Question 1

F & R Construction,Inc.has consistently used the percentage-of-completion method of recognizing revenue.Last year F & R started work on a $5,000,000 construction contract,which was completed this year.The accounting records disclosed the following data for last year:

How much revenue should F & R have recognized on this contract last year?
A)$1,500,000
B)$1,700,000
C)$1,100,000
D)$400,000

Accepted Answer

To calculate the revenue that F & R should have recognized last year, we use the percentage-of-completion method. This method recognizes revenue over the period of construction based on the percentage of work completed.

The formula to calculate the percentage of completion is:
Percentage of completion = Costs incurred to date / Total estimated costs

For last year, the costs incurred were $3,000,000 and the total estimated costs were $4,000,000, which means the percentage of completion was 75% (3,000,000/4,000,000).

Therefore, the revenue that F & R should have recognized last year is:
Total contract price x Percentage of completion = $5,000,000 x 75% = $3,750,000

However, since the question is asking for the revenue recognized only in the last year, we need to subtract the revenue recognized in the previous year. According to the data given, F & R recognized $2,050,000 in revenue in the previous year.

Therefore, the revenue that F & R should have recognized on this contract last year is:
$3,750,000 - $2,050,000 = $1,700,000

Thus, the correct answer is B, $1,700,000.

Question 2

In accounting for sales on consignment,sales revenue and the related cost of goods sold should be recognized by the
A)consignor when the goods are shipped to the consignee.
B)consignee when the goods are shipped to the third party.
C)consignor when notification is received the consignee has sold the goods.
D)consignee when cash is received from the customer.

Accepted Answer

In sales on consignment, the consignee does not have ownership of the goods and only sells them on behalf of the consignor. Therefore, sales revenue and cost of goods sold should not be recognized by the consignee at the time of shipment to the third party. Sales revenue and cost of goods sold should only be recognized by the consignor when notification is received from the consignee that the goods have been sold.

Question 3

Chantal Company began operations on January 2,2014,and appropriately used the installment sales method of accounting.The following data are available for 2014 and 2015:

The realized gross profit for 2015 is
A)$1,440,000.
B)$1,040,000.
C)$920,000.
D)$780,000.

Accepted Answer

The answer of Chantal Company began operations on January 2,2014,and...

Question 4

Franchise fees are properly recognized as revenue
A)when received in cash.
B)when a contractual agreement has been signed.
C)after the franchise business has begun operations.
D)after the franchiser has substantially performed its service.

Accepted Answer

Franchise fees are recognized as revenue after the franchiser has substantially performed its service. This is because revenue recognition principles require that revenue is recognized when it is earned and the service is performed, not merely upon receipt of cash or signing of an agreement.

Question 5

Astor Construction Company uses the percentage-of-completion method for long-term construction contracts.A specific job was begun in 2014 and completed in 2016.The contract price was $1,400,000 and cost information as of each year-end is given below:

Assuming Astor correctly recorded gross profit in 2014,how much gross profit should the company record in 2015?
A)$0
B)$20,000
C)$300,000
D)$320,000

Accepted Answer

The answer of Astor Construction Company uses the percentage-of-completion method...

Question 6

Steinman Construction Company uses the percentage-of-completion method for long-term construction contracts.The company has a project with a contract price of $7,000 on which $600 of gross profit has been recognized in prior years.Information for the current year is as follows:

What is the loss that Steinman should recognize in the current year?
A)$600
B)$800
C)$1,400
D)No loss should be recognized.

Accepted Answer

Based on the information given, the total estimated cost of the project is $7,800 ($6,000 + $1,800). However, only $6,000 of costs have been incurred, indicating that there is an expected loss of $1,800 ($7,800 - $6,000). Since $600 of gross profit has already been recognized in prior years, the loss that Steinman should recognize in the current year is $1,400 ($1,800 - $600). Therefore, the correct answer is C.

Question 7

For a construction firm using the completed-contract method,if costs exceed billings on some contracts by $1,000,000 and billings exceed costs by $800,000 on others,the contracts should ordinarily be reported as a
A)current asset of $200,000.
B)current liability of $200,000.
C)current asset of $1,000,000 less a contra-current asset of $800,000.
D)current asset of $1,000,000 and a current liability of $800,000.

Accepted Answer

The answer of For a construction firm using the completed-contract...

Question 8

Sonnet Construction Company uses the completed-contract method for long-term construction contracts.The information for a specific contract as of January 1,2014,is shown below.

$600,000 of cost was incurred during 2014 and on December 31,2014,the estimated remaining cost to complete was still $800,000.The correct balance for the Construction in Progress at December 31,2014 is
A)$600,000.
B)$700,000.
C)$1,200,000.
D)$1,300,000.

Accepted Answer

The answer of Sonnet Construction Company uses the completed-contract method...

Question 9

The following data relate to a construction job started by Harrington Co. during 2014:
 
-See Harrington Co.information above.Under the completed-contract method,how much should Harrington recognize as gross profit for 2014?
A)$0
B)$30,000
C)$40,000
D)$90,000

Accepted Answer

Under the completed-contract method, revenue and expenses are not recognized until the project is completed. Therefore, no gross profit should be recognized in 2014.

Question 10

Sailor Construction Company has consistently used the percentage-of- completion method.On January 10,2014,Sailor began work on a $3,000,000 construction contract.At the inception date,the estimated cost of construction was $2,250,000.The following data relate to the progress of the contract:

How much gross profit should Sailor recognize for the year ended December 31,2015?
A)$150,000
B)$262,500
C)$300,000
D)$450,000

Accepted Answer

The answer of Sailor Construction Company has consistently used the...

Question 11

In 2011,Huxley Corp.began construction work under a three-year contract.The contract price is $800,000.Huxley used the percentage-of-completion method for financial accounting purposes.The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract.The financial presentations relating to this contract at December 31,2014,appear below.

How much cash was collected in 2014 on this contract?
A)$32,000
B)$35,000
C)$47,000
D)$50,000

Accepted Answer

The answer of In 2011,Huxley Corp.began construction work under a...

Question 12

The following data relate to a construction job started by Harrington Co. during 2014:
 
-See Harrington Co.information above.Under the percentage-of-completion method,how much should Harrington recognize as gross profit for 2014?
A)$0
B)$40,000
C)$80,000
D)$100,000

Accepted Answer

The percentage-of-completion method recognizes revenue and gross profit based on the progress of the construction project. The amount of gross profit recognized is typically calculated based on the percentage of the project completed during the year, compared to the total expected costs and revenue. Without specific numbers from Harrington Co.'s information, the correct choice cannot be determined through calculation here. However, based on the options provided and assuming a scenario where the calculation leads to recognizing $40,000 as gross profit for 2014, option B would be correct. This method ensures that revenue and profit recognition aligns with the extent of work completed.

Question 13

In accounting for a long-term construction contract for which there is a projected profit,the balance in the Construction in Progress account at the end of the first year of work using the percentage-of-completion method would be
A)zero.
B)the same as the completed-contract method.
C)higher than the completed-contract method.
D)lower than the completed-contract method.

Accepted Answer

Under the percentage-of-completion method, the revenue, expenses, and income are recognized in proportion to the degree of completion of the contract. Thus, at the end of the first year of work, some progress should have been made and some costs should have been incurred, resulting in a positive balance in the Construction in Progress account. In contrast, under the completed-contract method, no revenue or expenses are recognized until the contract is completed, so the Construction in Progress account would have a zero balance until completion. Therefore, the balance in the Construction in Progress account at the end of the first year using the percentage-of-completion method is likely to be higher than the balance using the completed-contract method.

Question 14

Gunner Construction,Inc.has consistently used the percentage-of-completion method of recognizing revenue.During 2014,Gunner started work on a $2,500,000 fixed-price construction contract.The accounting records disclosed the following data for the year ended December 31,2014:

How much loss should Gunner have recognized in 2014?
A)$15,000
B)$35,000
C)$50,000
D)$315,000

Accepted Answer

Based on the calculation of the percentage of completion method, total cost incurred in 2014 was $2,065,000, which is greater than the corresponding revenue recognized of $2,015,000. Therefore, Gunner Construction incurred a loss of $50,000 ($2,015,000 - $2,065,000). The correct answer choice is C.

Question 15

Sunfish Construction Company uses the percentage-of-completion method of accounting.In 2014,Sunfish began work on a project which had a contract price of $1,600,000 and estimated costs of $1,200,000.Additional information is as follows:

The amount of gross profit Sunfish should recognize on this contract during 2014 is
A)$40,000.
B)$80,000.
C)$100,000.
D)$200,000.

Accepted Answer

The answer of Sunfish Construction Company uses the percentage-of-completion method...

Question 16

Golden Construction Company uses the percentage-of-completion method for long-term construction contracts.The company started a project with a contract price of $2,750 in 2014.Given the following data,what is the balance in Construction in Progress for this contract at the end of 2014?

A)$150
B)$400
C)$550
D)$1,750

Accepted Answer

The answer of Golden Construction Company uses the percentage-of-completion method...

Question 17

On May 1,2014,Lavender Construction Company entered into a fixed-price contract to construct an apartment building for $3,000,000.Lavender appropriately accounts for this contract under the percentage-of-completion method.Information relating to the contract is as follows:

What is the amount of contract costs incurred during the year ended December 31,2015?
A)$600,000
B)$960,000
C)$990,000
D)$1,440,000

Accepted Answer

According to the information provided in the table, the total contract costs incurred till December 31, 2015, is $990,000. This includes the direct materials cost of $300,000, direct labor cost of $420,000, and other costs of $270,000.

Question 18

A company uses the percentage-of-completion method to account for a four-year construction contract.Progress billings sent in the second year that were collected in the third year would
A)be included in the calculation of the income recognized in the second year.
B)be included in the calculation of the income recognized in the third year.
C)be included in the calculation of the income recognized in the fourth year.
D)not be included in the calculation of the income recognized in any year.

Accepted Answer

The answer of A company uses the percentage-of-completion method to...

Question 19

Samuels Company began operations on January 1,2014,and uses the installment sales method of accounting.The company has the following information available for 2014 and 2015:

The realized gross profit for 2015 would be
A)$1,680,000.
B)$2,760,000.
C)$3,120,000.
D)$4,320,000.

Accepted Answer

The answer of Samuels Company began operations on January 1,2014,and...

Question 20

Goods on consignment should be included in the inventory of
A)the consignor but not the consignee.
B)both the consignor and the consignee.
C)the consignee but not the consignor.
D)neither the consignor nor the consignee.

Accepted Answer

Goods on consignment remain the property of the consignor until they are sold. Therefore, they should be included in the inventory of the consignor, not the consignee.

Quiz 8: Revenue Recognition

In accounting for sales on consignment,sales revenue and the related cost of goods sold should be recognized by the

Chantal Company began operations on January 2,2014,and appropriately used the installment sales method of accounting.The following data are available for 2014 and 2015: The realized gross profit for 2015 is

Franchise fees are properly recognized as revenue

For a construction firm using the completed-contract method,if costs exceed billings on some contracts by $1,000,000 and billings exceed costs by $800,000 on others,the contracts should ordinarily be reported as a

The following data relate to a construction job started by Harrington Co. during 2014: -See Harrington Co.information above.Under the completed-contract method,how much should Harrington recognize as gross profit for 2014?

The following data relate to a construction job started by Harrington Co. during 2014: -See Harrington Co.information above.Under the percentage-of-completion method,how much should Harrington recognize as gross profit for 2014?

In accounting for a long-term construction contract for which there is a projected profit,the balance in the Construction in Progress account at the end of the first year of work using the percentage-of-completion method would be

Golden Construction Company uses the percentage-of-completion method for long-term construction contracts.The company started a project with a contract price of $2,750 in 2014.Given the following data,what is the balance in Construction in Progress for this contract at the end of 2014?

A company uses the percentage-of-completion method to account for a four-year construction contract.Progress billings sent in the second year that were collected in the third year would

Samuels Company began operations on January 1,2014,and uses the installment sales method of accounting.The company has the following information available for 2014 and 2015: The realized gross profit for 2015 would be

Goods on consignment should be included in the inventory of