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Student: ___________________________________________________________________________
1. Receipt of cash by the seller at the time of sale is not required for the recognition of revenue.
True False
2. In accounting, the term "revenue recognition" refers to measuring the expense related to the revenue for a
specific period.
True False
3. Generally, expenses incurred to generate revenues should be matched to the revenues recognized in a given
period.
True False
4. The percentage-of-completion method of accounting for long-term construction projects is supported on the
basis that it is more conservative than the completed contract method.
True False
5. Non-refundable deposits automatically meet the criteria for immediate revenue recognition.
True False
6. The sale of a company's land would necessarily result in a gain or loss, and not a revenue or expense.
True False
7. Revenues for certain commodities with a readily available market may be recognized at production since
uncertainties with respect to the sale are likely to be minimal.
True False
8. The percentage- of -completion method of accounting for long-term construction-type contracts is preferable
when estimates of costs to complete and extent of progress toward completion are reasonably dependable.
True False
9. Revenues from peripheral transactions are considered gains, while those from a company's principal line of
business would be considered sales or revenues.
True False
10. When rent is received in advance the event that triggers revenue recognition is the passage of time.
True False
11. Warranty costs related to goods sold on instalment sales should not be accrued.
True False
12. Revenue should not be recognized if the buyer's obligation to pay the seller is contingent on the resale of the
product.
True False
13. The instalment method may be used to recognize revenues when collection is not certain.
True False
14. "Billings on contracts" is a contra account to "Accounts Receivable."

True False
15. When goods are sold, the event which triggers revenue recognition is the delivery of the goods.
True False
16. The percentage-of-completion and completed contract methods will produce different periodic income
amounts, but the Accounts Receivable balances will be equal.
True False
17. When goods are sold, revenue may still be recognized if there is an insignificant degree of continuing
managerial involvement in some instances.
True False
18. The percentage-of-completion method for long-term construction contracts can be used if at least the
ultimate collection of the contract price is reasonably certain.
True False
19. The instalment method of revenue recognition has limited use because it cannot be used when the sales
method or any other GAAP method can be used.
True False
20. When one company is acting as an agent on behalf of another company or individual, it will normally report
revenues on a net basis.
True False
21. Economic Value Added (EVA) is the difference between a product's input cost and final sales price. This
figure is dependent up on the firm's earnings process.
True False
22. A purchase order received from a client would trigger a journal entry under the earnings-based revenue
recognition approach, but not on the contract-based approach.
True False
23. As a general rule, the greater the uncertainty involved with respect to a sales transaction, the more we would
delay revenue recognition.
True False
24. Under IFRS, sales contracts with multiple deliverables may be treated as though they were a single element,
for the sake of simplicity.
True False
25. Under IFRS, sales contracts with multiple deliverables should be split according to their relative fair values
if possible, and accounted for accordingly.
True False
26. Under IFRS, goods sold under Bill and Hold provisions must be on hand and ready for immediate delivery
if revenue is to be recognized.
True False
27. Biological assets are generally recognized at net realizable value, with gains and losses flowing through
income.
True False
28. If a client presents an extreme credit risk, the seller would be more likely to use the Installment Sales
method to account for the transaction than the Cost Recovery Method.
True False
29. In the critical event that the revenue is not recognized at the time of the sale due to a return privilege, the
gross margin is to be recognized only after the return privilege has expired.
True False
30. The use of actual and expected costs to determine the percentage of completion on a long term project is an
example of an output method approach to evaluating contract progress.
True False
31. Under IFRS, interest revenue must be recognized using the effective interest method, and dividend revenue
must be recognized when the right to receive them has been established, and there are no significant
uncertainties.
True False
32. When a barter transaction has no commercial substance, a gain or loss must always be recognized on the
income statement as a result of the exchange.
True False
33. When goods are sold f.o.b. shipping point, the revenue earnings process is usually not considered to be
complete until the buyer has received the goods and inspected them.
True False
34. The earliest point at which all criteria for revenue recognition are met is known as a critical event.
True False
35. When a grocery store sells groceries and receives payment in the form of a cheque, the revenue principle
would state that the revenue should not be recognized until the cheque clears the bank.
True False
36. When a one year-lease-term is signed, the lessor earns revenue with the passage of time.
True False
37. Revenues must always be recognized at a single point in time.

True False
38. If sales are made on "FOB destination" terms, the revenue earning process is completed when the products
are removed from the seller's place of business by the common carrier.
True False
39. If fair values cannot be determined during a barter transaction, the book value method must be used.
True False
40. Under the percentage-of-completion method of accounting for long-term construction contracts, revenue is
recognized only when the construction is completed.
True False
recognized as construction progresses (usually on the basis of costs incurred) to attain a matching of revenues
and expenses.
True False
42. Under the completed contract method, all construction costs are accumulated in an inventory account.
True False
43. Under ASPE, biological assets are valued in a manner similar to other industries, i.e. using the lower of cost
and NRV.
True False
44. When cash is collected on account and the instalment sales method is used, the debit is to instalment
accounts receivable and the credit is to cash.
True False
45. The completed-contract method of revenue recognition recognizes revenue on a long-term project as work
progresses so that timely information is provided.
True False
46. Payment on account of progress billings, when using the percentage of completion method of recognizing
revenue are debited to cash and credited to progress billings.
True False
47. A long-term contract is automatically considered onerous if a loss is recognized in any given year.
True False
48. If it becomes apparent that a long term project will result in a loss, the full amount of the loss must be
accounted for in the year it is first estimable.
True False
49. Most construction companies cannot afford to wait until the completion of the contract to collect their
billings.
True False
50. When using completed contract method of recognizing revenue, the billings to the customer are debited to
cash and credited to progress billings.
True False
51. ABC Inc. sold a DVD player to a client on June 30th, Year 2 for $150. The DVD player, which came with a
2-year warranty, was thought to be worth $100 if sold without the warranty.
As a result of this sale, how much sales/revenue would ABC Inc. take into income on its December 31st, Year 2
income statement?
A. $100.00
B. $112.50.
C. $125.00
D. $150.00
52. Which of the following would not be considered a multiple-deliverable arrangement?

A. A product sold with a manufacturer's warranty, where both the product and warranty have separately
identifiable revenue streams.
B. A product sold with a manufacturer's warranty which covers only product assurances, where only the product
has a separately identifiable revenue stream.
C. Customer Loyalty Programs.
D. Franchise Fees
53. In a normal sale, generally the most uncertain factor in the revenue recognition process is:
A. The seller's fulfillment of its responsibility in the transaction
B. The measurability of the resource or item received by the seller
C. The realizability of the resource or item received by the seller
D. The relevance of the resource or item received by the seller
54. Which of the following is not required for the recognition of revenue?
A. Receipt of cash by the seller at the time of sale.
B. Seller must receive an item ultimately realizable in cash, noncash resources, or claims to cash.
C. The earnings process must be essentially complete.
D. The transaction must create a measurable financial statement element which fulfills the definition of a
revenue.
55. In accounting, the term "revenue recognition" refers to:

A. Measuring the expense related to the revenue for a specific period.
B. Identifying sources of revenue.
C. Identifying transactions that result in an inflow of cash from customers.
D. Identifying the period when the customer first indicates the need for a good or service.
E. Identifying transactions that should be recorded as revenue in the current reporting period.
56. The revenue principle states that revenue should be recognized only when a(n):
A. Exchange transaction involving goods and services has occurred and a cash down payment has been
received.
B. Exchange transaction involving goods or services has occurred and the earnings process is essentially
completed.
C. Sale or service transaction has occurred.
D. Completed earnings process can be projected.
57. In selecting an accounting method for a newly contracted long-term construction project, the principle factor
to be considered should be:
A. The terms of payment in the contract.
B. The kind of technical facilities used in construction.
C. How reliable would an estimate be of the progress toward contract completion?
D. The method usually used by the contractor to account for other long-term construction contracts.
58. When work to be done and costs to be incurred on a long-term contract cannot be reliably estimated, which
of the following methods of revenue recognition is preferable?
A. Percentage-of-completion method
B. Completed contract method
C. Sales method
D. Instalment method
59. Which of the following statements regarding the percentage-of-completion and completed contract methods
of accounting for long-term construction contracts are true?
A. They recognize different amounts of income for the construction period.
B. They produce the same inventory carrying values during the construction period.
C. Neither requires losses to be recognized in the period of occurrence.
D. Under only the percentage of completion method is it possible to recognize a loss for the period when an
overall profit is expected on the contract.
60. Which of the following is not a difference between the percentage-of- completion and completed contract
methods of accounting for long-term construction contracts?
A. One requires estimates of completion during the construction period and the other does not.
B. One records income (loss) each period during the construction period and the other does not.
C. They report different inventory amounts during the construction period.
D. They cause different cash inflows during the construction period.
basis that it:
A. Understates cost of goods sold.
B. Better conforms to the cost principle.
C. Produces a realistic matching of expenses with revenues.
D. is more conservative than the completed contract method.
62. Choose the correct statement concerning the percentage-of-completion method of accounting for a firm with
only one current long-term construction contract in process (assume no loss is projected):
A. The net current asset account (net of construction- in- process, and billings) exceeds that same account under
the completed contract method.
B. If the construction- in- process account exceeds the billings account, total costs to date must exceed total
billings to date.
C. If the construction- in- process account exceeds the billings account, total costs to date must exceed total
cash received on the contract to date.
D. It is possible to have both a net current asset account and a net current liability account in this situation.
63. Which of the following is the most conservative (slowest to recognize) revenue recognition method?
A. Cost recovery method
B. Instalment method of revenue recognition
C. Production method
D. Percentage of completion method
64. During the period of construction, financial information related to a long-term contract, which is being
accounted for using, the completed contract method will:
A. Appear only on the income statement during the period of construction.
B. Appear on both the income statement and balance sheet during the construction period.
C. Not appear on the financial statements.
D. Appear only on the balance sheet during the period of construction.
65. Why is construction- in- progress increased by the annual recognized profit on long-term construction
contracts?
A. Because the contract price has increased.
B. Because the cost of the project is reduced.
C. Because work has been done.
D. Because the project's value is increased above cost.
66. Choose the correct description of the net balance of costs in excess of billings on long-term contracts.
Assume only one current contract, and that contract price does not equal total estimated contract cost at the end
of the current year.
A. Under completed contract, the balance equals cost plus billings.
B. Under completed contract, the balance equals total estimated profit less billings.
C. Under percentage of completion, the balance equals cost to date less billings, if profit has been recognized.
D. Under percentage of completion, the balance equals cost to date less billings, less total projected loss.
67. The principle disadvantage of using the percentage-of-completion method of recognizing revenue from
long-term construction contracts is that it:
A. May require that inter-period tax allocation procedures be used.
B. is likely to assign a small amount of revenue to a period during which much revenue actually was earned.
C. is unacceptable for tax purposes.
D. Gives results based upon estimates, which may be subject to considerable uncertainty.
68. The percentage-of-completion and completed contract methods of accounting for long-term construction
contracts will produce:
A. The same amount of income in the year of completion.
B. The same inventory carrying value each year during the construction period.
C. Equal balances each period in the Billings On Contracts account.
D. The same cost of construction (expense) each year for a project.
69. Under the completed contract method of income recognition on long-term construction contracts:
A. The balance in the "Construction-in-Progress" account is reported on the balance sheet as a long-term asset
until the date of completion.
B. The accumulated amount in the "Construction-in-Progress" account is essentially the amount of cost of
goods sold at completion date.
C. Income is accumulated in the "Construction-in-Progress" account.
D. "Construction-in-Progress" is reduced when billings are collected.
70. Under the percentage-of-completion method of income recognition on long-term construction contracts:
A. No income amount is closed each period to income summary.
B. The ending inventory is the same as it would be if accounted for under the completed contract method.
C. Income is accumulated in the "Construction-in-Progress" inventory account.
D. The percentage of completion in any year depends on the proportion of billings collected.
71. On April 30, Green Ltd. sold land with a book value of $600,000 to Brown Ltd. for its market value of
$800,000. Brown Ltd. gave Green Ltd. a 12 percent, $800,000 note secured only by the land. At the date of sale,
Brown Ltd. was in a very poor financial position and its continuation as a going concern was very questionable.
Green Ltd. should:
A. Record a $200,000 gain on the sale of land.
B. Fully reserve the note by creating an allowance contra account.
C. Use the cost recovery method of accounting.
D. Record the note at its discounted value.
72. Net instalment accounts receivable is $5,000. Assume the instalment method of revenue recognition is used
and a gross profit percentage of 20%. Therefore:
A. $5,000 at sales price has not been collected
B. $1,250 of gross profit has been recognized
C. $6,250 at sales price has not been collected
D. $6,250 of cost has not been collected
73. The instalment method of revenue recognition may be used

A. For ordinary sales
B. For lay-away sales
C. When the sales contract calls for instalment payments
D. When there is considerable uncertainty as to the realizability of the entire sales price
74. Revenue is recognized at the time of sale under the:
A. Cost recovery method.
B. Collection method.
C. Percentage-of-completion method.
D. Instalment method.
E. Sales method when goods are sold on credit.
75. Under the instalment method of revenue recognition, when interest is charged, each cash collection made
after the sale is composed of:
A. Interest
B. Interest and profit
C. Interest, cost and profit
D. Interest and cost
76. Grocery stores recognize most of their revenue based on the:

B. Specific performance method.
C. Proportional performance method.
E. Sales method.
77. Which of the following bases of revenue recognition reflects the greatest degree of uncertainty about future
critical events?
A. Sales method applied to sales of a department store
B. Cost recovery method applied to a bond investment
C. Production method on cost-plus-fixed-fee contract
D. Percentage-of-completion method on construction contract
78. Revenue is recognized prior to the time of sale under the:

A. Specific performance method.
B. Completed contract method.
C. Instalment sales method.
D. Production method.
79. Which of the following methods of revenue recognition is appropriate for use by a real estate broker whose
sole activity is sale of realty on a commission basis?
A. Completed performance method
B. Specific performance method
C. Collection method
D. Proportional performance method
80. A corporation incurred $111,000 costs to extract a diamond. The diamond turned out to be flawed, so the
company decided to break it into small pieces and sell diamond chips. The company was uncertain if the
diamond chips would sell at all. The diamond chips did sell, and the company had the following sales and
accounts receivable balances over the five following years:
The accountant recommended that the company use the cost recovery method of income recognition. Using
this method, the company will recognize revenue as follows:
A. Choice 1
B. Choice 2
C. Choice 3
D. Choice 4
E. Choice 5
81. A corporation sold goods for $10 million during 2007. Of this amount, $6 million were in cash, and $4
million was on account. However, the company collected $2 million of the sales on account during 2007. In
conformity with the revenue principle, the amount of revenue that should be recognized in 2007 is:
A. $2 million
B. $4 million
C. $6 million
D. $8 million
E. $10 million
82. Big Construction Company ("BCC") entered into a contract with the provincial government to construct a
hospital. At the time of the contract, it was estimated it would take three years to complete the facility at a cost
of $6,580,000. The contract was priced at $7,200,000. During the first year, BCC incurred $2,171,400 in
construction costs related to the project and the estimated cost of completion was $4,408,600. In the second
year, construction costs of $2,603,000 were incurred and estimated cost of completion was $2,685,600. In Year
3 the company incurred $1,525,600 to complete the project. The amount of profit or loss to be recognized in the
second year of this contract would be:
A. a loss of $260,000.
B. a profit of $620,000.
C. a loss of $464,600.
D. a profit of $520,000.
83. A construction company has contracted with a major university to build a new sports complex. The contract
calls for two sports arenas to be built in the next three years. The company will receive $24,000,000 for the
project and their engineers originally estimated a total cost to construct the two arenas of $20,400,000. The two
arenas are scheduled for completion in May of 2007. If an actual cost of $9,200,000 is expended in 2004, and
the engineers estimate another $12,800,000 is to be expended to complete construction, how much income is to
be recognized under the percentage-of-completion method in 2004?
A. $836,364
B. $1,163,636
C. $2,000,000
D. $3,600,000
84. A construction company uses the percentage-of-completion method of accounting. In 2007, the company
began work on a government contract which had a contract price of $4,000,000 and estimated costs of
$3,000,000. Additional data were as follows:
The portion of the total contract income to be recognized during 2007 is:
A. $120,000
B. $200,000
C. $250,000
D. $1,000,000
85. A construction company uses the percentage-of-completion method for long-term construction contracts. A
particular job was begun in 2006 and completed 2008. During 2007, it appeared that the project would cost 25
percent more than originally expected. Data at each year-end are given below:
The contract price was $700,000. Assuming the company properly recorded income in 2006, how much income
should be recorded in 2007?
A. $10,000
B. $42,000
C. $160,000
D. $192,000
86. Under the percentage- of -completion method, a company has recognized $40,000 of profit through to the
beginning of the current year on a contract, and total estimated contract cost is $500,000 at that time. The
contract price is $800,000. What is the percent of completion at the beginning of the current year?
A. 13.33%
B. 15.8%
C. 8%
D. Insufficient data
87. Given the following data, what is profit in 2007 under the percentage- of- completion method for a project
begun in 2006 with a contract price of $1,000?
A. $104
B. $129
C. $86
D. $61
88. Given the following data, what is the balance in construction- in- process at the end of 2006 under the
percentage of completion method for a project begun in 2006 with a contract price of $1,100?
A. $100
B. $38
C. $138
D. $400
89. Under the percentage of completion method, $400 of profit has been recognized in prior years on a project
with a contract price of $5,000. Data available as follow:
What profit or loss is recognized in the current year?

A. $900 loss
B. $400 loss
C. $500 loss
D. no profit or loss
90. A company which began operations on January 1, 2006, (and appropriately uses the instalment sales method
of accounting) has the following data available for 2006 and 2007:
The realized gross profit for 2007 would be:

A. $1,120
B. $1,840
C. $2,080
D. $2,880
91. A company during its first year of operation appropriately uses the instalment method of accounting. The
following information is available for the year on instalment sales:
The total amount of the company's instalment sales for the year was:
A. $30,000
B. $34,500
C. $42,500
D. $52,500
92. A firm uses the instalment method of revenue recognition on an item with a cash selling price of $1,000 and
cost of $600. During the year of sale, the firm received $250 from the customer. Therefore, the net instalment
account receivable equals which of the following amounts at the end of the year of sale?
A. $750
B. $450
C. $300
D. $400
cost of $600. During the year of sale, the firm received $250 from the customer. Thereafter, no more cash is
received. The firm repossesses the item, worth $500 at that time. The entry to record the repossession includes:
A. Loss $350
B. Loss $250
C. Gain $200
D. Gain $50
94. A corporation, which began business on January 1, 2006, appropriately uses the instalment sales method of
reporting for accounting purposes. The following data were available for the years 2006 and 2007:
The balance in the deferred gross profit control account on December 2007 should be:
A. $159
B. $210
C. $315
D. $525
95. Given the following data for a firm which uses the percentage of completion method on long-term
construction contracts, determine the ending balance of the account which is the net of Construction- in-
Process, and Billings on Contracts, at the end of Year 1, the first year of this project.
A. Costs in excess of billings $5,000

B. Billings in excess of costs $2,000
C. Costs in excess of billings $14,000
D. Billings in excess of costs $667
96. The January 1, 2006 status of long-term construction project No. 6 follows. Assume the completed contract
method.
On December 31, 2006, the estimated remaining cost to complete was still $40,000, and $25,000 of cost had
been incurred during 2006. What is the January 1, 2007 balance of Construction- in- Process?
A. $30,000
B. $40,000
C. $45,000
D. $50,000
97. Which of the following would be used in the calculation of the income recognized in the third and final year
of a construction contract which is accounted for using the percentage-of-completion method?
A. Choice 1
B. Choice 2
C. Choice 3
D. Choice 4
98. The completed contract method of accounting for long-term construction-type contracts is preferable when:
A. Estimates of costs to complete and extent of progress toward completion are reasonably dependable.
B. The contracts are of a relatively long duration.
C. A contractor is involved in numerous projects.
D. Lack of dependable estimates or inherent hazards cause forecasts to be doubtful.
99. When progress billings are sent on a long-term contract, what type of account should be credited under the
completed contract method and percentage-of-completion method?
A. Choice 1
B. Choice 2
C. Choice 3
D. Choice 4
100. The percentage-of-completion method of accounting for long-term construction-type contracts is

preferable when:
A. A contractor is involved in numerous projects.
B. The contracts are of a relatively short duration.
C. The collectability of progress billings from the customer is reasonably assured.
D. Estimates of costs to complete and extent of progress toward completion are reasonably dependable.
101. A sale should NOT be recognized as revenue by the seller at the time of sale if:
A. payment was made by cheque.
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. the goods are sold on credit.
102. When work to be done and costs to be incurred on a long-term contract can be estimated dependably,
which of the following methods of revenue recognition is preferable?
A. Instalment method.
B. Percentage-of-completion method.
C. Completed-contract method.
D. None of these answers are correct.
103. The criteria for recognition of revenue at 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 of production are interchangeable.
D. All of these answers are correct.
104. 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.
began work on a government contract, which had a contract price of $4,000,000 and estimated costs of
Calculate the gross profit to be recognized during 2007.
106. A construction company has consistently used the percentage-of-completion method of recognizing
income. In 2007, the company started work on a $6,000,000 construction contract, which was completed in
2008. The accounting records disclosed the following data:
Calculate the amount of income that should have been recognized in 2007.
107. Given the following data, calculate profit recognized in 2007 under the percentage of completion method
for a project begun in 2007 with a contract price of $1,000?
109. A company began work on a government contract at the start of 2007. The contract was to construct a
special building for $4,000,000. In making the bid, construction costs were estimated to be $3,000,000. Data
during the construction period was:
How much income on the contract would be reported for each year assuming:
(a) Completed contract method?

2007: $______________ 2008: $_______________.
(b) Percentage-of-completion method? (basis: estimated costs to complete)
2007: $________________ 2008: $_______________.
110. A company entered into a contract to construct a building for a fee of $50,000. Construction began in 2006
and was completed in 2008. Transactions related to the contract are summarized below:
Compute the income that should be recognized each year using (a) the percentage-of-completion method and
(b) the completed contract method.
(a) $____________ $_______________ $______________

(b) $____________ $_______________ $______________
111. A construction company entered into a three-year contract to erect a building for a customer. Its original
bid on the job was for $3,600,000 but this was revised upward in year 3 to $3,900,000 because the customer
negotiated for some "extras" (modification in the original specifications). A cumulative history of costs incurred
and cost expectations throughout the three years the contract was in progress is set out below. Give the income
to be reported (a) using the percentage-of-completion method, and (b) using the completed contract method.
(a) Income using percentage-of-completion
(b) Income using completed contract

112. A shipyard contracted with a foreign government to build a small naval vessel. The contract calls for the
foreign government to pay the shipyard $10,000,000 upon the completion and delivery of the vessel in 2008.
The shipyard engineers estimated the costs to complete the vessel at $8,200,000. Under each of the situations
that follow, show the income that would have to be reported assuming the percentage-of-completion method is
used to recognize income. Show your computations.
a. Income to be reported in 2006, assuming $2,000,000 has been spent and the engineers estimate an additional
$6,800,000 will be spent to complete the vessel. 2001 income that should be reported is (circle one):
Computations:
b. Income to be reported in 2007, assuming $6,000,000 has already been spent and the engineers estimate an
additional $3,4000,000 will be spent to complete the vessel. 2007 income is (circle one):
Computations:
c. Income to be reported in 2008, assuming $8,800,000 has already been spent to complete and deliver the
vessel to the foreign government, which immediately paid their bill. 2008 income is (circle one):
Computations:
113. The following data are available from a company for a long-term construction contract:
The contract price for the three-year contract was $2,100,000 and the estimated cost at the beginning of the
contract was $1,800,000.
(a) What is the amount of income that will be reported under the percentage-of-completion method in 2006?
$
(b) What is the amount of income that will be reported under the percentage-of-completion contract method for
2007?
$
(c) What is the amount of income that will be reported under the percentage-of-completion contract method for
2008?
$
114. The records of a construction company provided the following data on along-term construction contract (3
years), which was just completed.
Construction contract price. $1,425,000
Estimated total cost (at start). $1,200,000
Costs incurred to date
Progress billings to date
Progress collections to date
Complete the following partial financial statements for each year (assume percentage-of-completion is based on
costs incurred to total costs) (Hint: complete CC for all years, then complete PC)*:
*CC = Completed contract; PC = Percentage of completion.

115. On January 1, 2007, a contractor started a construction project for $1,350,000; estimated construction costs
(total) were $1,050,000. Data for the two-year period:
Based upon the above data, provide the following amounts for each method:
116. A construction company signed a contract to build a plant for a customer. Construction covered a four-year
period. Data concerning the construction were as follows:
Actual results:
*No change in estimated costs.

Using the information above, answer the following questions:
(a) How much income will be reported in Years 1, 2, 3, and 4 if the completed contract method is used?
(b) How much income will be reported each year if the percentage-of-completion method is used?
(c) What net amount would be reported on the balance sheet for contracts in process at the end of year 1 if the
completed contract method is used?
$
(d) What net amount would be reported on the balance sheet for contracts in process at the end of year 1 if the
percentage-of-completion method is used?
$
117. On June 15, 2007, AB Construction Company signed a $180,000 contract to build a small structure for XY
Company. AB estimated that total cost to construct would be $160,000. Construction started immediately
because the required completion date was August 31, 2008. AB's relevant data relating to this construction
project were as follows:
Required:
1. How much income should AB recognize each year, assuming:
(b) Percentage-of-completion
2. What amounts should AB report on the balance sheet at the end of each year for:
Completed contract method
Percentage-of-completion method
(b) Construction in process, assuming:
3. Give the entry to record income for 2007, assuming the percentage-of-completion method is used.
118. On January 1, 2007, a corporation signed a contract to build a specially designed plant; the relevant data
were (in 000's):
Data during construction period (January, 1, 2007-December 31, 2008):
Required:
(1) Give the following amounts that should be reported on the income statement and balance sheet:
(a) Income from
(b) Accts. Receivable

(c) Inv. Construction
(2) Give the entry to record 2007 construction income at December 31, 2008, for the percentage-of-completion
method.
119. A large construction firm, which uses the percentage of completion method, provided the following
information concerning one of its contracts (contract price, $1,000).
Refer to the following two questions. The answer to question (b) depends on the answer to (a).
(a) What is the balance in construction in process at the end of year 1?

(b) Assume that $600 is the estimated remaining cost at the end of year 2. Provide the entry to record revenue
for year 2. Explain the ending balance in construction in process.
120. A company sold goods for $100,000 during 2007. Of this amount, $60,000 was cash and $40,000 was on
account. The company collected $20,000 of the sales on account during 2001. In conformity with the revenue
principle, the amount of revenue that should be recognized in 2007 is ___________________.
121. A company incurred the following costs and received the following collections from customers
(a) If the company used the cost recovery method of revenue recognition, the income that should be recognized
in 2003 is ___________________.
(b) If the cost recovery method continues to be used through 2004, the amount of 2004 income that should be
recognized is ____________________.
122. The following data relates to a firm, which grants a liberal right of return to its customers:
The firm is unable to estimate returns
Required:
(a) The summary entries to account for sales-related transactions during the year, and any adjusting entries
(assume a perpetual inventory system).
(b) The relevant ending balance sheet accounts, and the income statement.
(c) The entry during the following year assuming the $5,000 of goods is returned before the return privilege
expired.
(d) The entry during the following year assuming the return privilege expired on the $5,000 of accounts
receivable.
The firm anticipates a 30% total

sales return rate and all other
criteria are met.
Required:
(c) The entry during the following year assuming that $10,000 of goods is returned before the return privilege
expired.
(d) The entry during the following year assuming that only $8,000 of goods are returned before the return
privilege expired.
124. A firm sold merchandise costing $600 for $1,000 on January 1, 2001. The selling firm accepted a note with
terms calling for two equal annual payments (which include 10% interest, and principal) beginning December
31, 2001. There is sufficient uncertainty about the realizability of the two payments to warrant the instalment
method of revenue recognition.
Required: assuming the 2 payments were received as expected, provide the entries to account for the sale and
cash collections (assume a perpetual inventory system).
125. The following information relates to the sale of an item of merchandise:
For each of the independent revenue recognition situations below, determine the net balance in accounts
receivable given the above information, and provide an interpretation of each.
(1) The right of return on the sale has not expired; all criteria of CICA Handbook Sec. 3400 are met and this
item is not expected to be returned.
(2) The right of return on the sale has not expired; not all criteria of CICA Handbook, Sec. 3400 are met.
(3) The instalment method of revenue recognition is used to account for the sale.
(4) The cost recovery method of revenue recognition is used to account for the sale.
(5) Answer (4) assuming $80 cash has been collected to date.
126. A firm using the instalment method of revenue recognition repossessed an item it sold for $40,000 (cost
$24,000) after the customer stopped remitting cash. Only $26,000 was paid by the customer to the date of
repossession at which time the item is worth only $8,000.
(1) Determine the accounting gain or loss on repossession.

(2) Determine the economic gain or loss—the change in the value of the firm—as a result of the sale and
repossession.
(3) Reconcile total accounting earnings with the value you computed in (2).
127. Under the percentage of completion method, a company has recognized $40,000 of profit through to the
contract price is $800,000. Calculate the percent of completion at the beginning of the current year.
construction contracts, determine the ending balance of the account which is the net of Construction in Process,
and Billings on Contracts, at the end of Year 1, the first year of this project.
129. In 2005, Tamarack Corporation began construction work under a three-year contract. The contract price is
$1,200,000. Evian uses the percentage of completion method for financial accounting purposes. The income to
be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the
contract. The financial statement presentations relating to this contract at December 31, 2005, follow:
Balance Sheet
Income Statement
Accounts receivable construction

Calculate how much cash was collected in 2005 on this contract.
130. Minty Inc. began work in 2006 on contract #3814, which provided for a contract price of $4,500,000.
Other details follow:
Assume that Blaze uses the percentage-of-completion method of accounting, calculate the portion of the total
gross profit to be recognized as income in 2006.
131. Grandon Ltd. began work in 2006 on a contract for $5,400,000. Other data are:
Assuming Grandon uses the percentage-of-completion method, calculate the gross profit to be recognized in
2006.
Assuming Grandon uses the completed contract method, calculate the gross profit to be recognized in 2008.
method.
been incurred during 2006. Calculate the January 1, 2007 balance of Construction in Process.
134. Company A exchanges machinery with Company B. In addition, Company A gave $10,000 to Company B
as part of the exchange.
Company A's equipment had a book value of $20,000 and a fair value of $8,000.
Company B's equipment had a book value of $25,000 and a fair value of $15,000.
Provide the entry on Company A's books assuming that"
i) The transaction has commercial substance.

ii) The transaction has no commercial substance (use the book value method).
06 Key
1. Receipt of cash by the seller at the time of sale is not required for the recognition of revenue.
TRUE
Accessibility: Keyboard Navigation

Beechy - Chapter 06 #1
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 06-02 Apply the revenue recognition criteria to various types of revenue earned by the transfer of goods and services at a single point in time.
2. In accounting, the term "revenue recognition" refers to measuring the expense related to the revenue for a
specific period.
FALSE

Blooms: Knowledge
Difficulty: Easy
Learning Objective: 06-01 Understand the revenue recognition process and criteria.
3. Generally, expenses incurred to generate revenues should be matched to the revenues recognized in a given
period.
TRUE

Blooms: Knowledge
Difficulty: Easy
basis that it is more conservative than the completed contract method.
FALSE

Blooms: Knowledge
Difficulty: Easy
Learning Objective: 06-05 Understand how revenue earned from long term contracts is measured; recognized and reported.
5. Non-refundable deposits automatically meet the criteria for immediate revenue recognition.
FALSE

Blooms: Knowledge
Difficulty: Easy
Learning Objective: 06-03 Apply the revenue recognition criteria to various types of revenue earned by the transfer of goods and services over time.
6. The sale of a company's land would necessarily result in a gain or loss, and not a revenue or expense.
FALSE

Blooms: Knowledge
Difficulty: Easy
7. Revenues for certain commodities with a readily available market may be recognized at production since
uncertainties with respect to the sale are likely to be minimal.
TRUE

Blooms: Knowledge
Difficulty: Easy
8. The percentage- of -completion method of accounting for long-term construction-type contracts is preferable
when estimates of costs to complete and extent of progress toward completion are reasonably dependable.
TRUE

Blooms: Knowledge
Difficulty: Easy
9. Revenues from peripheral transactions are considered gains, while those from a company's principal line of
business would be considered sales or revenues.
TRUE

Blooms: Knowledge
Difficulty: Easy
10. When rent is received in advance the event that triggers revenue recognition is the passage of time.
TRUE

Blooms: Knowledge
Difficulty: Medium
Learning Objective: 06-04 Understand the revenue recognition for contracts involving multiple goods and services.
11. Warranty costs related to goods sold on instalment sales should not be accrued.
FALSE

Blooms: Knowledge
Difficulty: Medium
12. Revenue should not be recognized if the buyer's obligation to pay the seller is contingent on the resale of the
product.
TRUE

Blooms: Knowledge
Difficulty: Medium
13. The instalment method may be used to recognize revenues when collection is not certain.
TRUE

Blooms: Knowledge
Difficulty: Medium
14. "Billings on contracts" is a contra account to "Accounts Receivable."

FALSE

Blooms: Knowledge
Difficulty: Medium
15. When goods are sold, the event which triggers revenue recognition is the delivery of the goods.
FALSE

Blooms: Knowledge
Difficulty: Medium
16. The percentage-of-completion and completed contract methods will produce different periodic income
amounts, but the Accounts Receivable balances will be equal.
TRUE

Blooms: Knowledge
Difficulty: Medium
17. When goods are sold, revenue may still be recognized if there is an insignificant degree of continuing
managerial involvement in some instances.
TRUE

Blooms: Knowledge
Difficulty: Medium
18. The percentage-of-completion method for long-term construction contracts can be used if at least the
ultimate collection of the contract price is reasonably certain.
FALSE

Blooms: Knowledge
Difficulty: Medium
19. The instalment method of revenue recognition has limited use because it cannot be used when the sales
method or any other GAAP method can be used.
TRUE

Blooms: Knowledge
Difficulty: Medium
20. When one company is acting as an agent on behalf of another company or individual, it will normally report
revenues on a net basis.
TRUE

Blooms: Knowledge
Difficulty: Medium
21. Economic Value Added (EVA) is the difference between a product's input cost and final sales price. This
figure is dependent up on the firm's earnings process.
TRUE

Blooms: Knowledge
Difficulty: Medium
22. A purchase order received from a client would trigger a journal entry under the earnings-based revenue
recognition approach, but not on the contract-based approach.
TRUE

Blooms: Knowledge
Difficulty: Medium
23. As a general rule, the greater the uncertainty involved with respect to a sales transaction, the more we would
delay revenue recognition.
TRUE

Blooms: Knowledge
Difficulty: Medium
24. Under IFRS, sales contracts with multiple deliverables may be treated as though they were a single element,
for the sake of simplicity.
FALSE

Blooms: Knowledge
Difficulty: Medium
25. Under IFRS, sales contracts with multiple deliverables should be split according to their relative fair values
if possible, and accounted for accordingly.
TRUE

Blooms: Knowledge
Difficulty: Medium
26. Under IFRS, goods sold under Bill and Hold provisions must be on hand and ready for immediate delivery
if revenue is to be recognized.
TRUE

Blooms: Knowledge
Difficulty: Medium
27. Biological assets are generally recognized at net realizable value, with gains and losses flowing through
income.
TRUE

Blooms: Knowledge
Difficulty: Medium
28. If a client presents an extreme credit risk, the seller would be more likely to use the Installment Sales
method to account for the transaction than the Cost Recovery Method.
FALSE

Blooms: Knowledge
Difficulty: Medium
29. In the critical event that the revenue is not recognized at the time of the sale due to a return privilege, the
gross margin is to be recognized only after the return privilege has expired.
TRUE

Blooms: Knowledge
Difficulty: Medium
30. The use of actual and expected costs to determine the percentage of completion on a long term project is an
example of an output method approach to evaluating contract progress.
FALSE

Blooms: Knowledge
Difficulty: Medium
31. Under IFRS, interest revenue must be recognized using the effective interest method, and dividend revenue
must be recognized when the right to receive them has been established, and there are no significant
uncertainties.
TRUE

Blooms: Knowledge
Difficulty: Medium
32. When a barter transaction has no commercial substance, a gain or loss must always be recognized on the
income statement as a result of the exchange.
FALSE

Blooms: Knowledge
Difficulty: Medium
33. When goods are sold f.o.b. shipping point, the revenue earnings process is usually not considered to be
complete until the buyer has received the goods and inspected them.
FALSE

Blooms: Knowledge
Difficulty: Medium
34. The earliest point at which all criteria for revenue recognition are met is known as a critical event.
FALSE

Blooms: Knowledge
Difficulty: Medium
35. When a grocery store sells groceries and receives payment in the form of a cheque, the revenue principle
would state that the revenue should not be recognized until the cheque clears the bank.
FALSE

Blooms: Knowledge
Difficulty: Medium
36. When a one year-lease-term is signed, the lessor earns revenue with the passage of time.
TRUE

Blooms: Knowledge
Difficulty: Medium
37. Revenues must always be recognized at a single point in time.

FALSE

Blooms: Knowledge
Difficulty: Medium
38. If sales are made on "FOB destination" terms, the revenue earning process is completed when the products
are removed from the seller's place of business by the common carrier.
FALSE

Blooms: Knowledge
Difficulty: Medium
39. If fair values cannot be determined during a barter transaction, the book value method must be used.
TRUE

Blooms: Knowledge
Difficulty: Medium
recognized only when the construction is completed.
FALSE

Blooms: Knowledge
Difficulty: Medium
recognized as construction progresses (usually on the basis of costs incurred) to attain a matching of revenues
and expenses.
TRUE

Blooms: Knowledge
Difficulty: Medium
42. Under the completed contract method, all construction costs are accumulated in an inventory account.
TRUE

Blooms: Knowledge
Difficulty: Medium
43. Under ASPE, biological assets are valued in a manner similar to other industries, i.e. using the lower of cost
and NRV.
TRUE

Blooms: Knowledge
Difficulty: Medium
44. When cash is collected on account and the instalment sales method is used, the debit is to instalment
accounts receivable and the credit is to cash.
FALSE

Blooms: Knowledge
Difficulty: Medium
45. The completed-contract method of revenue recognition recognizes revenue on a long-term project as work
progresses so that timely information is provided.
FALSE

Blooms: Knowledge
Difficulty: Medium
46. Payment on account of progress billings, when using the percentage of completion method of recognizing
revenue are debited to cash and credited to progress billings.
FALSE

Blooms: Knowledge
Difficulty: Medium
47. A long-term contract is automatically considered onerous if a loss is recognized in any given year.
FALSE

Blooms: Knowledge
Difficulty: Medium
48. If it becomes apparent that a long term project will result in a loss, the full amount of the loss must be
accounted for in the year it is first estimable.
TRUE

Blooms: Knowledge
Difficulty: Medium
49. Most construction companies cannot afford to wait until the completion of the contract to collect their
billings.
TRUE

Blooms: Knowledge
Difficulty: Medium
50. When using completed contract method of recognizing revenue, the billings to the customer are debited to
cash and credited to progress billings.
FALSE

Blooms: Knowledge
Difficulty: Medium
51. ABC Inc. sold a DVD player to a client on June 30th, Year 2 for $150. The DVD player, which came with a
2-year warranty, was thought to be worth $100 if sold without the warranty.
As a result of this sale, how much sales/revenue would ABC Inc. take into income on its December 31st, Year 2
income statement?
A. $100.00
B. $112.50.
C. $125.00
D. $150.00

Blooms: Knowledge
Difficulty: Medium
52. Which of the following would not be considered a multiple-deliverable arrangement?
A. A product sold with a manufacturer's warranty, where both the product and warranty have separately
identifiable revenue streams.
B. A product sold with a manufacturer's warranty which covers only product assurances, where only the product
has a separately identifiable revenue stream.
C. Customer Loyalty Programs.
D. Franchise Fees

Blooms: Knowledge
Difficulty: Medium
53. In a normal sale, generally the most uncertain factor in the revenue recognition process is:
A. The seller's fulfillment of its responsibility in the transaction
B. The measurability of the resource or item received by the seller
C. The realizability of the resource or item received by the seller
D. The relevance of the resource or item received by the seller

Blooms: Knowledge
Difficulty: Medium
54. Which of the following is not required for the recognition of revenue?
A. Receipt of cash by the seller at the time of sale.
B. Seller must receive an item ultimately realizable in cash, noncash resources, or claims to cash.
C. The earnings process must be essentially complete.
D. The transaction must create a measurable financial statement element which fulfills the definition of a
revenue.

Blooms: Knowledge
Difficulty: Medium
55. In accounting, the term "revenue recognition" refers to:
A. Measuring the expense related to the revenue for a specific period.
B. Identifying sources of revenue.
C. Identifying transactions that result in an inflow of cash from customers.
D. Identifying the period when the customer first indicates the need for a good or service.
E. Identifying transactions that should be recorded as revenue in the current reporting period.

Blooms: Knowledge
Difficulty: Medium
56. The revenue principle states that revenue should be recognized only when a(n):
A. Exchange transaction involving goods and services has occurred and a cash down payment has been
received.
B. Exchange transaction involving goods or services has occurred and the earnings process is essentially
completed.
C. Sale or service transaction has occurred.
D. Completed earnings process can be projected.

Blooms: Knowledge
Difficulty: Medium
57. In selecting an accounting method for a newly contracted long-term construction project, the principle factor
to be considered should be:
A. The terms of payment in the contract.
B. The kind of technical facilities used in construction.
C. How reliable would an estimate be of the progress toward contract completion?
D. The method usually used by the contractor to account for other long-term construction contracts.

Blooms: Knowledge
Difficulty: Medium
58. When work to be done and costs to be incurred on a long-term contract cannot be reliably estimated, which
of the following methods of revenue recognition is preferable?
A. Percentage-of-completion method
B. Completed contract method
C. Sales method
D. Instalment method

Blooms: Knowledge
Difficulty: Medium
59. Which of the following statements regarding the percentage-of-completion and completed contract methods
of accounting for long-term construction contracts are true?
A. They recognize different amounts of income for the construction period.
B. They produce the same inventory carrying values during the construction period.
C. Neither requires losses to be recognized in the period of occurrence.
D. Under only the percentage of completion method is it possible to recognize a loss for the period when an
overall profit is expected on the contract.

Blooms: Knowledge
Difficulty: Medium
60. Which of the following is not a difference between the percentage-of- completion and completed contract
methods of accounting for long-term construction contracts?
A. One requires estimates of completion during the construction period and the other does not.
B. One records income (loss) each period during the construction period and the other does not.
C. They report different inventory amounts during the construction period.
D. They cause different cash inflows during the construction period.

Blooms: Knowledge
Difficulty: Medium
basis that it:
A. Understates cost of goods sold.
B. Better conforms to the cost principle.
C. Produces a realistic matching of expenses with revenues.
D. is more conservative than the completed contract method.

Blooms: Knowledge
Difficulty: Medium
62. Choose the correct statement concerning the percentage-of-completion method of accounting for a firm with
only one current long-term construction contract in process (assume no loss is projected):
A. The net current asset account (net of construction- in- process, and billings) exceeds that same account under
the completed contract method.
B. If the construction- in- process account exceeds the billings account, total costs to date must exceed total
billings to date.
C. If the construction- in- process account exceeds the billings account, total costs to date must exceed total
cash received on the contract to date.
D. It is possible to have both a net current asset account and a net current liability account in this situation.

Blooms: Knowledge
Difficulty: Medium
63. Which of the following is the most conservative (slowest to recognize) revenue recognition method?
A. Cost recovery method
B. Instalment method of revenue recognition
C. Production method
D. Percentage of completion method

Blooms: Knowledge
Difficulty: Medium
64. During the period of construction, financial information related to a long-term contract, which is being
accounted for using, the completed contract method will:
A. Appear only on the income statement during the period of construction.
B. Appear on both the income statement and balance sheet during the construction period.
C. Not appear on the financial statements.
D. Appear only on the balance sheet during the period of construction.

Blooms: Knowledge
Difficulty: Medium
65. Why is construction- in- progress increased by the annual recognized profit on long-term construction
contracts?
A. Because the contract price has increased.
B. Because the cost of the project is reduced.
C. Because work has been done.
D. Because the project's value is increased above cost.

Blooms: Knowledge
Difficulty: Medium
66. Choose the correct description of the net balance of costs in excess of billings on long-term contracts.
Assume only one current contract, and that contract price does not equal total estimated contract cost at the end
of the current year.
A. Under completed contract, the balance equals cost plus billings.
B. Under completed contract, the balance equals total estimated profit less billings.
C. Under percentage of completion, the balance equals cost to date less billings, if profit has been recognized.
D. Under percentage of completion, the balance equals cost to date less billings, less total projected loss.

Blooms: Knowledge
Difficulty: Medium
67. The principle disadvantage of using the percentage-of-completion method of recognizing revenue from
long-term construction contracts is that it:
A. May require that inter-period tax allocation procedures be used.
B. is likely to assign a small amount of revenue to a period during which much revenue actually was earned.
C. is unacceptable for tax purposes.
D. Gives results based upon estimates, which may be subject to considerable uncertainty.

Blooms: Knowledge
Difficulty: Medium
68. The percentage-of-completion and completed contract methods of accounting for long-term construction
contracts will produce:
A. The same amount of income in the year of completion.
B. The same inventory carrying value each year during the construction period.
C. Equal balances each period in the Billings On Contracts account.
D. The same cost of construction (expense) each year for a project.

Blooms: Knowledge
Difficulty: Medium
69. Under the completed contract method of income recognition on long-term construction contracts:
A. The balance in the "Construction-in-Progress" account is reported on the balance sheet as a long-term asset
until the date of completion.
B. The accumulated amount in the "Construction-in-Progress" account is essentially the amount of cost of
goods sold at completion date.
C. Income is accumulated in the "Construction-in-Progress" account.
D. "Construction-in-Progress" is reduced when billings are collected.

Blooms: Knowledge
Difficulty: Medium
70. Under the percentage-of-completion method of income recognition on long-term construction contracts:
A. No income amount is closed each period to income summary.
B. The ending inventory is the same as it would be if accounted for under the completed contract method.
C. Income is accumulated in the "Construction-in-Progress" inventory account.
D. The percentage of completion in any year depends on the proportion of billings collected.

Blooms: Knowledge
Difficulty: Medium
71. On April 30, Green Ltd. sold land with a book value of $600,000 to Brown Ltd. for its market value of
$800,000. Brown Ltd. gave Green Ltd. a 12 percent, $800,000 note secured only by the land. At the date of sale,
Brown Ltd. was in a very poor financial position and its continuation as a going concern was very questionable.
Green Ltd. should:
A. Record a $200,000 gain on the sale of land.
B. Fully reserve the note by creating an allowance contra account.
C. Use the cost recovery method of accounting.
D. Record the note at its discounted value.

Blooms: Knowledge
Difficulty: Medium
72. Net instalment accounts receivable is $5,000. Assume the instalment method of revenue recognition is used
and a gross profit percentage of 20%. Therefore:
A. $5,000 at sales price has not been collected
B. $1,250 of gross profit has been recognized
C. $6,250 at sales price has not been collected
D. $6,250 of cost has not been collected

Blooms: Knowledge
Difficulty: Medium
73. The instalment method of revenue recognition may be used
A. For ordinary sales
B. For lay-away sales
C. When the sales contract calls for instalment payments
D. When there is considerable uncertainty as to the realizability of the entire sales price

Blooms: Knowledge
Difficulty: Medium
74. Revenue is recognized at the time of sale under the:

B. Collection method.
C. Percentage-of-completion method.
E. Sales method when goods are sold on credit.

Blooms: Knowledge
Difficulty: Medium
75. Under the instalment method of revenue recognition, when interest is charged, each cash collection made
after the sale is composed of:
A. Interest
B. Interest and profit
C. Interest, cost and profit
D. Interest and cost

Blooms: Knowledge
Difficulty: Medium
76. Grocery stores recognize most of their revenue based on the:
B. Specific performance method.
C. Proportional performance method.
E. Sales method.

Blooms: Knowledge
Difficulty: Medium
77. Which of the following bases of revenue recognition reflects the greatest degree of uncertainty about future
critical events?
A. Sales method applied to sales of a department store
B. Cost recovery method applied to a bond investment
C. Production method on cost-plus-fixed-fee contract
D. Percentage-of-completion method on construction contract

Blooms: Knowledge
Difficulty: Medium
78. Revenue is recognized prior to the time of sale under the:

A. Specific performance method.
B. Completed contract method.
C. Instalment sales method.
D. Production method.

Blooms: Knowledge
Difficulty: Medium
79. Which of the following methods of revenue recognition is appropriate for use by a real estate broker whose
sole activity is sale of realty on a commission basis?
A. Completed performance method
B. Specific performance method
C. Collection method
D. Proportional performance method

Blooms: Knowledge
Difficulty: Medium
80. A corporation incurred $111,000 costs to extract a diamond. The diamond turned out to be flawed, so the
company decided to break it into small pieces and sell diamond chips. The company was uncertain if the
diamond chips would sell at all. The diamond chips did sell, and the company had the following sales and
accounts receivable balances over the five following years:
The accountant recommended that the company use the cost recovery method of income recognition. Using
this method, the company will recognize revenue as follows:
A. Choice 1
B. Choice 2
C. Choice 3
D. Choice 4
E. Choice 5

Blooms: Knowledge
Difficulty: Medium
81. A corporation sold goods for $10 million during 2007. Of this amount, $6 million were in cash, and $4
million was on account. However, the company collected $2 million of the sales on account during 2007. In
conformity with the revenue principle, the amount of revenue that should be recognized in 2007 is:
A. $2 million
B. $4 million
C. $6 million
D. $8 million
E. $10 million

Blooms: Knowledge
Difficulty: Medium
82. Big Construction Company ("BCC") entered into a contract with the provincial government to construct a
hospital. At the time of the contract, it was estimated it would take three years to complete the facility at a cost
of $6,580,000. The contract was priced at $7,200,000. During the first year, BCC incurred $2,171,400 in
construction costs related to the project and the estimated cost of completion was $4,408,600. In the second
year, construction costs of $2,603,000 were incurred and estimated cost of completion was $2,685,600. In Year
3 the company incurred $1,525,600 to complete the project. The amount of profit or loss to be recognized in the
second year of this contract would be:
A. a loss of $260,000.
B. a profit of $620,000.
C. a loss of $464,600.
D. a profit of $520,000.

Blooms: Knowledge
Difficulty: Medium
Source: CMA Entrance Examination Study Manual, 2011, CMA Ontario, Problem FA5.
83. A construction company has contracted with a major university to build a new sports complex. The contract
calls for two sports arenas to be built in the next three years. The company will receive $24,000,000 for the
project and their engineers originally estimated a total cost to construct the two arenas of $20,400,000. The two
arenas are scheduled for completion in May of 2007. If an actual cost of $9,200,000 is expended in 2004, and
the engineers estimate another $12,800,000 is to be expended to complete construction, how much income is to
be recognized under the percentage-of-completion method in 2004?
A. $836,364
B. $1,163,636
C. $2,000,000
D. $3,600,000

Blooms: Knowledge
Difficulty: Medium
began work on a government contract which had a contract price of $4,000,000 and estimated costs of
The portion of the total contract income to be recognized during 2007 is:
A. $120,000
B. $200,000
C. $250,000
D. $1,000,000

Blooms: Knowledge
Difficulty: Medium
85. A construction company uses the percentage-of-completion method for long-term construction contracts. A
particular job was begun in 2006 and completed 2008. During 2007, it appeared that the project would cost 25
percent more than originally expected. Data at each year-end are given below:
The contract price was $700,000. Assuming the company properly recorded income in 2006, how much income
should be recorded in 2007?
A. $10,000
B. $42,000
C. $160,000
D. $192,000

Blooms: Knowledge
Difficulty: Medium
86. Under the percentage- of -completion method, a company has recognized $40,000 of profit through to the
contract price is $800,000. What is the percent of completion at the beginning of the current year?
A. 13.33%
B. 15.8%
C. 8%
D. Insufficient data

Blooms: Knowledge
Difficulty: Medium
87. Given the following data, what is profit in 2007 under the percentage- of- completion method for a project
begun in 2006 with a contract price of $1,000?
A. $104
B. $129
C. $86
D. $61

Blooms: Knowledge
Difficulty: Medium
88. Given the following data, what is the balance in construction- in- process at the end of 2006 under the
percentage of completion method for a project begun in 2006 with a contract price of $1,100?
A. $100
B. $38
C. $138
D. $400

Blooms: Knowledge
Difficulty: Medium
89. Under the percentage of completion method, $400 of profit has been recognized in prior years on a project
with a contract price of $5,000. Data available as follow:
What profit or loss is recognized in the current year?

A. $900 loss
B. $400 loss
C. $500 loss
D. no profit or loss

Blooms: Knowledge
Difficulty: Medium
90. A company which began operations on January 1, 2006, (and appropriately uses the instalment sales method
of accounting) has the following data available for 2006 and 2007:
The realized gross profit for 2007 would be:

A. $1,120
B. $1,840
C. $2,080
D. $2,880

Blooms: Knowledge
Difficulty: Medium
91. A company during its first year of operation appropriately uses the instalment method of accounting. The
following information is available for the year on instalment sales:
The total amount of the company's instalment sales for the year was:
A. $30,000
B. $34,500
C. $42,500
D. $52,500

Blooms: Knowledge
Difficulty: Medium
cost of $600. During the year of sale, the firm received $250 from the customer. Therefore, the net instalment
account receivable equals which of the following amounts at the end of the year of sale?
A. $750
B. $450
C. $300
D. $400

Blooms: Knowledge
Difficulty: Medium
cost of $600. During the year of sale, the firm received $250 from the customer. Thereafter, no more cash is
received. The firm repossesses the item, worth $500 at that time. The entry to record the repossession includes:
A. Loss $350
B. Loss $250
C. Gain $200
D. Gain $50

Blooms: Knowledge
Difficulty: Medium
94. A corporation, which began business on January 1, 2006, appropriately uses the instalment sales method of
reporting for accounting purposes. The following data were available for the years 2006 and 2007:
The balance in the deferred gross profit control account on December 2007 should be:
A. $159
B. $210
C. $315
D. $525

Blooms: Knowledge
Difficulty: Medium
construction contracts, determine the ending balance of the account which is the net of Construction- in-
Process, and Billings on Contracts, at the end of Year 1, the first year of this project.
A. Costs in excess of billings $5,000

B. Billings in excess of costs $2,000
C. Costs in excess of billings $14,000
D. Billings in excess of costs $667

Blooms: Knowledge
Difficulty: Medium
method.
been incurred during 2006. What is the January 1, 2007 balance of Construction- in- Process?
A. $30,000
B. $40,000
C. $45,000
D. $50,000

Blooms: Knowledge
Difficulty: Medium
97. Which of the following would be used in the calculation of the income recognized in the third and final year
of a construction contract which is accounted for using the percentage-of-completion method?
A. Choice 1
B. Choice 2
C. Choice 3
D. Choice 4

Blooms: Knowledge
Difficulty: Medium
98. The completed contract method of accounting for long-term construction-type contracts is preferable when:
A. Estimates of costs to complete and extent of progress toward completion are reasonably dependable.
B. The contracts are of a relatively long duration.
C. A contractor is involved in numerous projects.
D. Lack of dependable estimates or inherent hazards cause forecasts to be doubtful.

Blooms: Knowledge
Difficulty: Medium
99. When progress billings are sent on a long-term contract, what type of account should be credited under the
completed contract method and percentage-of-completion method?
A. Choice 1
B. Choice 2
C. Choice 3
D. Choice 4

Blooms: Knowledge
Difficulty: Medium
100. The percentage-of-completion method of accounting for long-term construction-type contracts is
preferable when:
A. A contractor is involved in numerous projects.
B. The contracts are of a relatively short duration.
C. The collectability of progress billings from the customer is reasonably assured.
D. Estimates of costs to complete and extent of progress toward completion are reasonably dependable.

Blooms: Knowledge
Difficulty: Medium
101. A sale should NOT be recognized as revenue by the seller at the time of sale if:
A. payment was made by cheque.
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. the goods are sold on credit.

Blooms: Knowledge
Difficulty: Medium
102. When work to be done and costs to be incurred on a long-term contract can be estimated dependably,
which of the following methods of revenue recognition is preferable?
A. Instalment method.
B. Percentage-of-completion method.
C. Completed-contract method.

Blooms: Knowledge
Difficulty: Medium
103. The criteria for recognition of revenue at 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 of production are interchangeable.
D. All of these answers are correct.

Blooms: Knowledge
Difficulty: Medium
104. 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.

Blooms: Knowledge
Difficulty: Medium
began work on a government contract, which had a contract price of $4,000,000 and estimated costs of
Calculate the gross profit to be recognized during 2007.
Gross profit to be recognized: 20% of $1,000,000 = $200,000

Blooms: Application
Difficulty: Medium
106. A construction company has consistently used the percentage-of-completion method of recognizing
income. In 2007, the company started work on a $6,000,000 construction contract, which was completed in
2008. The accounting records disclosed the following data:
Calculate the amount of income that should have been recognized in 2007.
Gross profit to be recognized: 33.3% of $600,000 = $200,000

Blooms: Application
Difficulty: Medium
Gross profit to be recognized: 12.5% of $200 = $25

Blooms: Application
Difficulty: Medium
Gross profit to be recognized: 12.5% of $200 = $25
Gross profit to be recognized: 300/700  $300 less $25 = $104

Blooms: Application
Difficulty: Medium
109. A company began work on a government contract at the start of 2007. The contract was to construct a
special building for $4,000,000. In making the bid, construction costs were estimated to be $3,000,000. Data
during the construction period was:
How much income on the contract would be reported for each year assuming:
(a) Completed contract method?

2007: $______________ 2008: $_______________.
(b) Percentage-of-completion method? (basis: estimated costs to complete)
2007: $________________ 2008: $_______________.
(a) 2007: -0- 2008: $4,000,000- $600,000 - $2,550,000 = $850,000

(b) 2007: $1,000,000  (600/3,000) = $200,000
2008: $4,000,000 - $600,000 - $2,550,000 = $850,000 - $200,000 = $650,000

Blooms: Application
Difficulty: Medium
110. A company entered into a contract to construct a building for a fee of $50,000. Construction began in 2006
and was completed in 2008. Transactions related to the contract are summarized below:
Compute the income that should be recognized each year using (a) the percentage-of-completion method and
(b) the completed contract method.
(a) $____________ $_______________ $______________

(b) $____________ $_______________ $______________
(a) 2006: $10,000  (8/40) = $2,000

2007: $50,000 - $41,000 = $9,000  (24,600/41,000) = $5,400 - $2,000 = $3,400
2008: $50,000 - $8,000 - $16,600 - $15,900 - $2,000 - $3,400 = $4,100
b) 2001 and 2002: zero
2003: $50,000 - $8,000 - $16,600 - $15,900 = $9,500

Blooms: Application
Difficulty: Medium
111. A construction company entered into a three-year contract to erect a building for a customer. Its original
bid on the job was for $3,600,000 but this was revised upward in year 3 to $3,900,000 because the customer
negotiated for some "extras" (modification in the original specifications). A cumulative history of costs incurred
and cost expectations throughout the three years the contract was in progress is set out below. Give the income
to be reported (a) using the percentage-of-completion method, and (b) using the completed contract method.
(a) Income using percentage-of-completion
(b) Income using completed contract
Year 1:
$3,600,000 - $750,000 - $2,250,000 =
Year 2:
$3,600,000 - $2,550,000 - $525,000 =
Year 3:
$3,900,000 - $3,270,000 = $630,000

Blooms: Application
Difficulty: Hard
112. A shipyard contracted with a foreign government to build a small naval vessel. The contract calls for the
foreign government to pay the shipyard $10,000,000 upon the completion and delivery of the vessel in 2008.
The shipyard engineers estimated the costs to complete the vessel at $8,200,000. Under each of the situations
that follow, show the income that would have to be reported assuming the percentage-of-completion method is
used to recognize income. Show your computations.
a. Income to be reported in 2006, assuming $2,000,000 has been spent and the engineers estimate an additional
$6,800,000 will be spent to complete the vessel. 2001 income that should be reported is (circle one):
Computations:
b. Income to be reported in 2007, assuming $6,000,000 has already been spent and the engineers estimate an
additional $3,4000,000 will be spent to complete the vessel. 2007 income is (circle one):
Computations:
c. Income to be reported in 2008, assuming $8,800,000 has already been spent to complete and deliver the
vessel to the foreign government, which immediately paid their bill. 2008 income is (circle one):
Computations:
(a) ($10,000,000 - $8,800,000  ($2,000/$8,800) = $272,727

(b) ($10,000,000 - $9,400,000  ($6,000/$9,400) - $272,727 = $110,252
(c) ($10,000,000 - $8,800,000) - $272,727 - $110,252 = $817,021

Blooms: Application
Difficulty: Hard
113. The following data are available from a company for a long-term construction contract:
The contract price for the three-year contract was $2,100,000 and the estimated cost at the beginning of the
contract was $1,800,000.
(a) What is the amount of income that will be reported under the percentage-of-completion method in 2006?
$
(b) What is the amount of income that will be reported under the percentage-of-completion contract method for
2007?
$
(c) What is the amount of income that will be reported under the percentage-of-completion contract method for
2008?
$
(a) ($2,100,000 - $1,800,000  ($400/$1,800) = $66,667

(b) ($2,100,000 - $2,050,000  ($1,600/$2,050) - $66,667 = $27,643 loss
(c) ($2,100,000 - $1,900,000 - $66,667 + $27,643 = $160,976

Blooms: Application
Difficulty: Hard
114. The records of a construction company provided the following data on along-term construction contract (3
years), which was just completed.
Construction contract price. $1,425,000
Estimated total cost (at start). $1,200,000
Costs incurred to date
Progress billings to date
Progress collections to date
Complete the following partial financial statements for each year (assume percentage-of-completion is based on
costs incurred to total costs) (Hint: complete CC for all years, then complete PC)*:
*CC = Completed contract; PC = Percentage of completion.
2001: ($1,425,000 - $1,200,000)  ($300/$1,200) = $56,250

2002: ($1,425,000 - $1,230,000  ($480/$1,230) - $56,250 = $19,848
2003: $1,425,000 - $1,245,000 = $180,000 - $56,250 - $19,848 = $103,902

Blooms: Application
Difficulty: Hard
115. On January 1, 2007, a contractor started a construction project for $1,350,000; estimated construction costs
(total) were $1,050,000. Data for the two-year period:
Based upon the above data, provide the following amounts for each method:
(a) $600,000 - $540,000 = $60,000

(b) $1,350,000 - $1,065,000 = $285,000
(c) ($1,350,000 - $1,050,000)  (600/1,050) = $171,429
(d) $285,000 - $171,429 = $113,571

Blooms: Application
Difficulty: Hard
116. A construction company signed a contract to build a plant for a customer. Construction covered a four-year
period. Data concerning the construction were as follows:
Actual results:
*No change in estimated costs.

Using the information above, answer the following questions:
(a) How much income will be reported in Years 1, 2, 3, and 4 if the completed contract method is used?
(b) How much income will be reported each year if the percentage-of-completion method is used?
(c) What net amount would be reported on the balance sheet for contracts in process at the end of year 1 if the
completed contract method is used?
$
(d) What net amount would be reported on the balance sheet for contracts in process at the end of year 1 if the
percentage-of-completion method is used?
$
(a) Year 1: $ -0-

Year 2: $ -0-
Year 3: $ -0-
Year 4: $780,000 - $120,000 - $100,000 - $240,000 - $160,000 = $160,000
(b) Year 1: ($780,000 - $600,000)  ($120/$600) = $36,000
Year 2: ($780,000 - $600,000)  ($220/$600) - $36,000 = $30,000
Year 3: ($780,000 - $600,000)  ($460/$600) - $36,000 - $30,000 = $72,000
Year 4: $780,000 - $620,000 = $160,000 - $36,000 - $30,000 - $72,000 = $22,000
(c) $120,000 - $100,000 = $20,000
(d) $120,000 + $36,000 - $100,000 = $56,000
Blooms: Application
Difficulty: Hard
117. On June 15, 2007, AB Construction Company signed a $180,000 contract to build a small structure for XY
Company. AB estimated that total cost to construct would be $160,000. Construction started immediately
because the required completion date was August 31, 2008. AB's relevant data relating to this construction
project were as follows:
Required:
1. How much income should AB recognize each year, assuming:
(b) Percentage-of-completion
2. What amounts should AB report on the balance sheet at the end of each year for:
Completed contract method
Percentage-of-completion method
(b) Construction in process, assuming:
3. Give the entry to record income for 2007, assuming the percentage-of-completion method is used.
1.
*(180,000 - $160,000)  60/160 = $7,500

**$18,000 - $7,500 = $10,500
2.
Completed contract method:
Percentage completion method:
3.
Inventory of construction in process. 7,500
Income from construction. 7,500
or:

Blooms: Application
Difficulty: Hard
118. On January 1, 2007, a corporation signed a contract to build a specially designed plant; the relevant data
were (in 000's):
Data during construction period (January, 1, 2007-December 31, 2008):
Required:
(1) Give the following amounts that should be reported on the income statement and balance sheet:
(a) Income from
(b) Accts. Receivable

(c) Inv. Construction
(2) Give the entry to record 2007 construction income at December 31, 2008, for the percentage-of-completion
method.
1.
a. $13,500 - $10,875 = $2,625

b. $2,100 - $2,055 = $45
c. $2,160 - $2,100 = $60
d. $13,500 - $2,160 - $8,640 = $2,700  ($2,160/$120,800) = $540
e. $2,100 - $2,055 = $45
f. $60/$540 = $600
g. $2,625 - $540 = $2,085
or:

Blooms: Application
Difficulty: Hard
119. A large construction firm, which uses the percentage of completion method, provided the following
information concerning one of its contracts (contract price, $1,000).
Refer to the following two questions. The answer to question (b) depends on the answer to (a).
(a) What is the balance in construction in process at the end of year 1?

(b) Assume that $600 is the estimated remaining cost at the end of year 2. Provide the entry to record revenue
for year 2. Explain the ending balance in construction in process.
(a) $200 + ($200/$600)($1,000 - $600) = $333

(b)
** Revenue recognized in year 1 = $1,000($200/$600) = $333

($500/$800)$1,000 - $333 = $292
through year 2 = ($500/$800)($1,000 - $800) = $125
The balance in construction in process at the end of year 2 represents total cost to date ($500) plus total profit to
date ($125) or $625

Blooms: Application
Difficulty: Hard
120. A company sold goods for $100,000 during 2007. Of this amount, $60,000 was cash and $40,000 was on
account. The company collected $20,000 of the sales on account during 2001. In conformity with the revenue
principle, the amount of revenue that should be recognized in 2007 is ___________________.
$100,000, the revenue earned.

Blooms: Application
Difficulty: Medium
121. A company incurred the following costs and received the following collections from customers
(a) If the company used the cost recovery method of revenue recognition, the income that should be recognized
in 2003 is ___________________.
(b) If the cost recovery method continues to be used through 2004, the amount of 2004 income that should be
recognized is ____________________.
(a) -0- cost still exceeds revenue.

(b) Costs through 2004 are $170,000. Collections exceeds costs by $220,000 - $170,000 = $50,000.

Blooms: Application
Difficulty: Hard
The firm is unable to estimate returns
Required:
(c) The entry during the following year assuming the $5,000 of goods is returned before the return privilege
expired.
(d) The entry during the following year assuming the return privilege expired on the $5,000 of accounts
receivable.
(a) Entries during the year:
Adjusting journal entry:
(b) Balance sheet accounts, ending balances
Income Statement
(c) Entry assuming return before privilege expires
(d) Entry assuming return privilege expires

Blooms: Application
Difficulty: Hard
The firm anticipates a 30% total

sales return rate and all other
criteria are met.
Required:
(c) The entry during the following year assuming that $10,000 of goods is returned before the return privilege
expired.
(d) The entry during the following year assuming that only $8,000 of goods are returned before the return
privilege expired.
(a) Entries during the year:
Adjusting journal entry:
*.30($100,000) - $20,000 actual returns

(b) Balance sheet accounts, ending balances
*Includes estimated and actual returns

(c) Entry assuming $10,000 of goods are returned the following year
(d) Entry assuming $8,000 of goods are returned the following year

Blooms: Application
Difficulty: Hard
124. A firm sold merchandise costing $600 for $1,000 on January 1, 2001. The selling firm accepted a note with
terms calling for two equal annual payments (which include 10% interest, and principal) beginning December
31, 2001. There is sufficient uncertainty about the realizability of the two payments to warrant the instalment
method of revenue recognition.
Required: assuming the 2 payments were received as expected, provide the entries to account for the sale and
cash collections (assume a perpetual inventory system).
Payment amount: $1,000 = P(PVA,10%,2) = P(1.73554) P = $576

Jan. 1, 2001
Dec.31,2001
Dec. 31, 2002

Blooms: Application
Difficulty: Hard
125. The following information relates to the sale of an item of merchandise:
For each of the independent revenue recognition situations below, determine the net balance in accounts
receivable given the above information, and provide an interpretation of each.
(1) The right of return on the sale has not expired; all criteria of CICA Handbook Sec. 3400 are met and this
item is not expected to be returned.
(2) The right of return on the sale has not expired; not all criteria of CICA Handbook, Sec. 3400 are met.
(3) The instalment method of revenue recognition is used to account for the sale.
(4) The cost recovery method of revenue recognition is used to account for the sale.
(5) Answer (4) assuming $80 cash has been collected to date.
(1) Net accounts receivable = $100 - $40 = $60. Because all criteria of CICA Handbook, Sec. 3400 are met, and
this item is not expected to be returned, the entire sale is recognized. The $60 is that portion of the sales price
yet to be collected.
(2) Net accounts receivable = $30, the cost of the item not yet reimbursed. Because not all criteria of CICA
Handbook, Sec. 3400 are met and the right of return privilege has not expired, the account receivable is shown
at $100 - $40 cash collected - $30 gross profit on the sale (which cannot be recognized at this point).
Measurement of the remaining receivable at selling price would imply recognition of revenue.
(3) Recognized gross profit to date =.30($40) = $12. The remaining $18 of gross profit cannot be recognized
before collection. Net accounts receivable = $100 - $40 - $18 = $42 or $60(1 -.3). This is the amount owed by
the customer measured at cost.
(4) No gross profit has been recognized to date as the costs have not been recovered. Therefore, net accounts
receivable equals the cost yet to be reimbursed, $100 - $40 - $30 gross profit = $30. To this point, the $40 cash
plus the $30 net accounts receivable has replaced $70 of inventory in the balance sheet of the seller.
(5) $10 of gross profit may now be recognized (the excess of $80 cash collected over the $70 cost of the item).
$20 of gross profit remains to be recognized. Therefore, net accounts receivable = $100 - $80 cash collected -
$20 gross profit yet to be recognized = $0. The recognition of the remaining $20 of profit is holding up the
recognition of the remaining $20 of asset, until collection. To recognize a net receivable would imply profit
recognition before cash collection, a contradiction of the method. As additional amounts are collected, they will
be recognized as revenue.

Blooms: Application
Difficulty: Hard
126. A firm using the instalment method of revenue recognition repossessed an item it sold for $40,000 (cost
$24,000) after the customer stopped remitting cash. Only $26,000 was paid by the customer to the date of
repossession at which time the item is worth only $8,000.
(1) Determine the accounting gain or loss on repossession.

(2) Determine the economic gain or loss—the change in the value of the firm—as a result of the sale and
repossession.
(3) Reconcile total accounting earnings with the value you computed in (2).
(1) Gross profit percentage = (40 - 24)/40 =.40

Net accounts receivable = $14,000(1 -.40) = $8,400
Market value of item 8,000
Loss on repossession $400
(2) Economic or out-of-pocket gain = $26,000 cash received + $8,000
market value - $24,000 cost of the item = $10,000 gain.
(3) Gross profit recognized on sale = $26,000(.40) = $10,400
This amount equals the economic gain in (2). Thus the accounting earnings, although they may be recognized in
more than one period, equal the economic value change.

Blooms: Application
Difficulty: Hard
127. Under the percentage of completion method, a company has recognized $40,000 of profit through to the
contract price is $800,000. Calculate the percent of completion at the beginning of the current year.

Blooms: Application
Difficulty: Medium
construction contracts, determine the ending balance of the account which is the net of Construction in Process,
and Billings on Contracts, at the end of Year 1, the first year of this project.
Estimated remaining cost to complete,
Gross profit recognized 20,000/50,000  10,000 = 4,000

Construction is process is cost plus gross profit

Blooms: Application
Difficulty: Medium
129. In 2005, Tamarack Corporation began construction work under a three-year contract. The contract price is
$1,200,000. Evian uses the percentage of completion method for financial accounting purposes. The income to
be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the
contract. The financial statement presentations relating to this contract at December 31, 2005, follow:
Balance Sheet
Income Statement
Accounts receivable construction

Calculate how much cash was collected in 2005 on this contract.

Blooms: Application
Difficulty: Hard
130. Minty Inc. began work in 2006 on contract #3814, which provided for a contract price of $4,500,000.
Other details follow:
Assume that Blaze uses the percentage-of-completion method of accounting, calculate the portion of the total
gross profit to be recognized as income in 2006.

Blooms: Application
Difficulty: Medium
Assuming Grandon uses the percentage-of-completion method, calculate the gross profit to be recognized in
2006.

Blooms: Application
Difficulty: Medium
Assuming Grandon uses the completed contract method, calculate the gross profit to be recognized in 2008.

Blooms: Application
Difficulty: Medium
method.
been incurred during 2006. Calculate the January 1, 2007 balance of Construction in Process.
Balance of work in process inventory:

Blooms: Application
Difficulty: Hard
134. Company A exchanges machinery with Company B. In addition, Company A gave $10,000 to Company B
as part of the exchange.
Company A's equipment had a book value of $20,000 and a fair value of $8,000.
Company B's equipment had a book value of $25,000 and a fair value of $15,000.
Provide the entry on Company A's books assuming that"
i) The transaction has commercial substance.

ii) The transaction has no commercial substance (use the book value method).
i)
ii)

Blooms: Application
Difficulty: Hard
06 Summary
Category # of Questi
ons
Accessibility: Keyboard Navigation 90
Beechy - Chapter 06 134
Blooms: Application 30
Blooms: Knowledge 104
Difficulty: Easy 9
Difficulty: Hard 18
Difficulty: Medium 107
Learning Objective: 06-01 Understand the revenue recognition process and criteria. 35
Learning Objective: 06- 19
02 Apply the revenue recognition criteria to various types of revenue earned by the transfer of goods and services at a single point in
time.
Learning Objective: 06- 14
03 Apply the revenue recognition criteria to various types of revenue earned by the transfer of goods and services over time.
Learning Objective: 06-04 Understand the revenue recognition for contracts involving multiple goods and services. 10
Learning Objective: 06-05 Understand how revenue earned from long term contracts is measured; recognized and reported. 70
Source: CMA Entrance Examination Study Manual, 2011, CMA Ontario, Problem FA5. 1

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14. "Billings on contracts" is a contra account to "Accounts Receivable."

37. Revenues must always be recognized at a single point in time.

52. Which of the following would not be considered a multiple-deliverable arrangement?

55. In accounting, the term "revenue recognition" refers to:

73. The instalment method of revenue recognition may be used

76. Grocery stores recognize most of their revenue based on the:

78. Revenue is recognized prior to the time of sale under the:

What profit or loss is recognized in the current year?

The realized gross profit for 2007 would be:

A. Costs in excess of billings $5,000

100. The percentage-of-completion method of accounting for long-term construction-type contracts is

Calculate the gross profit to be recognized during 2007.

(a) Completed contract method?

(a) $____________ $_______________ $______________

(a) Income using percentage-of-completion

(b) Income using completed contract

Costs incurred to date

Progress billings to date

Progress collections to date

*CC = Completed contract; PC = Percentage of completion.

*No change in estimated costs.

1. How much income should AB recognize each year, assuming:

Completed contract method

Data during construction period (January, 1, 2007-December 31, 2008):

(a) Income from

(b) Accts. Receivable

(a) What is the balance in construction in process at the end of year 1?

The firm is unable to estimate returns

The firm anticipates a 30% total

(1) Determine the accounting gain or loss on repossession.

Accounts receivable construction

i) The transaction has commercial substance.

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Beechy - Chapter 06 #11

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14. "Billings on contracts" is a contra account to "Accounts Receivable."

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(a) $____ $_ $________