1) In order for revenue to be recognized, A) goods or services must be delivered to the customer only. B) cash or an asset virtually assured of being converted into cash must be received from the customer only. C) goods or services must be delivered to the customer and cash or an asset virtually assured of being converted into cash must be received. D) cash must be received from the customer only. E) goods or services must be delivered to the customer and cash must be received from the customer.
2) Why is the timing of revenue recognition important? A) Revenues increase net income. B) Revenues reduce net income by triggering the recognition of certain expenses. C) Revenues increase the declaration of dividends. D) Increases in revenues result in higher retained earnings. E) both A and B
3) Quizno Contracting would like to utilize the percentage of completion method to recognize a building under construction for Balto Veterinary. However, the accountant is not sure whether Quizno Contracting is meeting GAAP expectations. It is appropriate for Quizno Contracting to apply the percentage of completion method EXCEPT when A) progress measures are dependable. B) contract obligations are precise and clear. C) the buyer has agreed to use the completed contract method of revenue recognition. D) both buyer and seller are expected to meet their obligations. E) little or no uncertainty exists regarding payment by the buyer.
4) If the criteria to use the percentage of completion method are not met, a company must A) use the completed contract method to recognize revenue. B) use the completion revenue principle to recognize revenue. C) confer with their client about cash collection expectations. D) refer to IFRS and choose between one of the five available revenue recognition principles. E) determine whether they are permitted to conduct business with a client.
5) Joint discussions between the FASB and IASB regarding accounting for revenues A) are ongoing and may result in a new standard for revenue recognition. B) have resulted in a 4 step process for revenue recognition. C) have resulted in a 3 step process for revenue recognition. D) were undertaken for the benefit of stockholders so that stock prices retain stability during unstable economic times. E) have not been conducted and no discussions are in the foreseeable future.
6) For a magazine company, subscription revenues are recognized when cash is received from the customer before delivery of the magazine. True or False
7) Revenue is generally recognized at the point of sale. True or False
8) When a company sells goods and receives non-cash items in return, A) the seller estimates the fair market value of the non-cash item or the cash equivalent of the noncash item. B) the seller receiving the non-cash item estimates its value as the original cost of the inventory sold. C) the seller uses the buyers' cost for the non-cash item. D) the seller uses one-half of the fair market value of the non-cash item. E) both parties must realize that they are conducting a transaction that is not in accordance with GAAP.
9) A company reports revenue on its income statement using A) gross sales less sales returns and allowances. B) net sales less sales returns and allowances. C) gross sales plus trade discounts. D) net sales plus trade discounts. E) gross sales less trade discounts plus sales returns and allowances.
10) Sales returns and allowances A) are accounted for by deducting the total amount from gross sales. B) are accounted for by deducting the total amount from net sales. C) are accounted for using a contra account called Trade Discounts. D) are accounted for using a reduction account. E) are not accounted for on the financial statements.