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Exam 5: Income Measurement

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Question 101

Multiple Choice

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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. -In its December 31,2015,balance sheet,SDH would report:

A) The asset,cost and profits in excess of billings,of $500,000.
B) The liability,billings in excess of cost,of $300,000.
C) The asset,contract amount in excess of billings,of $1,500,000.
D) The asset,deferred profit,of $400,000.

E) A) and B)
F) A) and C)

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Question 102

True/False

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Over the life of a particular account receivable,the same total amount of gross profit is recognized under the installment sales method and the cost recovery method.

A) True
B) False

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Question 103

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The core revenue principle states that

Mahogany Billiards sells upscale pool tables and related supplies.It sells a premium package consisting of a pool table imported from Europe,a full set of cues and balls,and on-site installation by its staff.Mahogany determines that each of these components is a performance obligation.Mahogany sells the pool table separately for $3,000 and the set of cues and balls for $1,000.The entire package is sold at $4,500.Mahogany does not offer on-site installation separately,as part of company policy.It also estimates that it incurs about $350 of compensation and other costs per each installation.Other competing vendors sell on-site installation separately for $450,on average.Mahogany typically earns a profit margin of 40% over cost,and its prices are generally 5% lower than those charged by competitors. Required: Estimate the stand-alone selling price of the installation service using (a)the adjusted market assessment approach, (b)the expected cost plus margin approach,and (3)the residual approach.

Use the following to answer questions Missoula Inc.reported the following selected financial statement data: -Required: Compute the receivables turnover ratio for 2016.

Binz Company provides cleaning services and sells garbage bins to office clients.On June 1^st,Binz delivered 100 garbage bins to a client,and also entered into a 5-year contract for Binz to provide cleaning services to that client.Which of the following is most likely to be true?

Use the following to answer questions The following partial income statement and balance sheet information (in $ millions)comes from the Annual Report of Saratoga Springs Co.for the year ending 12/31/2016: Required: Compute the following amounts for Saratoga Springs Co. -Its asset turnover ratio for 2016.Round your answer to two decimal places.

Prepare Romano's June 30 and July 2 journal entries to record additional service revenue earned,as well as any necessary adjustments to revenue and receipt of payment from Silvia.

Gupta Industries received a $300,000 prepayment from Packard Associates for the sale of new equipment.Gupta will bill Packard an additional $100,000 upon delivery of the equipment.Upon receipt of the $300,000 prepayment,how much should Holt recognize for a contract asset,a contract liability,and accounts receivable?

Revenue on a long-term contract should not be recognized according to the proportion of the performance obligation that has been completed if:

When the right of return exists and a seller cannot make reliable estimates of future returns,the installment sales method can be used.

Revenue from the sale of computer software is always recognized at the point of sale.

Accorsi & Sons specializes in selling and installing upscale home theater systems.On March 1,2016,Accorsi sold a premium home theater package that includes a projector,set of surround speakers,and high quality leather seats,along with complete installation service,for $32,500.If sold separately,each of these goods and services would have cost $15,000 (projector),$12,500 (speakers),$17,500 (seats),and $3,000 (installation),respectively. Required:,How much of the transaction price would be allocated to the projector,the speakers,the leather seats,and the installation service,assuming that each of these four parts of the contract is a separate performance obligation? Show your work.

Hulkster's 2016 average days in inventory is (rounded) :

Berry Farm produces organic tomatoes and strawberries.In June 2016,it transported 100 boxes of strawberries with a price of $20 per box to the Bay Farmers' Market.Berry Farm paid an upfront fee of $100 to present its products at the market for one week,and the market earns a 25% profit margin on each item sold,but Berry Farm is responsible for any items that remain unsold at the end of the week. Required: The market was able to sell 65 boxes of strawberries to customers.How much revenue should Berry Farm recognize with respect to this transaction?

The same revenue recognition requirements always apply to franchise arrangements that apply to other selling arrangements.

Bull'sEye sells gift cards redeemable for Bull'sEye products either in-store or online.During 2016,Bull'sEye sold $2,000,000 of gift cards,and $1,800,000 of the gift cards were redeemed for products.As of December 31,2016,$150,000 of the remaining gift cards had passed the date at which Bull'sEye concludes that the cards will never be redeemed.How much gift card revenue should Bull'sEye recognize in 2016?

Which of the following is correct about changes in estimated variable consideration?

The percentage-of-completion method violates the general rule for revenue recognition that:

Optimus Pools,Inc.constructs outdoor swimming pools for wealthy individuals.Recently it obtained an order to build a three-lane swimming pool of 25 yards in length in the customer's backyard.Under the contract,Optimus is also obligated to install a water heater and a filtration system,which are necessary to make a swimming pool fully functional.Total price for the construction was $55,000.Each of these smaller components would typically cost $40,000,$10,000,and 20,000 if installed separately. Required: Given the information above,how many performance obligations are included in this contract?