#7

Question 1

For construction contracts, what is the relationship between estimated cost to complete at year x and expected gross profit of year x?

Answer 1

expected gross profit in a particular year = estimated cost to complete of that particular year

Question 2

Is completed-contract-method acceptable under GAAP and IFRS?

Answer 2

Only under GAAP

Question 3

When is revenue recognized in completed-contract-method?

Answer 3

Only when the job is COMPLETE, regardless of progress bill collection or when they exceed recorded cost.

Question 4

For percentage-of-completion and completed-contract, how do they deal with estimated loss?

Answer 4

Both recognize estimated loss IMMEDIATELY. The whole estimated loss, not just the loss incurred so far.

Question 5

How to calculate:
Gross profit
Gross profit rate
Deferred gross profit

Answer 5

Gross profit = sales - cost of sales
Gross profit rate = gross profit / sales
Deferred gross profit = Gross profit rate x account receivable

Question 6

Installment sale and cost recovery method both do what to revenue recognition?

Answer 6

Both DELAY revenue recognition

Question 7

How is gross profit on an installment sale recognized in income?

Answer 7

in proportion to the cash collection. Under the installment method, total gross profit is deferred until cash payments are are received.

Question 8

When do you use the cost recovery method?

Answer 8

When there is no reasonable basis for estimating collectibility

Question 9

When is revenue recognized in cost recovery method?

Answer 9

When cash equaling the cost of the item has been collected

Question 10

How to calculate earned gross profit

Answer 10

cash collected x gross profit percentage

Question 11

Is the gross profit percentage the same for all the different years?

Answer 11

No. It’s calculated for the sales of that year, so each year is different.

Question 12

During exchange of properties and shit, what happens when cash (boot) of less than 10% of total consideration is received?

Answer 12

a proportional amount of the gain is recognized

Question 13

Do you use fair value to value an exchange that lacks commercial substance?

Answer 13

NO

Question 14

How should a nonmonetary exchange that has commercial substance report the transcation?

Answer 14

If a nonmonetary exchange has commercial substance, the transaction is accounted for using the FAIR VALUE of the asset surrendered or the FAIR VALUE of asset received, whichever is greater

Question 15

During exchange of properties and shit, what happens when cash(boot) of greater than 25% of total consideration is received?

Answer 15

The exchange or transaction is considered monetary

Question 16

Relationship between FV of asset received and FV of asset surrendered

Answer 16

They must be equal

Question 17

When a nonmonetary transaction has commercial substance, how are gains and losses recognized?

Answer 17

Gains and losses are recognized based on the difference between the fair value and the book value of the asset given up.

Question 18

In an exchange that lack commercial substance, how do you, how do you recognize gains and losses

Answer 18

Boot paid = no gain
No boot is received = no gain

Boot is received that’s less than 25% of total consideration: recognize portion of boot
Boot is received that’s greater than 25% of total consideration: recognize all boot

Loss is always recognized

Question 19

Under IFRS, what is the deciding factor for gain recognition for nonmonetary exchange?

Answer 19

If the assets in the nonmonetary exchange are similar. Similar assets means no gains are recognized, while assets not similar means gains are fully recognized.

Question 20

When are gains and losses recognized in nonmonetary exchange that have commercial substance?

Answer 20

Gains and losses are both recognized immediately. Commercial substance means that amount and timing of future cash flow is changed due to this exchange, so gains gains and losses have to be recognized immediately.