Use the information below to answer questions-
Shark manufactures and sells vacuum cleaners directly to customers based on 30-minute infomercials. Orders are taken by phone operators and vacuum cleaners are shipped one-two days after orders are taken. Customers have 60 days from the date of delivery to return the vacuum cleaners for a full cash refund of the selling price (not including shipping and handling). During March, 2016, Shark shipped 5,000 vacuum cleaners at a selling price of $550 plus shipping and handling of $40 and sales tax of 6% on the selling price. The cost of manufacturing a vacuum cleaner is $375. Based on Shark's past experience, 2% of the vacuum cleaners sold are returned. In April, 55 vacuum cleaners sold in March were returned.
1. On Shark's March 31, 2016 balance sheet, which of the following statements is correct based on vacuum cleaners sold in March?
A. The sales tax liability, not including the sales tax on expected returns, should be reported at $161,700.
B. The refund liability for vacuum cleaners expected to be returned should be reported at $55,000.
C. A and B.
D. Neither A nor B.
2. On Shark's income statement for the month ended March 31, 2016, sales revenues net of sales taxes should be reported at
A. $2,856,700.
B. $2,915,000.
C. $2,695,000.
D. $2,659,000.
3. On Shark's April 30, 2016 balance sheet, which of the following statements is correct based on sales of vacuum cleaners sold in March?
A. Returned inventory should be reported at $30,250.
B. Refund liability should be reported at $26,235.
C. A and B.
D. Neither A nor B.
4. Which ASC citation below provides guidance on revenue from sales based or usage based royalties?
A. 606-10-65-55.
B. 606-10-32-11.
C. 606-10-55-54.
D. 606-10-55-65
5. As a result of a popular movie, Metro, Goldwin, Mayer (MGM) contracted with Pot Co. to manufacture and sell figurine likenesses of the popular characters in the movie. The licensing agreement between MGM and Pot provides for a royalty payment to MGM based on the sales of the figurines. By contract, MGM receives royalty payments of 20% of the revenue from sales of the figurines on January 31 for figurines sold between the previous June 1 and November 30, and on July 31 for figurines sold between December 1 and May 31. Pot reports the following sales of figurines, starting on June 1, 2016:
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June 1, 2016 - November 30, 2016
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$300,000
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December 1, 2016 - December 31, 2016
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50,000
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December 1, 2016 - May 31, 2017
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400,000
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|
June 1, 2017 - November 30, 2017
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325,000
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December 1, 2017 - December 31, 2017
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70,000
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What amount should MGM report as royalty revenue for 2017?
A. $140,000.
B. $144,000.
C. $159,000.
D. $149,000.
6. Refer to the previous question. During 2017, how much cash did MGM receive from Pot?
A. $140,000.
B. $144,000.
C. $159,000.
D. $149,000.
7. At December 31, 2017, how much royalty revenue was earned but not received?
A. $14,000.
B. $65,000.
C. $79,000.
D. $89,000.
8. Aneen's Video Mart sells one- and two-year subscriptions for its video-of-the-month business. Subscriptions are collected in advance and credited to unearned revenue. An analysis of the subscriptions received for 2016 and 2017 revealed the following:
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2016
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2017
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Cash collected
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$400,000
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$470,000
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Subscriptions expire as follows:
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2016
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$120,000
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|
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2017
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155,000
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$130,000
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2018
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125,000
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200,000
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|
2019
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|
140,000
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|
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$400,000
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$470,000
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In Aneen's December 31, 2016 balance sheet, unearned subscription revenue reported under long-term liabilities should be
A. $495,000
B. $470,000
C. $465,000
D. $340,000
9. On October 1, 2016, Acme Fuel Co. contracted to sell 450,000 gallons of heating oil to Karn Co. at $3 per gallon. According to the contract, Acme has a performance obligation to deliver the fuel oil in three deliveries starting with 100,000 gallons on November 1, 2016, 170,000 gallons on December 1, 2016, and the remaining 180,000 gallons on January 2, 2017. Karn, which has a P-2 short-term credit rating from Moody's, will pay for the fuel oil as follows: 25% of the total transaction price on October 1, 2016, 30% of the total transaction price on December 15, 2016, and the remaining balance on January 15, 2017. What amount of revenue should Acme recognize from its sale to Karn during 2016 and 2017?
2016 2017
A. $825,000 $540,000
B. $810,000 $525,000
C. $825,000 $525,000
D. $810,000 $540,000
10. Refer to the previous question. Which of the following statements is correct?
A. Acme should report accounts receivable of $67,500 on its December 31, 2016, balance sheet as a result of its contract with Karn.
B. A P-2 short-term credit rating from Moodys means that Karn has a "strong ability to repay short-term debt obligations."
C. A and B.
D. Neither A nor B.
Use the information below to answer questions:
High Company contracted on September 2, 2016, to sell 100 dishwashers to Low Inc., a building contractor, at $600 per dishwasher. Delivery of the dishwashers will be made between September 30 and November30. After delivering 30 dishwashers on October 20, High and Low agreed to modify the contract to include the delivery of an additional 50 dishwashers at a price of $570 per dishwasher. The additional dishwashers will be delivered during December, 2016 and January, 2017. By the end of 2016, a total of 130 dishwashers had been delivered, 70 in November and 30 in December. By contract, Low pays for the dishwashers delivered in the month following delivery.
11. Assuming the $570 price in the contract modification represents the standalone selling price of dishwashers, which of the following statements is correct?
A. The contract modification meets the 2 conditions specified in ASC 606-10-25-12.
B. High's revenue from the sale of dishwashers to Low for 2016 is $77,100.
C. A and B.
D. Neither A nor B.
12. Assuming the $570 price in the contract modification does not represent the standalone selling price of dishwashers, which of the following statements is correct.
A. The contract modification does not meet condition (a) in ASC 606-10-25-12.
B. High's revenue from the sale of dishwashers to Low for 2016 is $76,750.
C. A and B.
D. Neither A nor B.
13. Which of the following statements is correct?
A. When a contract has multiple performance obligations bundled into one transaction price, the transaction price allocated to each performance obligation should be made on a relative standalone selling price basis, even if the standalone selling prices are not directly observable.
B. According to ASC 606-10-32-2, the transaction price should include amounts collected on behalf of third parties.
C. A and B.
D. Neither A nor B.
14. Which of the following statements is correct?
A. In a bill and hold arrangement, the seller bills the customer for a product before delivery and reports revenue only when the product is delivered to the customer.
B. A refund liability is based on the expected returns of product sold on which customers have a right of return for a refund of some or all of the transaction price.
C. A and B.
D. Neither A nor B.
Use the information below to answer questions:
Sky Company contracted to sell equipment to Earth Inc. on November 21, 2016 for $90,000. In addition to the performance obligation to deliver the equipment to Earth, Sky also contracted to (1) train Earth's employees to operate the equipment and (2) to maintain the equipment for a period of four years. The standalone selling prices of each performance obligation on the contract date were
- Equipment: $90,000
- Training: $ 2,800
- Maintenance: $ 7,200
Sky delivered the equipment to Earth on December 1, 2016. Training will take place during December, 2016, and January, 2017. Earth paid the transaction price on December 31, 2016.
15. On November 21, 2016, Sky should allocate the transaction price to each performance obligation in which of the following amounts?
Equipment Training Service
A. $90,000 $0 $0
B. $81,000 $2,250 $6,840
C. $81,000 $2,520 $6,480
D. $81,000 $2,520 $6,840
16. For the year ended December 31, 2016, which of the following statements is correct?
A. Sky should report revenue of $82,395 from its contract with Earth.
B. Sky should report unearned revenue, both current and long-term, of $7,605 as a result of its contract with earth.
C. A and B.
D. Neither A nor B.
17. Which of the following statements is correct?
A. According to the new revenue standard, revenue is recognized over a five step process that concludes with the seller's receipt of the transaction price from the customer.
B. According to ASC 606-10-25-1, contracts with customers can be written, oral, or in accordance with other customary business practices.
C. A and B.
D. Neither A nor B.
18. Why did the FASB issue the new standard on revenue from contracts with customers?
A. The standard attempts to resolve the inconsistencies across companies and industries regarding revenue recognition.
B. The standard narrows the differences in revenue recognition between US GAAP and IFRS, thereby allowing investors to compare US GAAP companies with those using IFRS.
C. A and B.
D. Neither A nor B
Use the information below to answer questions:
RM Inc. sponsors a collector car auction during the first week in November, 2016. Owners of collector cars who wish to sell them at the auction consign their vehicles to RM for a nonrefundable entrance fee of $700. If the cars are sold, the car owners receive the selling price less a 5% commission on the selling price. During the first week in November, RM sold 1,500 vehicles for a total selling price of $140,000,000. Buyers of the vehicles pay the selling price plus a 10% surcharge to RM. 160 Vehicles were not sold at the auction and were returned to their owners.
19. Which of the following statements is correct?
A. RM is an agent on behalf of the owners of the collector cars.
B. RM's performance obligation related to commission revenue on the 1,500 collector cars sold is satisfied when the consignors deliver their cars to the auction.
C. A and B.
D. Neither A nor B.
20. After the auction is completed, how much cash will RM owe to the owners of the collector cars?
A. $133,000,000.
B. $132,838,000.
C. $126,000,000.
D. $119,000,000.
E. $124,838,000.
21. What is RM's total revenue from the auction?
A. $21,000,000.
B. $22,162,000.
C. $22,216,000.
D. $21,162,000.
22. On November 1, 2016, Lowes Inc. contacted to sell 200 screen doors to a local contractor for a transaction price of $100,000. The local contractor does not need the doors until March, 2017, and asks Lowes to store the doors in its warehouse until they are needed in March. Lowes billed the contractor for the doors on November 10th and set the 200 doors aside in its warehouse on the same day for future delivery in March. The local contractor paid for the doors in December (40% of the transaction price), with the remainder due in April, 2017. Which of the following statements is correct?
A. Lowes should report sales revenue of $100,000 on its 2016 income statement from the contract to sell the screen doors.
B. On December 31, 2016, Lowes should report accounts receivable under current assets for $60,000.
C. A and B.
D. Neither A nor B.