Accounting Eercise 2

| April 14, 2018

EX 21. Several different parties are charged with the responsibility for discovering accounting errors and irregularities. These include all of the following EXCEPT the:A. company’s internal audit staff.B. company’s external auditors.C. SEC.D. company’s legal counsel.2.If the critical event and measurability conditions are satisfied, revenue may be recognized before the sale:A. as production takes place.B. when the customer pays in advance.C. if the seller legally owns the goods.D. when the customer purchases on credit.’3.Under the installment sales method, interest charged by the sellers is:A. immaterial and GAAP allows it to be combined with recognized gross profit.B. recognized out of the last cash collection of the sale.C. recorded separately out of the periodic cash proceeds.D. recognized out of the first cash collection of the sale.4.When losses occur on long-term contracts using the percentage-of-completion method, they are recognized:A. in their entirety as soon as it becomes known that a loss will be suffered.B. at the completion of the project.C. proportionately over the contract period using costs incurred as a base.D. evenly over the contract period.5.The Sarver Farm has completed the fall harvest with 50,000 bushels of premium wheat. The wheat cost $75,000 from planting to harvest and the market price of the wheat on the day it is placed in the silo is $2.50 per bushel. Sarver sells 42,000 bushels in Year 1 and holds the remaining 8,000 until Year 2 when it sells for $3.00 per bushel.Using the market price (production) method, how much net income should Sarver recognize in Year 1?A. $42,000B. $50,000C. $105,000D. $125,0006.Under the percentage-of-completion method of revenue recognition, the percentage-of-completion ratio is computed by dividing:A. profits earned to date by estimated total profits.B. costs incurred to date by estimated total costs.C. costs incurred to date by the contract price.D. profits earned to date by the contract price.7.Cost-plus contracts:A. refer to contracts that are modified from their original terms during the course of the contract.B. refer to contracts where the contractor is not expected to recover all costs incurred in completing the project.C. are only used in countries where IFRS rules are followed.D. are those for which the contractor is reimbursed for allowable or otherwise defined costs plus a profit markup.8.When accounting for sales where the risk of non-collection of installments is high or when there is no reasonable basis for estimating uncollectible accounts, IFRS:A. requires use of the installment sales method.B. permits either the cost recovery or the installment sales method.C. takes a more conservative approach than that allowed under U.S. GAAP.D. takes a less conservative approach than that allowed under U.S. GAAP.9.The Sarver Farm has completed the fall harvest with 50,000 bushels of premium wheat. The wheat cost $75,000 from planting to harvest and the market price of the wheat on the day it is placed in the silo is $2.50 per bushel. Sarver sells 42,000 bushels in Year 1 and holds the remaining 8,000 until Year 2 when it sells for $3.00 per bushel.Using the completed transaction (sales) method, how much net income should Sarver recognize in Year 1?A. $42,000B. $50,000C. $105,000D. $125,00010.When the outcome of a fixed-price contract cannot be reliably estimated, IFRS:A. permits firms to use either the completed contract method or the cost-recovery method to account for the contract.B. rules do not permit firms to use the completed contract method.C. follows the same accounting method required by U.S. GAAP.D. permits considerable latitude when accounting for the contract.11.The key accounting issue related to bundled (multiple-element) sales transactions:A. is the timing of revenue recognition.B. is the amount of revenue to recognize over the life of the contract.C. hinges on whether or not the customer has the ability to pay for the contracted services.D. concerns the amount of revenue to allocate to each contract element.12.Under the percentage-of-completion method, the profit to be recognized in any year is based on the ratio of:A. incurred contract costs divided by estimated total contract costs.B. incurred contract costs multiplied by estimated total contract costs.C. estimated total contract costs divided by incurred contract costs.D. estimated total contract costs multiplied by incurred contract costs.13.Once a decision to restructure is made, GAAP requires companies to:A. accrue for the cost of services to be provided in some future period by lawyers and accountants.B. overstate estimated charges for future expenditures when such charges are difficult to measure.C. take excessive restructuring write-offs thereby complying with the conservatism principle.D. estimate the future costs they expect to incur to carry out the restructuring.14.Under the cost recovery method of revenue recognition income is recognized:A. on a proportionate basis as the cash is received from the sale.B. immediately.C. when the cash received from the sale exceeds the cost of the product sold.D. when all of the cash has been received.15.Academic studies have found that actual earnings:A. fall randomly around the consensus estimate.B. tend to come in at or above the forecast.C. almost never seem to beat estimates by a penny or two a share, no matter what the economic conditions.D. rarely are close to analysts’ forecast earnings for the company.16.In an effort to “clean up” company balance sheets, managers have often:A. taken minimal restructuring write-offs.B. understated estimated charges for future expenditures.C. overstated estimated charges for future expenditures.D. been required to invest their own assets in the company.17.Revenue from nonrefundable up-front fees:A. can never be recognized.B. must be recognized immediately.C. is not allowed under GAAP.D. is usually deemed to be earned as the services are delivered over the full term of the service contract18.If the critical event and measurability conditions are NOT satisfied, revenue may be recognized AFTER the sale:A. when legal ownership passes to the seller.B. when cash is collected.C. as the goods are shipped.D. on the receipt of goods by the customer.19.When goods are shipped on consignment:A. revenue should be recognized by the manufacturer or seller on delivery.B. revenue should not be recognized by the manufacturer or seller on delivery.C. the risk of ownership of the goods is passed on to the distributors.D. they are always counted in the customer’s inventory.20.GAAP specifies that for a seller to record revenue at time of sale when right of return exists the following conditions must be met EXCEPT the:A. seller’s price to the buyer is substantially fixed or determinable at the date of sale.B. buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.C. buyer’s obligation to the seller does not change in the event of theft or physical destruction or damage of the product.D. buyer is a special purpose entity established by the seller for the sole purpose of buying and reselling the seller’s product.

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