Multiple Choice Answers

1. The installment method is usually associated with (Points : 2)
revenue recognition in the period of sale
revenue recognition prior to the period of sale
revenue recognition after the period of sale
revenue recognition delayed until a future event occurs
2. The percentage-of-completion method does not (Points : 2)
recognize profit each period during the life of the contract in proportion to the portion of the contract completed during the period
value the inventory at cost less any partial billings
give precedence to economic substance over legal form
value the inventory at the costs incurred plus the profit recognized to date less any partial billings
3. In real estate sales, what method of revenue recognition must be used if the sale is not consummated? (Points : 2)
deposit method
cost recovery method
installment method
completed-contract method
4. The Naples Company uses the percentage-of-completion method and the cost-to-cost method for its long-term construction contracts. On one such contract, Naples expects total revenues of $260,000 and total costs of $200,000. During the first year, Naples incurred costs of $50,000 and billed the customer $30,000 under the contract. At what net amount should Naples’ Construction in Progress for this contract be reported at the end of the first year? (Points : 2)
$30,000
$35,000
$50,000
$65,000
5. A Provision for Loss on Contract is reported in the financial statements as a(n) (Points : 2)
contra-asset account
other expense account
operational expense account
contra-liability account
6. Inventory is increased from cost to selling price when revenue is recognized
During Production | At Time of Sale | At Time of Cash Receipt (Points : 2)
No No No
Yes No Yes
No No Yes
Yes No No
7. In 2010, Alpha Construction began work on a contract with a price of $850,000 and estimated costs of $595,000. Data for each year of the contract are as follows:
2010    2011    2012
Costs incurred during the year           $238,000         $319,600         $105,000
Estimated costs to complete  357,000           139,400           -0-
Partial billings            260,000           210,000           380,000
Collections     240,000           200,000           410,000
Under the percentage-of-completion method of revenue recognition, the balance in Construction in Progress at the end of 2011 would be (Points : 2)
$557,600
$659,600
$680,000
$782,000
8. In 2010, Alpha Construction began work on a contract with a price of $850,000 and estimated costs of $595,000. Data for each year of the contract are as follows:
2010    2011    2012
Costs incurred during the year           $238,000         $319,600         $105,00
Estimated costs to complete  357,000           139,400           -0-
Partial billings            260,000           210,000           380,000
Collections     240,000           200,000           410,000
Under the percentage-of-completion method of revenue recognition, gross profit in 2010 would be (Points : 2)
$102,000
$260,000
$255,000
$425,000
9. A company may recognize revenue in full at the time of a sale if (Points : 2)
the probability of collection is not reasonably assured
there is a very high degree of uncertainty about the collectibility of the sales price
the collection of the sales price is improbable
the collectibility of the sales price is not an issue
10. The following information is provided for the Tampa Company:
2010    2011
Cost of goods sold      $ 8,000            $ 9,000
Cash collected:
On 2010 sales 4,000   5,000
On 2011 sales             2,000
Sales   10,000 12,000
If Tampa used the installment sales method, how much gross profit did Tampa Company report in 2010? (Points : 2)
$800
$2,000
$3,200