Question 1

In retail stores revenue is normally recognized at the time of sale.

Accepted Answer

Revenue is recognized at the time of sale in retail stores, as the sale is completed and the product has been transferred to the customer.

Question 2

Many service contracts require the seller to provide services for multiple periods. In order to properly recognize revenue, you must use the percentage of completion method.

Accepted Answer

The percentage of completion method is used to recognize revenue over the multiple periods of service that are required by the contract. This method recognizes revenue based on the percentage of the total contract that has been completed each period, rather than recognizing all of the revenue upfront or at the end of the contract.

Question 3

Accounting standards identify two revenue recognition criteria that must be met before a company selling goods can recognize revenue.

Accepted Answer

False

Question 4

If it is probable that economic benefits will flow to the company and the amounts can be reliably measured, then revenue should be recognized.

Accepted Answer

This statement is true in accordance with the generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). Revenue recognition is based on the likelihood of economic benefits flowing to the company and the ability to reliably measure the amount of revenue earned.

Question 5

A company may choose numerous methods of recognizing revenue for different revenue types.

Accepted Answer

This statement is true. Companies can choose different methods of revenue recognition for different revenue types, based on accounting standards and their business model.

Question 6

Part of the revenue recognition criteria includes reasonable assurance of collectability of at least some portion of the amount earned.

Accepted Answer

The answer of Part of the revenue recognition criteria includes...

Question 7

The incentive built in for prompt payment of cash by a customer for a credit sale is called a cash discount.

Accepted Answer

A cash discount is a reduction in the price of goods or services offered by a seller to a buyer in return for prompt payment of a credit sale.

Question 8

In order to use the percentage of completion method, it is necessary to have continuing involvement or control over the goods/services.

Accepted Answer

The answer of In order to use the percentage of...

Question 9

A sales discount of 2/10 means the seller will receive 98% of the selling price.

Accepted Answer

If a seller offers a 2/10 discount, it means that the buyer can deduct 2% from the selling price if they pay within 10 days. Therefore, the seller will receive 98% of the selling price if the buyer takes advantage of the discount.

Question 10

Revenue should be measured at the cost of the consideration received or receivable.

Accepted Answer

The answer of Revenue should be measured at the cost...

Question 11

The amount of revenue is one of the most significant amounts reported in the financial statements.

Accepted Answer

Revenue is a crucial figure that represents the total amount of money a company earns from its operations during a period. It is generally reported at the top of the income statement, and it plays an essential role in determining a business's financial performance. Therefore, the amount of revenue is one of the most significant figures reported in the financial statements.

Question 12

There must be a receipt of cash in order for a company to recognize revenue.

Accepted Answer

Revenue recognition is based on the principle of when the revenue is earned, not when the cash is received. A receipt of cash may represent a payment on account or an advance payment, but it is not necessary for revenue recognition.

Question 13

At the time of sale, the selling price does not have to be determined in order for the selling company to quantify the economic benefits of the transactions.

Accepted Answer

The selling price needs to be determined at the time of sale in order for the selling company to quantify the economic benefits of the transaction, as it directly impacts revenue recognition and the measurement of profitability.

Question 14

When buyers request and receive an adjustment for products damaged during shipping this is called a trade discount.

Accepted Answer

A trade discount is a reduction in the listed price of a product or service offered by a seller to a buyer, usually as a result of a sales promotion or the buyer's status as a frequent or bulk purchaser. Requesting and receiving an adjustment for products damaged during shipping is not considered a trade discount, but rather a reimbursement or credit for the damaged goods.

Question 15

Under the accrual basis, accounting revenues are recognized when they are earned regardless of whether the related cash was received by the company.

Accepted Answer

This is one of the fundamental principles of the accrual basis of accounting, which is used by most companies. Revenues are recognized when they are earned, meaning when the goods or services are provided to the customer, regardless of when the cash is received. This ensures that revenues are matched with the expenses incurred to generate them, and provides a more accurate picture of a company's financial performance.

Question 16

When making sales, there are costs that may be incurred in the future; an example of a cost is bad debts.

Accepted Answer

Bad debts refer to the risk that a customer may not pay for goods or services that have already been sold. This is a cost that may be incurred in the future as the seller may have to write off the amount owed as a loss.

Question 17

Financial statement users can find information about a company's revenue recognition policies in the notes to the financial statements.

Accepted Answer

Financial statement users can find information about a company's revenue recognition policies in the notes to the financial statements. This information is typically included in the accounting policies section of the notes.

Question 18

Bundling is a term used when companies sell both a product and a service.

Accepted Answer

Bundling is the term used when companies sell both a product and a service together as a package.

Question 19

When the customer takes the goods away, the selling company no longer has control over the goods.

Accepted Answer

Once the customer takes possession of the goods, they have the right to do whatever they want with them and the selling company no longer has control over them.

Question 20

In order to recognize revenue for interest, royalties, or dividends, all companies must be able to determine the costs incurred to complete the transaction.

Accepted Answer

Revenue recognition for interest, royalties, or dividends does not require the determination of costs incurred to complete the transaction. These types of revenue are recognized as they are earned or received, regardless of associated costs.

Quiz 4: Revenue Recognition and the Statement of Incom