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Exam 5: Income Measurement and Profitability Analysis

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Question 1

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In 2014, Rigsby would recognize realized gross profit of:

A) $0.
B) $450,000.
C) $300,000.
D) $400,000.

E) A) and B)
F) B) and D)

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Question 2

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Which of the following is one of the steps for recognizing revenue?

A) Identify the separate performance obligations of the contract.
B) Determine whether bad debts can be reasonably estimated.
C) Estimate the total transaction price of the contract based on fair value.
D) Allocate all revenue to the performance obligation with the largest standalone selling price.

E) C) and D)
F) B) and D)

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Question 3

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Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS has no experience estimating uncollectible accounts associated with these sorts of notes. It can recognize:

Assume at March 15, 2012, the time of signing the contract, collection of the receivable was reasonably assured and there were no significant continuing obligations. The journal entry at signing would include a:

Imagine that the Ace Construction Company (ACC) is going to switch from the percentage of completion method to the completed contract method. Assume that none of their construction projects are going to produce a loss. Is it possible that, in a particular year, ACC will show higher gross profit under the completed contract method than they would under the percentage-of-completion method? Explain.

A company could improve its return on assets by increasing its income or by increasing its total assets.

Required: Compute the inventory turnover ratio for 2013.

Its receivables turnover ratio for 2013. Round your answer to one decimal place.

Revenue from the sale of computer software is always recognized at the point of sale.

When the expected collection of accounts receivable is difficult to estimate, companies must use the cost recovery method.

Assume ID cannot estimate uncollectible accounts accurately and recognizes revenue using the installment method. Required: Prepare journal entries to record the sale, cash collections, and recognition of gross profit (if appropriate) in 2012 and 2013.

Suppose that, in 2014, Indiana incurred costs of $63.75 million and estimated an additional $42.75 million in costs to complete the project. Using the percentage-of-completion method, Indiana:

Required: Compute the receivables turnover ratio for 2013.

A decrease in the receivables turnover ratio indicates a decrease in the time between credit sales and cash collection.

Assume that Steffi paid the $50,000 in cash when she signed the agreement. RS can recognize revenue associated with the $50,000:

Explodia.com sells fireworks over the Internet. Customers access Explodia's website and select particular products, and Explodia refers the customer order to a fireworks manufacturer who fulfills the order, ships to the customer, and pays Explodia a 20% commission. Which of the following is true about Explodia?

When the right of return exists, revenue can be recognized at the point of sale if the seller can make reliable estimates of future returns.

Briefly explain how revenue is recorded under the installment sales method. Include in your answer an explanation of when use of the method would be appropriate.

What were the construction billings by CCC during 2013?

In its December 31, 2012, balance sheet, SDH would report: