. 111. Green Construction Co. has consistently used the percentage-of-completion method of recognizing revenue. During 2014, Green entered into a fixed-price contract to construct an office building for $24,000,000. Information relating to the contract is as follows: At December 31 2014 2015 Percentage of completion 15% 45% Estimated total cost at completion $18,000,000 $19,200,000 Gross profit recognized (cumulative) 1,200,000 2,880,000 Contract costs incurred during 2015 were a. $5,760,000. b. $5,940,000. c. $6,300,000. d. $8,640,000. 18 - 30 Test Bank for Intermediate Accounting, Fifteenth Edition 112. Bruner Constructors, Inc. has consistently used the percentage-of-completion method of recognizing income. In 2014, Bruner started work on a $42,000,000 construction contract that was completed in 2015. The following information was taken from Bruner's 2014 accounting records: Progress billings Costs incurred Collections Estimated costs to complete $13,200,000 12,600,000 8,400,000 25,200,000 What amount of gross profit should Bruner have recognized in 2014 on this contract? a. $4,200,000 b. $2,800,000 c. $2,100,000 d. $1,400,000 113. During 2014, Gates Corp. started a construction job with a total contract price of $14,000,000. The job was completed on December 15, 2015. Additional data are as follows: Actual costs incurred Estimated remaining costs Billed to customer Received from customer 2014 $5,400,000 5,400,000 4,800,000 4,000,000 2015 $6,100,000  9,200,000 9,600,000 Under the completed-contract method, what amount should Gates recognize as gross profit for 2015? a. $900,000 b. $1,250,000 c. $1,900,000 d. $2,500,000 114. Hogan Farms produced 1,600,000 pounds of cotton during the 2015 season. Hogan sells all of its cotton to Ott Co., which has agreed to purchase Hogan's entire production at the prevailing market price. Recent legislation assures that the market price will not fall below $.70 per pound during the next two years. Hogan's costs of selling and distributing the cotton are immaterial and can be reasonably estimated. Hogan reports its inventory at expected exit value. During 2015, Hogan sold and delivered to Ott 1,200,000 pounds at the market price of $.70. Hogan sold the remaining 400,000 pounds during 2016 at the market price of $.72. What amount of revenue should Hogan recognize in 2015? a. $840,000 b. $864,000 c. $1,120,000 d. $1,152,000 Revenue Recognition 115. 18 - 31 Braun, Inc. appropriately uses the installment-sales method of accounting to recognize income in its financial statements. Some pertinent data relating to this method of accounting include: 2014 2015 Installment sales $750,000 $720,000 Cost of installment sales 570,000 504,000 Gross profit $180,000 $216,000 Rate of gross profit Balance of deferred gross profit at year end: 2014 2015 Total 24% 30% $108,000 $ 36,000 198,000 $234,000 $108,000 What amount of installment accounts receivable should be presented in Braun's December 31, 2015 balance sheet? a. $720,000 b. $810,000 c. $780,000 d. $866,666 116. Hartz Co., which began operations on January 1, 2015, appropriately uses the installmentsales method of accounting. The following information pertains to Hartz's operations for the year 2015: Installment sales Regular sales Cost of installment sales Cost of regular sales General and administrative expenses Collections on installment sales $2,400,000 960,000 1,440,000 576,000 192,000 576,000 The deferred gross profit account in Hartz's December 31, 2015 balance sheet should be a. $230,400. b. $384,000. c. $729,600. d. $960,000. 117. On January 1, 2014, Orton Co. sold a used machine to King, Inc. for $1,050,000. On this date, the machine had a depreciated cost of $735,000. King paid $150,000 cash on January 1, 2014 and signed a $900,000 note bearing interest at 10%. The note was payable in three annual installments of $300,000 plus interest beginning January 1, 2015. Orton appropriately accounted for the sale under the installment-sales method. King made a timely payment of the first installment on January 1, 2015 of $390,000, which included interest of $90,000 to date of payment. At December 31, 2015, Orton has deferred gross profit of a. $210,000. b. $198,000. c. $180,000. d. $153,000. 18 - 32 Test Bank for Intermediate Accounting, Fifteenth Edition 118. Piper Co. began operations on January 1, 2015 and appropriately uses the installmentsales method of accounting. The following information pertains to Piper's operations for 2015: Installment sales Cost of installment sales General and administrative expenses Collections on installment sales 3,600,000 2,160,000 360,000 1,650,000 The balance in the deferred gross profit account at December 31, 2015 should be a. $660,000. b. $990,000. c. $780,000. d. $1,440,000. 119. Moon Co. records all sales using the installment-sales method of accounting. Installment sales contracts call for 36 equal monthly cash payments. According to the FASB's conceptual framework, the amount of deferred gross profit relating to collections 12 months beyond the balance sheet date should be reported in the a. current liabilities section as a deferred revenue. b. noncurrent liabilities section as a deferred revenue. c. current assets section as a contra account. d. noncurrent assets section as a contra account. 120. Crane, Inc. is a retailer of home appliances and offers a service contract on each appliance sold. Crane sells appliances on installment contracts, but all service contracts must be paid in full at the time of sale. Collections received for service contracts should be recorded as an increase in a a. deferred revenue account. b. sales contracts receivable valuation account. c. stockholders' valuation account. d. service revenue account. Multiple Choice AnswersCPA Adapted Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. 110. 111. a b 112. 113. d d 114. 115. c b 116. 117. c c 118. 119. c c 120. a DERIVATIONS  Computational No. Answer Derivation 64. a ($60,000  $5,060,000)  $5,000,000 = $59,289. 65. c $14,880,000 .30 = $4,464,000. 66. d ($14,400,000 .75) - ($14,200,000 .30) = $6,540,000. 67. b ($14,880,000 .75) - ($1,240,000 8) = $1,240,000 debit. Revenue Recognition 68. c $14,880,000 .25 = $3,720,000 $15,000,000 - ($14,400,000 .75) = $4,200,000. DERIVATIONS  Computational (cont.) No. Answer Derivation 69. b ($18,000,000 - $16,500,000) ($7,590,000  $16,500,000) = $690,000. 70. c $7,590,000 + $690,000 = $8,280,000. 71. c $1,800,000  ($4,500,000 - $3,000,000) = $900,000 $1,800,000 + $800,000 ($4,500,000 - $3,150,000) - $900,000 = $450,000. 72. c $12,000,000  ($25,000,000 - $20,000,000) = $3,000,000. $12,000,000 + $8,000,000 73. b $480,000 - $200,000 = $280,000. 74. d $600,000 - $120,000 = $480,000 $480,000  ($4,800,000 - Total estimated cost) = $120,000 Total estimated cost Total estimated cost = $3,840,000 $4,800,000 - $3,840,000 = $960,000. 75. c $2,340,000 - ($6,600,000 - $3,900,000) = $1,620,000 $3,900,000 ($6,600,000 - $4,020,000) - $1,620,000 = $960,000. 76. b $2,400,000  ($14,400,000 - $9,600,000) = $1,200,000. $9,600,000 77. c $14,400,000 - $9,750,000 = $4,650,000. 78. a $7,200,000  ($16,800,000 - $12,000,000) = $2,880,000. $12,000,000 79. b $16,800,000 - $11,200,000 = $5,600,000. 80. a [$5,850,000  ($5,850,000 + $3,900,000)]  $6,750,000 = $4,050,000 18 - 33 18 - 34 Test Bank for Intermediate Accounting, Fifteenth Edition ($16,500,000 - $10,050,000) - $4,050,000 = $2,400,000. 81. c $16,500,000 - $10,050,000 = $6,450,000. DERIVATIONS  Computational (cont.) No. Answer Derivation 82. b ($20,000,000  .60) - ($18,00,000  .25) = $7,500,000. 83. c ($8,855,000  $19,250,000)  $1,750,000 = $805,000. 84. a ($8,855,000  $19,250,000)  $1,750,000 = $805,000. $8,855,000 + $805,000 = $9,660.000. 85. b $9,800,000 - ($4,480,000 + $5,740,000) = -$420,000. 86. c $4,800,000 - $3,225,000 = $1,575,000. 87. c $1,500,000 - $820,000 = $680,000. 88. a ($2,250,000 - $150,000) - $1,900,000 = $200,000. 89. d $14,000 - $9,800 = $4,200 ($5,000 - $500) - $4,200 = $300 gain. 90. b $32,000 - $9,600 = $22,400 $22,400 - $18,000 = $4,400 loss. 91. a $24,000 - $9,600 = $14,400 ($8,400 - $400) - $14,400 = $6,400 loss. 92. b 2014: $250,000 - ($947,700  10%) = $155,230. 2015: ($947,700 - $155,230)  10% = $79,247. 93. b [($2,800,000 - $1,960,000)  $2,800,000]  $1,680,000 = $504,000. 94. b ($300,000  $750,000)  $200,000 = $80,000 [($270,000  $900,000)  $240,000] + $80,000 = $152,000. 95. d [$2,400  (1 - .40)] - ($900 - $60) = $600. 96. d ($3,000,000 - $2,250,000)  $3,000,000 = 25% 97. a ($1,200,000  .25) - $135,000 = $165,000, 98. d $1,050,000  .25 = $262,500; $750,000  .25 = $187,500. 99. a ($5,000,000 - $3,500,000)  $5,000,000 = 30%. 100. d ($2,000,000 .30) - $200,000 = $400,000. Revenue Recognition 101. a $1,750,000 .30 = $525,000 $1,500,000 - [($2,000,000 + $1,750,000) .30] = $375,000. 18 - 35 18 - 36 Test Bank for Intermediate Accounting, Fifteenth Edition DERIVATIONS  Computational (cont.) No. Answer Derivation 102. c ($7,200,000 - $4,800,000)  $7,200,000 = 33 1/3% ($7,200,000 .20) + [(7,200,000 .80) 4/12)] = $3,360,000 $2,520,000 33 1/3% = $840,000. 103. b [($7,200,000 .20) + ($7,200,000 .80 8/12] - $4,800,000 = $480,000. 104. a $0. *105. d $32,000 - $14,000 = $18,000; $26,000 - $18,000 = $8,000. *106. c Cash = $840,000 + $72,000 = $912,000 Franchise Fee Revenue = $840,000 Unearned Franchise Fees = $72,000 20% = $14,400 Revenue from Franchise Fees = $72,000 - $14,400 = $57,600. *107 b $400,000 + $1,091,744 - $48,000 = $1,443,744. *108. d Sales - (Sales 20%) - $1,000 - $650 - $350 = $21,500 .8 Sales = $23,500 Sales = $29,375. *109. a ($450 50) + [($1,000  80) 50] = $23,125. DERIVATIONS  CPA Adapted No. Answer Derivation 110. a Conceptual. 111. b ($19,200,000 45%) - ($18,000,000 15%) = $5,940,000. 112. d $12,600,000  ($42,000,000 - $37,800,000) = $1,400,000. $37,800,000 113. d $14,000,000 - $5,400,000 - $6,100,000 = $2,500,000. 114. c 1,600,000 lbs. $.70 = $1,120,000. 115. b ($36,000  24%) + ($198,000  30%) = $810,000. 116. c $2,400,000 - $1,440,000 = $960,000 gross profit (40% gross profit rate) $960,000 - ($576,000 .4) = $729,600. Revenue Recognition 18 - 37 DERIVATIONS  CPA Adapted (cont.) No. Answer Derivation 117. c $900,000 + $150,000 = $1,050,000 $1,050,000 - $735,000 = $315,000