FAR SET 4 Flashcards
Gar Inc.’s trial balance reflected the following liability account balances at December 31, Year 1:
Accounts Payable $19,000 Bonds Payable, due Year 2 $34,000 Deferred income tax payable $4,000 Discount on bonds payable $2,000 Dividends payable on 2/15/Year 2 $5,000 Income tax payable $9,000 Notes Payable, due 1/19/Year 3 $6,000
The deferred income tax payable is based on temporary differences that will reverse in Year 3 and Year 4. In Gar’s December 31, Year 1, balance sheet, the current liabilities total was:
Accounts Payable \+ Bonds Payable - Discount on bonds payable \+ Dividends payable on 2/15/Year 2 \+ Income tax payable = Total current laibilities
Which of the following should be included in general and administrative expenses?
Interest and Advertising? Neither one.
Macklin Co. entered into a franchise agreement with Heath Co. for an initial fee of $50,000. Macklin received $10,000 when the agreement was signed. The balance was to be paid at a rate of $10,000 per year, starting next year. All services were performed by Macklin and the refund period had expired. Operations started in the current year. What amount should Macklin recognize as revenue in the current year?
The whole initial fee because all performance obligations had been satisfied.
An automobile dealer sells service contracts. The contracts stipulate that the dealer will perform specific repairs on covered vehicles. The contracts vary in length from 12 to 36 months. Do the following increase when service contracts are sold? Deferred Revenue and Service Revenue?
When service contracts are sold, deferred revenue increases, but service revenue foes not increase until service is performed.
A retail store sold gift certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How would the deferred revenue account be affected by each of the following: Redemption of certificates and lapse of certificates?
With both of these deferred revenue would decrease.
BCA Tech, a new company, produces webcams and other computer-related software products. The company recently received a contract to produce and deliver over 500,000 webcams to be distributed evenly over the next 20 months. If the company would like to use an output method to recognize revenue during the first year of the contract, which of the following methods would be most appropriate?
Milestones achieved (whether production or distribution related) are an example of an output method used to recognize revenue.
Which of the following situations would require that the seller recognize revenue over time rather than at a point in time?
Benefits are received by the buyer as the seller performs.
During Year 1, Tidal Co. began construction on a project scheduled in Year 3. At December 31, Year 1, an overall loss was anticipated at contract completion. What would be the effect of the project on Year 1 operating income under the U.S. GAAP percentage-of-completion and completed-contract methods?
Decrease both % of completion and completed contract.
Completed Contract Method
Revenue is recognized when the contract is complete.
Expected Losses are recognized immediately.
Percentage-of-completion
Costs incurred
+Estimated costs
=Total Costs
Cost incurred
/total costs
=% of total costs
% of total costs
* Estimated Profit
= Current Profit
Current Profit
- Estimated Loss
A company used the %-of-completion method of accounting for a 5-year construction contract. Which of the following items will the company use to calculate the income recognized in the third year? (Progress billings to date and Income previously recognized)
Only Income previously recognized would be used not progress billings to date.
A company uses the completed-contract method to account for a long-term construction contract under U.S. GAAP. Revenue is recognized when recorded progress billings:
When the job is completed not when progress billings are collected or when they exceed recorded costs.
Percentage-of-completion
Liability only exists when progress billings exceed costs and estimated earnings. (there will be a loss)
The incremental costs of obtaining a contract includes:
Commission costs because they would have not been incurred if the contract wasn’t obtained.
On April 30, Deer Corp. approved a plan to dispose of a component of its business. The decision represents a major strategic shift for Deer and will have a significant effect on its operations and financial results. For the period January 1 through April 30, the component had revenues of $500,000 and expenses of $800,000. The assets of the component were sold on October 15 at a loss. In its income statement for the year ended December 31, how should Deer report the component’s operations from January 1 to April 30?
$300,000 should be reported as a loss from operations of a component and included in loss from discontinued operations.
