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Accounting 381 Quiz 2, Section 12:00 1:50 A Score _____/ 15

Name:_______________________

Use the following information for questions 1 and 2. Ramos, Inc. began work in 2007 on contract # !1", which #ro$ided for a contract #rice of %7,200,000. &ther details follow' 2007 200! (osts incurred during the )ear %1,200,000 % ,*7+,000 ,stimated costs to com#lete, as of -ecember 1 ,*00,000 0 .illings during the )ear 1, +0,000 +,"00,000 (ollections during the )ear /00,000 +,!+0,000 1. 0ssume that Ramos uses the #ercentage1of1com#letion method of accounting. 2he #ortion of the total gross #rofit to be recogni3ed as income in 2007 is a. %"+0,000. b. $ 00,000. c. %1,!00,000. d. %2,"00,000.
Construction Expense CIP (DR or CR) Revenue (D/E * Tot Rev) 1,200,000 600,000 1,800,000

Cost to Date (D) Tota" Esti#ate$ costs (E) Contract Revenue Tota" Previous Revenue Reco'ni(e$ Current Revenue Reco'ni(e$

1,200,000 %,800,000

2 ! &,200,000 1,800,000 0 1,800,000

2. 0ssume that Ramos uses the com#leted1contract method of accounting. 2he #ortion of the total gross #rofit to be recogni3ed as income in 200! is a. %/00,000. b. %1, +0,000. c. $2,325,000. d. %7,200,000.
Construction expense CIP *i""in's Contract revenue %,8& ,000 %,8& ,000 &,200,000 &,200,000

Contract revenue "ess+ construction expense ,ross pro-it

&,200,000 %,8& ,000 2,.2 ,000

. 4ow should the balances of #rogress billings and construction in #rocess be shown at re#orting dates #rior to the com#letion of a long1term contract5 a. 6rogress billings as deferred income, construction in #rogress as a deferred e7#ense. b. 6rogress billings as income, construction in #rocess as in$entor). c. Net, a! a current a!!et i" #ebit ba$ance, an# current $iabi$it% i" cre#it ba$ance. d. 8et, as income from construction if credit balance, and loss from construction if debit balance.

". In 200 a construction com#an) began work on a contract with a #rice of %!7+,000 and estimated costs of %*2+,000. -ata for each )ear of the contract are as follows'
200 200" 200+ $187,500 $302,500 $210,000 (osts incurred during the )ear 437,500 210,000 -0,stimated costs to com#lete 150,000 312,500 412,500 .illings 125,000 325,000 425,000 (ollections Under the #ercentage1of1com#letion method of re$enue recognition, the balance of the (onstruction in 6rogress account at the end of 200" would be a. $ 12,500 b. %"/0,000 c. %1+0,000 d. % 27,+00
2003 DR CIP Cas//0P, etc1 18&, 00 18&, 00 CR DR .02, 00 .02, 00 2004 CR

Construction Expense CIP (DR or CR) Revenue (D/E * Tot Rev)

18&, 00 & ,000 262, 00

.02, 00 %&, 00 . 0,000

Cost to Date (D) Tota" Esti#ate$ costs (E) Contract Revenue Tota" Previous Rev Reco' Current Revenue Reco'

18&, 00 62 ,000 8& ,000 262, 00

.0!

%20,000 &00,000 8& ,000 612, 00

&0!

0 ) 262, 00 CIP 18&, 00 & ,000 .02, 00 %&, 00 612, 00

262, 00 . 0,000

+. 8emo, Inc. a##ro#riatel) used the installment method of accounting to recogni3e income in its financial statement. 9ome #ertinent data relating to this method of accounting include' 2007 200! Installment sales %7+0,000 %/00,000 (ost of sales "+0,000 * 0,000 :ross #rofit % 00,000 %270,000 (ollections during )ear' &n 2007 sales &n 200! sales 2+0,000 2+0,000 00,000

;hat amount to be reali3ed gross #rofit should be re#orted on 8emo<s income statement for 200!5 a. %1*+,000 b. $1&0,000 c. %220,000 d. %270,000 e. none of the listed answers "0= > 2+0,000 ? 0= > 00,000 @ 1/0,000 *. In the #roblem abo$e, if 8emo, Inc. instead used the cost reco$er) method of accounting to recogni3e income in its financial statement, how much total reali3ed gross #rofit would be re#orted on 8emo<s income statement for 200' an# 20085 2007 200!

a. % 0 %100,000 b. 2+0,000 ++0,000 c. 00,000 270,000 d. 0 2+0,000 e. none o" t(e $i!te# an!)er! 2007 %0 200! %+0,000

7. Aamberson (om#an) has used the installment method of accounting since it began o#erations at the beginning of 200!. 2he following information #ertains to its o#erations for 200!' Installment sales % 1,"00,000 (ost of installment sales /!0,000 (ollections of installment sales +*0,000 :eneral and administrati$e e7#enses 1"0,000 2he amount to be re#orted on the -ecember 1, 200! balance sheet as -eferred :ross 6rofit should be a. %1*!,000. b. $252,000. c. % *,000. d. %!"0,000 e. none of the listed answers
2008 J/E Insta""#ent 0R Insta""#ent 3a"es Cost o- 'oo$s so"$ Inventor4 Insta""#ent 3a"es Cost o- 'oo$s so"$ De-erre$ ,P Cas/ Insta""#ent 0R De-erre$ ,P Rea"i(e$ ,P (I/3) 1,%00,000 1,%00,000 280,000 280,000 1,%00,000 280,000 %20,000 60,000 60,000 168,000 168,000 Deferred gross profit %20,000 168,000 168,000 2 2,000

!. 0 manufacturer of large equi#ment sells on an installment basis to customers with questionable credit ratings. ;hich of the following methods of re$enue recognition is least likel) to o$erstate the amount of gross #rofit re#orted5 a. 0t the time of com#letion of the equi#ment Bcom#letion of #roduction methodC b. 0t the date of deli$er) Bsales methodC c. 2he installment1sales method #. *(e co!treco+er% met(o# /. 0ntici#ated losses are recogni3ed immediatel) under which of the following methods of recogni3ing re$enue5 6ercentage of (om#letion a. b. c. d. Des 8o ,e! 8o (om#leted (ontract 8o 8o ,e! Des

10. In$entor) is re#orted at cost #lus gross #rofit recogni3ed to date under which of the following re$enue recognition methods5 a. com#leted contract b. installment method c. cost reco$er) #. -ercentage o" com-$etion 11. ;hich one of the following entries would )ou #robabl) not see if an entit) used the #ercentage1of1 com#letion method5 a. .artia$ /i$$ing! 00 1on!truction 2e+enue 00 b. (onstruction ,7#ense >> (onstruction in 6rogress >> (onstruction Re$enue >> c. 0ccounts Recei$able >> 6artial .illings >> d. 6artial .illings >> (onstruction in 6rogress >> 12. (ost estimates on a long1term contract ma) indicate that a loss will result on com#letion of the entire contract. In this case, the entire e7#ected loss should be a. recognize# in t(e current -erio#, regar#$e!! o" )(et(er t(e -ercentage3o"3com-$etion or com-$ete#3contract met(o# i! em-$o%e#. b. recogni3ed in the current #eriod under the #ercentage1of1com#letion method, but the com#leted1contract method should defer recognition of the loss to the time when the contract is com#leted. c. recogni3ed in the current #eriod under the com#leted1contract method, but the #ercentage1of1 com#letion method should defer the loss until the contract is com#leted. d. deferred and recogni3ed when the contract is com#leted, regardless of whether the #ercentage1of1com#letion or com#leted1contract method is em#lo)ed. 1 . 2he E09. concluded that if a com#an) sells its #roduct but gi$es the bu)er the right to return the #roduct, re$enue from the sales transaction shall be recogni3ed at the time of sale onl) if all of si7 conditions ha$e been met. ;hich of the following is not one of these si7 conditions5 a. 2he amount of future returns can be reasonabl) estimated. b. 2he sellerFs #rice is substantiall) fi7ed or determinable at time of sale. c. 2he bu)erFs obligation to the seller would not be changed in the e$ent of theft or damage of the #roduct. #. *(e bu%er i! ob$igate# to -a% t(e !e$$er u-on re!a$e o" t(e -ro#uct. 1". 2rue or Ealse' -ela)ed recognition of re$enue is a##ro#riate if the sale does not re#resent substantial com#letion of the earnings #rocess. B(ircle oneC *rue Ealse

1+. Re$enues are reali3ed when a com#an) e7changes goods and ser$ices for cash or claims to cash.

*rue

Ealse

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