Chapter 5

Question 1

Requires that the earnings process is judged to be complete or virtually complete, and there is reasonable certainty as to the collectibility of the asset to be received before revenue can be recognized

Answer 1

Realization Principle

Question 2

Allocation of a share of a project’s revenues and expenses to each reporting period during the contract period

Answer 2

Percentage-of-Completion Method

Question 3

Recognition of revenue for a long-term contract when the contract is complete

Answer 3

Complete Contract Method

Question 4

Recognizes revenue and costs only when cash payments are received

Answer 4

Installment Sales Method

Question 5

Deferral of all gross profit recognition until the cost of the item sold has been recovered

Answer 5

Cost Recovery Method

Question 6

Customers’ right to return merchandise to retailers if they are not satisfied

Answer 6

Right of Return

Question 7

The consignor physically transfers the goods to the other consignee but the consignor retains legal title

Answer 7

Consignment

Question 8

Asset account equivalent to the asset work-in-progress inventory in a manufacturing company

Answer 8

Construction in Progress

Question 9

Contra account to the asset construction in progress

Answer 9

Billings of Construction Contract

Question 10

Ratio found by calculating the percentage of estimated total cost that has been incurred to date

Answer 10

Cost-to-Cost Ratio

Question 11

Grants to the franchisee the right to sell the products and use the name of the franchise for a specific period of time

Answer 11

Franchisor

Question 12

Individual or corporation given the right to sell the products and use the name of a franchise for a specific period of time

Answer 12

Franchisee

Question 13

Measure of a company’s efficiency in using assets to generate revenue

Answer 13

Asset Turnover Ratio

Question 14

Indicates how quickly a company is able to collect its accounts receivable

Answer 14

Receivables Turnover Ratio

Question 15

Indication of the average age of accounts receivable

Answer 15

Average Collection Period

Question 16

Measures a company’s efficiency in managing its investment in inventory

Answer 16

Inventory Turnover Ratio

Question 17

Indicates the average number of days it normally takes to sell inventory

Answer 17

Average Days in Inventory

Question 18

Net income divided by net sales; measures the amount of net income achieved per sales dollar

Answer 18

Profit Margin on Sales

Question 19

Indicates a company’s overall profitability

Answer 19

Return on Asset (ROA)

Question 20

Amount of profit management can generate from the assets that owners provide

Answer 20

Return on Equity (ROE)

Question 21

Depict return on equity as determined by profit margin, asset turnover, and the equity multiplier

Answer 21

DuPont Framework

Question 22

Promises to transfer goods and services to buyer

Answer 22

Performance Obligations

Question 23

The cash flow precedes either expense or revenue recognition

Answer 23

Prepayments

Question 24

Obligation by the seller to make repairs or replace products that are later demonstrated to be defective for some period of time after the sale

Answer 24

Quality Assurance Warranty

Question 25

An additional, extended service that covers new problems arising after the buyer takes control of the product

Answer 25

Extended Warranties

Question 26

Gives the holder the right either to buy or sell a financial instrument at a specified price

Answer 26

Option

Question 27

The amount the seller expects to be entitled to receive from the buyer in exchange for providing goods and services

Answer 27

Transaction Price

Question 28

Transaction price is uncertain because some of the price is to be paid to the seller depending on future events

Answer 28

Variable Consideration

Question 29

Seller’s experience indicates that it will be entitled to receive an amount of uncertain consideration

Answer 29

Reasonably Assured to be Entitled