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Question 1: Score 0/1
Recognition of franchise fee revenue is dependent on judgments of both substantial performance and fee collectibility.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 2: Score 0/1
Under EITF 00-21, if the revenue for a particular part of a multiple-part arrangement does not qualify for separate recognition, it is:
Your Answer:
ChoiceSelectedCorrect
never recognized.
  
recognized when the contract is signed or persuasive evidence of an arrangement exists.
  
recognized when revenue for the other parts are recognized.
 
None of these.
  

Question 3: Score 0/1
In 2009, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC uses the percentage-of-completion method to account for such projects and provides you with the following information (dollars in millions):



What is the fixed contract price for CCC's project?
Your Answer:
ChoiceSelectedCorrect
$120 million
  
$225 million
  
$345 million
 
None of these is correct
  
Feedback:
Gross profit recognized in 2009 of $72 million = 60% of estimated gross project on the project. Therefore, total gross profit is estimated at $72 million/.6 = $120 million. Since Gross profit = Contract price Estimated total construction costs of $225 million, the Contract price = $120 million + $225 million = $345 million.

Question 4: Score 0/1
JRE2 Inc. entered into a contract to install a pipeline for a fixed price of $2,200,000. JRE2 uses the completed contract method of revenue recognition.



In 2009, JRE2 would report (rounded to the nearest thousand) gross profit (loss) of:
Your Answer:
ChoiceSelectedCorrect
$ (206,000).
  
$ (150,000).
 
$ (223,000).
  
$0.
  
Feedback:
2009: $2,200,000 ($250,000 + 1,600,000 + 500,000) = $(150,000) gross loss.

Question 5: Score 0/1
The Racquet Store (RS) sells franchise agreements in which they charge an up-front fee of $50,000 for assistance in setting up a store, and then a monthly fee of $1,000 for national advertising and administrative assistance. Steffi Hingis signs a franchise agreement with RS.

Assume that Steffi signed a $50,000 installment note when she signed the franchise agreement. RS can recognize revenue associated with the $50,000
Your Answer:
ChoiceSelectedCorrect
Gradually as they provide advertising and administration services.
  
when Steffi signs the agreement, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.
  
When they receive installment payments from Steffi, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.
  
as soon as they have assisted Steffi in setting up the store, so long as RS has sufficient experience with similar arrangements to estimate uncollectible accounts.
 
Feedback:
Substantial performance has occurred, and can estimate bad debts.

Question 6: Score 0/1
Under the realization principle, revenue should not be recognized until the earnings process is deemed virtually complete and:
Your Answer:
ChoiceSelectedCorrect
Collection is reasonably certain.
 
Revenue is realized.
  
Any receivable is collected.
  
Collection is absolutely assured.
  

Question 7: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the cost recovery method to recognize revenue on these installment sales. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2009, $400,000 in 2010, and $400,000 in 2011 associated with those sales. In 2011 Lake also repossessed $200,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $75,000 at the time they were repossessed.

In 2010, Lake would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$ 0.
  
$700,000.
  
$300,000.
 
$310,000.
  
Feedback:
2008 sales:
Cost = $450,000; $300,000 collected in each year 2008-2010. $300,000 of cost recovered in 2008, the other $150,000 of cost recovered in 2009, so $150,000 of gross profit recognized in 2009, leaving $300,000 recognized in 2010.
2009 sales:

Cost = $900,000; $500,000 collected in 2009, $400,000 collected in 2010. $500,000 of cost recovered in 2009, the other $400,000 of cost recovered in 2009, so $0 of gross profit recognized in 2010.
Total: $300,000 + $0 = $300,000

Question 8: Score 0/1
Sahara Desert Homes (SDH) reports under IFRS, and constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:



SDH uses the cost recovery method under IFRS to recognize revenue.

In its December 31, 2008 balance sheet, SDH would report:
Your Answer:
ChoiceSelectedCorrect
The liability, billings in excess of cost, of $300,000.
 
The asset, contract amount in excess of billings, of $1,500,000.
  
The asset, deferred profit, of $ 400,000.
  
The asset, cost and profits in excess of billings, of $500,000.
  
Feedback:

Question 9: Score 0/1
Under the cost recovery method used to account for long-term contracts under IFRS, equal amounts of revenue and cost are recognized until all costs are recovered.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 10: Score 0/1
Summary data for Benedict Construction Co.'s (BCC) Job 1227, which was completed in 2009, are presented below:



Assuming BCC used the completed contract method to recognize revenue, what would gross profit have been in 2008 and 2009 (rounded to the nearest thousand)?

           
Your Answer:
ChoiceSelectedCorrect
 
  
  
  
Feedback:
No revenue is recognized until completion of project in year 2009.

Question 11: Score 0/1
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.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 12: Score 0/1
Flapper Jack's Pancake Restaurants Inc. sells franchises for an initial fee of $36,000 plus operating fees of $500 per month. The initial fee covers site selection, training, computer and accounting software, and on-site consulting and troubleshooting, as needed, over the first five years. On March 15, 2008, Tim Cruise signed a franchise contract, paying the standard $6,000 down with the balance due over 5 years with interest.

Assume that at the time of signing the contract, collection of the receivable was assured and that service obligations were substantial. However, by October 20, 2008, substantially all continuing obligations had been met. The journal entry required at October 20, 2008 would include a:
Your Answer:
ChoiceSelectedCorrect
Debit to unearned franchise fee revenue for $36,000.
 
Credit to franchise fee revenue for $9,000.
  
Credit to franchise fee receivable for $27,000.
  
Debit to unearned franchise fee revenue for $27,000.
  
Feedback:

Question 13: Score 0/1
Slick's Used Cars sells pre-owned cars on the installment basis and carries its own notes because its customers typically cannot qualify for a bank loan. Default rates tend to be high or unpredictable. However, in the event of nonpayment, Slick's can usually repossess the cars without loss. The revenue method Slick would use is the:
Your Answer:
ChoiceSelectedCorrect
Installment sales method.
  
Point of sales method.
  
Cost recovery method.
  
Answer A or C is correct.
 

Question 14: Score 0/1
When accounting for multiple-element software arrangements, the revenue for each element is based on the separate prices stated for each element in the software contract.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 15: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2009, $400,000 in 2010, and $400,000 in 2011 associated with those sales. In 2011 Lake also repossessed $200,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $75,000 at the time they were repossessed.

Total cash collections on installment sales during 2009 would be:
Your Answer:
ChoiceSelectedCorrect
$0.
  
$700,000.
  
$300,000.
  
$800,000.
 
Feedback:
$300,000 (2008 sales) + $500,000 (2009 sales) = $800,000

Question 16: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2008. Collections on this sale were $20,000 in 2008, $15,000 in 2009, and $20,000 in 2010.

In its 2009 year-end balance sheet, Reliable would report installment receivables (net) of:
Your Answer:
ChoiceSelectedCorrect
$ 4,000.
  
$20,000.
  
$ 0.
 
$15,000.
  
Feedback:

Question 17: Score 0/1
The percentage-of-completion method is preferable to the completed contract method and should only be avoided if
Your Answer:
ChoiceSelectedCorrect
Projects are more than five years to completion.
  
Profits are low.
  
There is a lack of dependable estimates or inherent hazards cause forecasts to be doubtful.
 
Completion rates are certain.
  

Question 18: Score 0/1
Under the completed contract method, gross profit or loss is never recognized until the contract is completed.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 19: Score 0/1
Excerpts from Hulkster Company's December 31, 2009 and 2008, financial statements are presented below:


Hulkster's 2009 profit margin is:
Your Answer:
ChoiceSelectedCorrect
7.6%.
  
17.1%.
 
4.5%.
  
13.5%.
  
Feedback:
$32,500/$190,000 = 17.1%

Question 20: Score 0/1
Under the percentage-of-completion method, amounts billed and the cash actually received affect income recognition.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 21: Score 0/1
Excerpts from Dowling Company's December 31, 2009 and 2008, financial statements and key ratios are presented below (all numbers are in millions):


Dowling's average inventory balance for 2009 is:
Your Answer:
ChoiceSelectedCorrect
12.
  
11.
  
11.5.
 
12.5.
  
Feedback:
Inventory turnover = cost of goods sold / (avg inventory), so average inventory = COGS/(inventory turnover) = 60/5.22 = 11.5.

Question 22: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2009, $400,000 in 2010, and $400,000 in 2011 associated with those sales. In 2011 Lake also repossessed $200,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $75,000 at the time they were repossessed.

In its December 31, 2009, balance sheet, Lake would report:
Your Answer:
ChoiceSelectedCorrect
Deferred gross profit of $700,000.
  
Installment receivables (net) of $750,000.
 
Installment receivables (net) of $900,000.
  
Deferred gross profit of $1,050,000.
  
Feedback:
As of 12/31/2009, the installment receivable would be as follows:

Question 23: Score 0/1
When accounting for multiple-deliverable arrangements, EITF 00-21 indicates that sellers can separately record revenue for a part of an arrangement even if the part does not have value to the customer on a stand-alone basis.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 24: Score 0/1
Excerpts from Hulkster Company's December 31, 2009 and 2008, financial statements are presented below:


Hulkster's 2009 average collection period is:
Your Answer:
ChoiceSelectedCorrect
104 days.
  
128 days.
  
109 days.
  
73 days.
 
Feedback:

Average collection period = 365/5.0 = 73 days

Question 25: Score 0/1
A company could improve its return on assets by increasing its income or by increasing its total assets.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 26: Score 0/1
Indiana Co. began a construction project in 2009 that will provide it $150 million when it is completed in 2011. During 2009, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project.

In 2010, Indiana incurred costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Using the percentage-of-completion method, Indiana:
Your Answer:
ChoiceSelectedCorrect
Recognized $13.5 million gross profit on the project in 2010.
  
Recognized $15 million gross profit on the project in 2010.
  
Recognized $1.5 million gross profit on the project in 2010.
 
Recognized $6 million gross profit on the project in 2010.
  
Feedback:
The project is 70% complete after 2010 (i.e., $94.5 million costs to date/ $135 million estimated total costs). The estimated gross profit is now $15 million (i.e., $150 million $135 million), so gross profit to date is $10.5 million (70% $15 million). $9 million was recognized in 2009, per question 102, so $1.5 million more is recognized in 2010.

Question 27: Score 0/1
Excerpts from Dowling Company's December 31, 2009 and 2008, financial statements and key ratios are presented below (all numbers are in millions):


Dowling's average total assets for 2009 is:
Your Answer:
ChoiceSelectedCorrect
194.
 
115.
  
210.
  
32.
  
Feedback:
Return on assets = net income / (avg assets), so average assets = net income/ROA = 20 /.103 = 194.

Question 28: Score 0/1
In 2009, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC uses the percentage-of-completion method to account for such projects and provides you with the following information (dollars in millions):



What is the amount of gross profit on the project recognized by CCC during 2009?
Your Answer:
ChoiceSelectedCorrect
$48 million
  
$72 million
 
Cannot be determined from the given information.
  
$160 million
  
Feedback:
Construction in progress = Actual costs incurred + Gross profit recognized; so $207 million = $135 million + X. Solve for X. X = $72 million.

Question 29: Score 0/1
For a typical manufacturing company, the most common critical point for recognizing revenue is the date:
Your Answer:
ChoiceSelectedCorrect
The product is delivered.
 
Production is completed.
  
An order is received.
  
Payment is received.
  

Question 30: Score 0/1
A decrease in the receivables turnover ratio indicates a decrease in the time between credit sales and cash collection.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 31: Score 0/1
Use of the installment sales method requires that firms track the gross-profit percentage associated with a particular sale.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 32: Score 0/1
Excerpts from Hulkster Company's December 31, 2009 and 2008, financial statements are presented below:


Hulkster's 2009 return on assets is:
Your Answer:
ChoiceSelectedCorrect
7.1%.
  
7.8%.
 
44.7%.
  
13.5%.
  
Feedback:

Question 33: Score 0/1
ADH2 constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:




ADH2 uses the completed contract method to recognize revenue.

In its December 31, 2008 balance sheet, ADH2 would report:
Your Answer:
ChoiceSelectedCorrect
The asset, contract amount in excess of billings, of $1,500,000.
  
The asset, cost and profits in excess of billings, of $500,000.
  
The asset, deferred profit, of $ 400,000.
  
The liability, billings in excess of cost, of $300,000.
 
Feedback:

Question 34: Score 0/1
JRE2 Inc. entered into a contract to install a pipeline for a fixed price of $2,200,000. JRE2 uses the completed contract method of revenue recognition.



In 2008, JRE2 would report (rounded to the nearest thousand) gross profit (loss) of :
Your Answer:
ChoiceSelectedCorrect
$ 73,000.
  
$ 56,000.
  
$(100,000).
  
$0.
 
Feedback:
total estimated gross profit ($2,200,000 250,000 1,550,000 = $400,000), so don't need to recognize any contract loss.

Question 35: Score 0/1
Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers buy the work there). Sweeney recently transferred a painting to a local barbershop.

After Sweeney has transferred a painting to a barbershop, the painting:
Your Answer:
ChoiceSelectedCorrect
Should be counted in Sweeney's inventory until the barbershop sells it.
 
Should be counted in the barbershop's inventory, as they now possess it.
  
Should be counted in either Sweeney's or the barbershop's inventory, depending on which incurred the cost of preparing the painting for display.
  
None of these.
  

Question 36: Score 0/1
Estimated losses on long-term contracts are recognized ratably over the contract term regardless of the revenue recognition method used.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 37: Score 0/1
Excerpts from Hulkster Company's December 31, 2009 and 2008, financial statements are presented below:


Hulkster's 2009 average days in inventory is:
Your Answer:
ChoiceSelectedCorrect
60.5 days.
  
92.2 days.
  
100.8 days.
 
89.7 days.
  
Feedback:

Average days in inventory = 365/3.62 = 100.8 days

Question 38: Score 0/1
Under the percentage-of-completion method, the percent complete is often estimated by comparing the cost incurred to date with the total estimated cost to complete.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 39: Score 0/1
Revenue is not recognized under the realization principle unless the earnings process is complete or virtually complete and there is reasonable certainty about collectibility of the asset received.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 40: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2009, $400,000 in 2010, and $400,000 in 2011 associated with those sales. In 2011 Lake also repossessed $200,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $75,000 at the time they were repossessed.

In 2011, Lake would record a loss on repossession of:
Your Answer:
ChoiceSelectedCorrect
$200,000.
  
$80,000
  
$120,000.
  
$45,000.
 
Feedback:
Installment receivable = $200,000
Deferred gross profit = $80,000 ($200,000 40%)
Fair value = $75,000

Question 41: Score 0/1
The Racquet Store (RS) sells franchise agreements in which they charge an up-front fee of $50,000 for assistance in setting up a store, and then a monthly fee of $1,000 for national advertising and administrative assistance. Steffi Hingis signs a franchise agreement with RS.

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. They can recognize
Your Answer:
ChoiceSelectedCorrect
$50,000 of revenue when Steffi signs the agreement.
  
$50,000 of revenue as soon as they have assisted Steffi in setting up the store.
  
revenue under the installment method, as soon as they have assisted Steffi in setting up the store.
 
revenue under the installment method, starting when Steffi signs the agreement.
  
Feedback:
Substantial performance has occurred, but can't estimate bad debts, so use the installment method.

Question 42: Score 0/1
The Racquet Store (RS) sells franchise agreements in which they charge an up-front fee of $50,000 for assistance in setting up a store, and then a monthly fee of $1,000 for national advertising and administrative assistance. Steffi Hingis signs a franchise agreement with RS.

Assume that Steffi paid the $50,000 in cash when she signed the agreement. RS can recognize revenue associated with the $50,000
Your Answer:
ChoiceSelectedCorrect
when Steffi signs the agreement and pays the cash.
  
as soon as they have assisted Steffi in setting up the store.
 
gradually as they provide advertising and administration services.
  
none of these.
  
Feedback:
Substantial performance has occurred.

Question 43: Score 0/1
On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignore interest charges. Rigsby has a December 31 year-end.

In 2009, Rigsby would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$500,000.
  
$ 0.
  
$900,000.
  
$100,000.
 
Feedback:
Gross profit % = ($4,500,000 3,600,000)/$4,500,000 = 20%
2009: 20% $500,000 = $100,000

Question 44: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the cost recovery method to recognize revenue on these installment sales. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2009, $400,000 in 2010, and $400,000 in 2011 associated with those sales. In 2011 Lake also repossessed $200,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $75,000 at the time they were repossessed.

In 2008, Lake would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$300,000.
  
$150,000.
  
$450,000.
  
$ 0.
 
Feedback:
$450,000 cost $300,000 collections = $150,000 unrecovered costs

Question 45: Score 0/1
On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignore interest charges. Rigsby has a December 31 year-end.

At December 31, 2010, Rigsby would report in its balance sheet:
Your Answer:
ChoiceSelectedCorrect
Cost of installment sales $1,600,000.
  
Realized gross profit of $400,000.
  
Realized gross profit of $500,000.
  
Deferred gross profit of $400,000.
 
Feedback:

Balance sheet:
Deferred gross profit: $800,000 400,000 = $400,000
Realized gross profit of $400,000 would be reported in the income statement.

Question 46: Score 0/1
Arizona Desert Homes (ADH) constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:




ADH uses the percentage-of-completion method to recognize revenue.

In its December 31, 2008 balance sheet, ADH would report:
Your Answer:
ChoiceSelectedCorrect
The asset, contract amount in excess of billings, of $1,500,000.
  
The asset, deferred profit, of $400,000.
  
The asset, cost and profits in excess of billings, of $500,000.
 
The liability, billings in excess of cost, of $300,000.
  
Feedback:

Question 47: Score 0/1
Bert's Meat Market sells quarters and sides of beef on the installment basis. Losses on receivables are very difficult to predict, and meat products cannot be repossessed. The revenue recognition method used by Bert would be:
Your Answer:
ChoiceSelectedCorrect
Point of sale.
  
Installment sales.
  
Cost recovery.
  
Answer B or C is correct.
 

Question 48: Score 0/1
Excerpts from Hulkster Company's December 31, 2009 and 2008, financial statements are presented below:


Hulkster's 2009 asset turnover is:
Your Answer:
ChoiceSelectedCorrect
0.46.
 
3.73.
  
2.24.
  
2.79.
  
Feedback:

Question 49: Score 0/1
Flapper Jack's Pancake Restaurants Inc. sells franchises for an initial fee of $36,000 plus operating fees of $500 per month. The initial fee covers site selection, training, computer and accounting software, and on-site consulting and troubleshooting, as needed, over the first five years. On March 15, 2008, Tim Cruise signed a franchise contract, paying the standard $6,000 down with the balance due over 5 years with interest.

Assuming that the initial services to be performed by Flapper Jack's subsequent to the signing are substantial and that collection of the receivable is reasonably assured, the journal entry required at signing would include a credit to:
Your Answer:
ChoiceSelectedCorrect
Unearned franchise fee revenue for $36,000.
 
Unearned franchise fee revenue for $30,000.
  
Franchise fee revenue for $ 6,000.
  
Franchise fee revenue for $36,000.
  
Feedback:

Question 50: Score 0/1
Boomerang Computer Company sells computers with an unconditional right to return the computer if the customer is not satisfied. Boomerang has a long history selling these computers under this returns policy, and can provide precise estimates of the amount of returns associated with each sale. Boomerang most likely should recognize revenue:
Your Answer:
ChoiceSelectedCorrect
When Boomerang delivers a computer to a customer.
 
When a customer returns a computer.
  
When Boomerang receives cash from the customer.
  
Never, because the right of return is unconditional.
  
Feedback:
Returns can be estimated at delivery, so an allowance can be created and revenue recognized at that point.

Question 51: Score 0/1
The first disclosure note to the financial statements is typically the summary of significant accounting policies.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 52: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2008. Collections on this sale were $20,000 in 2008, $15,000 in 2009, and $20,000 in 2010.

In its 2008 year-end balance sheet, Reliable would report installment receivables (net) of:
Your Answer:
ChoiceSelectedCorrect
$20,000.
  
$10,000.
 
$25,909.
  
$35,000.
  
Feedback:

Question 53: Score 0/1
Sullivan Software sells packages of a software program and one year's worth of technical support for $500. Their packaging lists the $500 sales price as comprised of a software program at a price of $450 and technical support with a price of $100, with a $50 discount for the package deal. All of Sullivan's sales are for cash, and there are no returns. Sullivan sells the software program separately for $475, and offers a year of technical support separately for $75.

Sullivan should recognize revenue for the two parts of the arrangement as follows:
Your Answer:
ChoiceSelectedCorrect
Recognize the entire $500 when the customer pays cash to buy the package.
  
Recognize the portion of the $500 attributable to the software program when the customer pays cash to buy the package, defer the portion attributable to technical support and recognize over the support period.
 
Defer the entire $500 and recognize over the support period.
  
None of these.
  

Question 54: Score 0/1
ADH2 constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:




ADH2 uses the completed contract method to recognize revenue.

What would be the journal entry made in 2008 to record revenue?
Your Answer:
ChoiceSelectedCorrect
No entry.
 
  
  
  
Feedback:
under the completed contract method, no entry would be recorded.

Question 55: Score 0/1
When the right of return exists and a seller cannot make reliable estimates of future returns, they can use the installment method.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 56: Score 0/1
Merchandise sold FOB shipping point indicates that:
Your Answer:
ChoiceSelectedCorrect
The buyer holds title after the merchandise leaves the seller's location.
 
The sale is not consummated until the merchandise reaches the point to which it is being shipped.
  
The seller pays the freight.
  
The common carrier holds title until the merchandise is delivered.
  

Question 57: Score 0/1
Arizona Desert Homes (ADH) constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:




ADH uses the percentage-of-completion method to recognize revenue.

What would be the journal entry to record revenue in 2009?
Your Answer:
ChoiceSelectedCorrect
  
  
  
 
Feedback:
Total revenue $3,000,000 revenue previously recognized $2,000,000 = Revenue to recognize this year $1,000,000.
Cost recognized = $600,000
Gross profit recognized = $1,000,000 $600,000 = $400,000

Question 58: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2009, $400,000 in 2010, and $400,000 in 2011 associated with those sales. In 2011 Lake also repossessed $200,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $75,000 at the time they were repossessed.

In 2008, Lake would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$150,000.
 
$450,000.
  
$ 0.
  
$300,000.
  
Feedback:
Gross profit % = ($900,000 $450,000)/$900,000 = 50%
2008: 50% $300,000 = $150,000

Question 59: Score 0/1
JRE2 Inc. entered into a contract to install a pipeline for a fixed price of $2,200,000. JRE2 uses the completed contract method of revenue recognition.



In 2010, JRE2 would report (rounded to the nearest thousand) gross profit (loss) of:
Your Answer:
ChoiceSelectedCorrect
$ 2,000.
  
$(100,000).
  
$ 50,000.
 
$ 123,000.
  
Feedback:
2010: $2,200,000 ($250,000 + 1,600,000 + 450,000) = $(100,000)
$(100,000) (150,000) = $50,000

Question 60: Score 0/1
Excerpts from Dowling Company's December 31, 2009 and 2008, financial statements and key ratios are presented below (all numbers are in millions):


Dowling's return on equity for 2009 is:
Your Answer:
ChoiceSelectedCorrect
22%.
  
9%.
  
17.4%.
  
24.3%.
 
Feedback:
ROE = ROA equity multiple = 10.3% 2.36 = 24.3%

Question 61: Score 0/1
In the DuPont formula, return on assets equals:
Your Answer:
ChoiceSelectedCorrect
Profit margin on sales Asset turnover.
 
Gross margin on sales Asset turnover.
  
Gross margin on sales Inventory turnover.
  
Profit margin on sales Inventory turnover.
  

Question 62: Score 0/1
The percentage-of-completion method violates the general rule on revenue recognition that:
Your Answer:
ChoiceSelectedCorrect
Collection is reasonably assured.
  
Collections have been received.
  
The earnings process is complete.
 
Costs are known or reasonably estimated.
  

Question 63: Score 0/1
Return on Shareholders' Equity is increased if a firm can maintain its return on assets but increase its leverage.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 64: Score 0/1
ADH2 constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:




ADH2 uses the completed contract method to recognize revenue.

What would be the journal entry to record revenue in 2009?
Your Answer:
ChoiceSelectedCorrect
  
  
  
 

Question 65: Score 0/1
When using the completed contract method of accounting for long-term contracts:
Your Answer:
ChoiceSelectedCorrect
Use of this method is not permitted under generally accepted accounting principles.
  
Neither gains nor losses are recognized until the contract is completed.
  
Estimated losses on the overall contract are recognized before the contract is completed.
 
Expenses are recorded each period, but revenue is only recognized when the contract is completed.
  

Question 66: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2009, $400,000 in 2010, and $400,000 in 2011 associated with those sales. In 2011 Lake also repossessed $200,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $75,000 at the time they were repossessed.

In 2010, Lake would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$310,000.
 
$700,000.
  
$450,000.
  
$ 0.
  
Feedback:
2008 sales:
Gross profit % = ($900,000 $450,000)/$900,000 = 50%
50% $300,000 received in 2010 = $150,000

2009 sales:
Gross profit % = ($1,500,000 $900,000)/$1,500,000 = 40%
40% $400,000 received in 2010 = $160,000

Total: $150,000 + $160,000 = $310,000

Question 67: Score 0/1
In 2009, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC uses the percentage-of-completion method to account for such projects and provides you with the following information (dollars in millions):



How much cash remains to be collected by CCC on the project?
Your Answer:
ChoiceSelectedCorrect
$70 million
  
$240 million
 
Cannot be determined from the given information
  
$202.5 million
  
Feedback:
Total contract price of $345 million cash collected to date of $105 million = $240 million remaining.

Question 68: Score 0/1
Excerpts from Hulkster Company's December 31, 2009 and 2008, financial statements are presented below:


Hulkster's 2009 receivables turnover is:
Your Answer:
ChoiceSelectedCorrect
5.00.
 
2.85.
  
10.63.
  
4.70.
  
Feedback:

Question 69: Score 0/1
Excerpts from Dowling Company's December 31, 2009 and 2008, financial statements and key ratios are presented below (all numbers are in millions):


Dowling's 2009 profit margin is:
Your Answer:
ChoiceSelectedCorrect
17.4%.
 
16.5%.
  
18.0%.
  
18.5%.
  
Feedback:
$20/$115 = 17.4%

Question 70: Score 0/1
On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignore interest charges. Rigsby has a December 31 year-end.

In its December 31, 2009, balance sheet, Rigsby would report:
Your Answer:
ChoiceSelectedCorrect
Installment receivables (net) of $4,000,000.
  
Installment receivables (net) of $3,200,000.
 
Deferred gross profit of $100,000.
  
Realized gross profit of $100,000.
  
Feedback:

Question 71: Score 0/1
Indiana Co. began a construction project in 2009 that will provide it $150 million when it is completed in 2011. During 2009, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project.

Using the percentage-of-completion method, Indiana:
Your Answer:
ChoiceSelectedCorrect
Recognized $9 gross profit on the project in 2009.
 
Recognized no gross profit or loss on the project in 2009.
  
Recognized $6 million loss on the project in 2009.
  
Recognized $36 million loss on the project in 2009.
  
Feedback:
The project is expected to make a gross profit of $30 million (i.e., $150 million - $36 million $84 million) and the % completed is 30% (i.e., $36 million / $120 million). Therefore, 30% $30 million = $9 million.

Question 72: Score 0/1
When using the percentage-of-completion method of accounting for long-term contracts, the percentage of completion used to recognize gross profit in the first year usually is determined by measuring:
Your Answer:
ChoiceSelectedCorrect
Costs incurred in the first year, divided by estimated remaining costs to complete the project.
  
Costs incurred in first year, divided by estimated total costs of the completed project.
 
Costs incurred in first year, divided by estimated gross profit.
  
None of these is correct.
  

Question 73: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2008. Collections on this sale were $20,000 in 2008, $15,000 in 2009, and $20,000 in 2010.

In 2010, Reliable would recognize gross profit of:
Your Answer:
ChoiceSelectedCorrect
$ 8,000.
  
$20,000.
 
$ 0.
  
$ 6,000.
  
Feedback:

The entire $20,000 payment received in 2010 is recognized as gross profit.

Question 74: Score 0/1
When collectibility of accounts receivable is difficult to estimate, companies must use the cost recovery method.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 75: Score 0/1
Sullivan Software sells packages of a software program and one year's worth of technical support for $500. Their packaging lists the $500 sales price as comprised of a software program at a price of $450 and technical support with a price of $100, with a $50 discount for the package deal. All of Sullivan's sales are for cash, and there are no returns. Sullivan sells the software program separately for $475, and offers a year of technical support separately for $75.

The amount of revenue that SOP 97-2 would require that Sullivan attribute to the software program (as opposed to the technical support) is:
Your Answer:
ChoiceSelectedCorrect
$432.
  
$450.
  
$475.
 
$400.
  
Feedback:
Per SOP 97-2, base on relative fair values, so amount attributable to the program is ($475 / {$475 + $75}) $500 = $432

Question 76: Score 0/1
Which of the following was not a criterion for revenue recognition in SAB 101?
Your Answer:
ChoiceSelectedCorrect
Cash has been collected.
 
Collectibility is reasonably assured.
  
Persuasive evidence of an arrangement exists.
  
The seller's price to the buyer is fixed or determinable.
  

Question 77: Score 0/1
Revenue from the sale of computer software is always recognized at the point of sale.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 78: Score 0/1
Gunk Goblin sells vacuums and just launched a policy where customers have the right to return a vacuum during a three-year period following purchase. Gunk management has no experience under this sort of policy, and does not believe it can accurately estimate returns. What is the longest period of time that Gunk may have to wait before recognizing gross profit associated with one of these sales?
Your Answer:
ChoiceSelectedCorrect
No time delay, recognize gross profit upon delivery.
  
Gunk should defer gross until costs are recovered under the cost recovery method.
  
Three years, after the right of return has expired.
 
Gunk should recognize gross profit as cash is received under the installment method.
  
Feedback:
If returns can't be estimated, revenue should be deferred until they can or until the return right expires.

Question 79: Score 0/1
Excerpts from Hulkster Company's December 31, 2009 and 2008, financial statements are presented below:


Hulkster's 2009 inventory turnover is:
Your Answer:
ChoiceSelectedCorrect
3.62.
 
4.07.
  
3.96.
  
6.03.
  
Feedback:

Question 80: Score 0/1
Excerpts from Hulkster Company's December 31, 2009 and 2008, financial statements are presented below:


Hulkster's 2009 return on shareholder's equity is:
Your Answer:
ChoiceSelectedCorrect
17.1%.
  
7.1%.
  
14.0%.
 
12.6%.
  
Feedback:

Question 81: Score 0/1
A company is effectively leveraging when:
Your Answer:
ChoiceSelectedCorrect
The return on assets is increasing.
  
The return on shareholders' equity exceeds the return on assets.
 
The return on assets exceeds the return on shareholders' equity.
  
The return on shareholders' equity is increasing.
  

Question 82: Score 0/1
Flapper Jack's Pancake Restaurants Inc. sells franchises for an initial fee of $36,000 plus operating fees of $500 per month. The initial fee covers site selection, training, computer and accounting software, and on-site consulting and troubleshooting, as needed, over the first five years. On March 15, 2008, Tim Cruise signed a franchise contract, paying the standard $6,000 down with the balance due over 5 years with interest.

Assume at March 15, 2008, the time of signing the contract, collectibility of the receivable was reasonably assured and there were no significant continuing obligations. The journal entry at signing would include a:
Your Answer:
ChoiceSelectedCorrect
Credit to franchise fee revenue for $9,000.
  
Credit to franchise fee revenue for $36,000.
 
Credit to unearned franchise fee revenue for $36,000.
  
Credit to unearned franchise fee revenue for $27,000.
  
Feedback:

Question 83: Score 0/1
Sahara Desert Homes (SDH) reports under IFRS, and constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:



SDH uses the cost recovery method under IFRS to recognize revenue.

What would be the journal entry made in 2008 to record revenue?
Your Answer:
ChoiceSelectedCorrect
  
  
 
  
Feedback:
under the cost recovery method, record equal amounts of revenue and cost until cost recovered.

Question 84: Score 0/1
Initial franchise fees are always recognized on the date they are received.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 85: Score 0/1
The percentage-of-completion and completed contract methods calculate different amounts of total profit or loss for a particular contract.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 86: Score 0/1
In 2009, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC uses the percentage-of-completion method to account for such projects and provides you with the following information (dollars in millions):



What are CCC's estimated remaining construction costs on the project at the end of 2009?
Your Answer:
ChoiceSelectedCorrect
$90 million
 
$135 million
  
$225 million
  
None of these is correct
  
Feedback:
Percentage completion to date = 60 % = Actual costs to date of $135 million / Total estimated project costs of $X. Solve for X. Estimated total costs = $225 million; therefore, Estimated remaining costs of construction = $225 million $135 million = $90 million.

Question 87: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2008. Collections on this sale were $20,000 in 2008, $15,000 in 2009, and $20,000 in 2010.

In 2009, Reliable would recognize gross profit of:
Your Answer:
ChoiceSelectedCorrect
$ 5,000.
 
$ 0.
  
$10,000.
  
$ 6,000.
  
Feedback:

Question 88: Score 0/1
Todd Sweeney is an artist who sells his work under consignment (he displays his work in local barbershops, and customers buy the work there). Sweeney recently transferred a painting to a local barbershop.

Sweeney most likely should recognize revenue when:
Your Answer:
ChoiceSelectedCorrect
When he transfers a painting to a barbershop.
  
He paints the painting, as the painting is accreting.
  
When the barbershop's right of return expires.
  
When the barbershop sells the painting.
 

Question 89: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the cost recovery method to recognize revenue on these installment sales. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2009, $400,000 in 2010, and $400,000 in 2011 associated with those sales. In 2011 Lake also repossessed $200,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $75,000 at the time they were repossessed.

In its December 31, 2009, balance sheet, Lake would report:
Your Answer:
ChoiceSelectedCorrect
Deferred gross profit of $700,000.
  
Deferred gross profit of $600,000.
  
Installment receivables (net) of $400,000.
 
Installment receivables (net) of $700,000.
  
Feedback:
As of 12/31/2009, the installment receivable would be as follows:

Question 90: Score 0/1
Summary data for Benedict Construction Co.'s (BCC) Job 1227, which was completed in 2009, are presented below:



Assuming BCC uses the percentage-of-completion method of revenue recognition, the gross profit recognized in 2008 would be (rounded to the nearest thousand):
Your Answer:
ChoiceSelectedCorrect
$69,000.
  
$33,000.
 
$30,000.
  
$36,000.
  
Feedback:
$180,000/($180,000 + 200,000) = 47.37% complete
47.37% ($450,000 180,000 200,000) = $33,159 or $33,000 rounded.

Question 91: Score 0/1
EITF 00-21 covers revenue recognition for multiple-part arrangements, and requires that a seller recognize revenue for a particular part if:
Your Answer:
ChoiceSelectedCorrect
there is objective, reliable evidence as to the value of undelivered parts.
  
Two of the above.
 
the part has value to the stand-alone basis.
  
the part constitutes at least a "preponderance of the fair value" of the total arrangement.
  

Question 92: Score 0/1
Firms have free choice as to whether they use the percentage-of-completion method or the completed contract method to account for a long-term contract.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 93: Score 0/1
Use of the installment sales method indicates little uncertainty about collection of the receivable.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 94: Score 0/1
Summary data for Benedict Construction Co.'s (BCC) Job 1227, which was completed in 2009, are presented below:



Assuming BCC uses the percentage-of-completion method of recognition the gross profit recognized in 2009 would be (rounded to the nearest thousand):
Your Answer:
ChoiceSelectedCorrect
$39,000.
  
$ 6,000.
  
$42,000.
 
$45,000.
  
Feedback:
2009: Total profit = $450,000 ($180,000 + 195,000) = $75,000 33,159 = $41,841 or $42,000 rounded.

Question 95: Score 0/1
The decomposition of return on assets illustrates why some companies with low profit margins can be very profitable if their asset turnover is high.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 96: Score 0/1
Arizona Desert Homes (ADH) constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:




ADH uses the percentage-of-completion method to recognize revenue.

What would be the journal entry made in 2008 to record revenue?
Your Answer:
ChoiceSelectedCorrect
 
  
  
  
Feedback:
Percentage complete = $1,200,000 / ($1,200,000 + $600,000) = 2/3
Revenue recognized = 2/3 $3,000,000 = $2,000,000
Cost recognized = $1,200,000
Gross profit recognized = $2,000,000 $1,200,000 = $800,000

Question 97: Score 0/1
Excerpts from Dowling Company's December 31, 2009 and 2008, financial statements and key ratios are presented below (all numbers are in millions):


Dowling's 2009 average collection period is:
Your Answer:
ChoiceSelectedCorrect
50 days.
  
57 days.
 
63 days.
  
51 days.
  
Feedback:
Avg. collection period = 365 / (accounts receivable turnover)
= 365 / (net sales / {avg A/R})
= 365 / (115 /{20 + 16} /2) = 57.13 days

Question 98: Score 0/1
Indiana Co. began a construction project in 2009 that will provide it $150 million when it is completed in 2011. During 2009, Indiana incurred $36 million of costs and estimates an additional $84 million of costs to complete the project.

Suppose that, in 2010, 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:
Your Answer:
ChoiceSelectedCorrect
Recognized $3.75 million loss on the project in 2010.
 
Recognized $5.25 million gross profit on the project in 2010.
  
Recognized $7.5 million gross profit on the project in 2010.
  
None of these is correct.
  
Feedback:
The project is 70% complete after 2010 (i.e., $99.75 million costs to date/ $142.5 million estimated total costs). The estimated gross profit is now $7.5 million (i.e., $150 million $142.5 million), so gross profit to date is $5.25 million. $9 million was recognized in 2009, so a $3.75 million loss is recognized in 2010.

Question 99: Score 0/1
Use of the percentage-of-completion method is dependent on a firm's ability to make dependable forecasts of future costs.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 100: Score 0/1
Over the life of a particular account receivable, the same total amount of gross profit is recognized under the installment method and the cost recovery method.
Your Answer:
ChoiceSelectedCorrect
True 
False  

Question 101: Score 0/1
SAB 101 was issued by the FASB to clarify its guidelines on revenue recognition.
Your Answer:
ChoiceSelectedCorrect
True  
False 

Question 102: Score 0/1
Merchandise sold FOB destination indicates that:
Your Answer:
ChoiceSelectedCorrect
The full order is back ordered to its destination.
  
The seller holds title until the merchandise is received at the buyer's location.
 
The buyer pays the freight to the destination.
  
The buyer is responsible for delivery of the merchandise to the destination.
  

Question 103: Score 0/1
On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignore interest charges. Rigsby has a December 31 year-end.

In 2010, Rigsby would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$450,000.
  
$ 0.
  
$400,000.
 
$300,000.
  
Feedback:
Gross profit % = ($4,500,000 3,600,000)/$4,500,000 = 20%
2009: 20% $500,000 = $100,000

2010: 20% [($4,500,000 500,000)/2] = $400,000

Question 104: Score 0/1
In 2009, Cupid Construction Co. (CCC) began work on a two-year fixed price contract project. CCC uses the percentage-of-completion method to account for such projects and provides you with the following information (dollars in millions):



What were the construction billings by CCC during 2009?
Your Answer:
ChoiceSelectedCorrect
$142.5 million
 
$67.5 million
  
$37.5 million
  
None of these is correct
  
Feedback:
Billings Cash collections = Accounts receivable, so Billings = Accounts receivable at year-end of $37.5 million + Cash collections of $105 million = $142.5 million.

Question 105: Score 0/1
The rationale for adoption of the percentage-of-completion method is that:
Your Answer:
ChoiceSelectedCorrect
It results in a lower income tax.
  
It is a better match with legal ownership.
  
It provides a measure of periodic accomplishment.
 
Results are more conservative.
  

Question 106: Score 0/1
Sahara Desert Homes (SDH) reports under IFRS, and constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:



SDH uses the cost recovery method under IFRS to recognize revenue.

What would be the journal entry SDH would use to record revenue in 2009?
Your Answer:
ChoiceSelectedCorrect
  
  
  
 
Feedback:
under the cost recovery method, record equal amounts of revenue and cost until cost recovered, and then record gross profit. In 2008, recorded revenue and cost of $1,200,000, so record remaining cost of $600,000 and all gross profit of $1,200,000 in 2009.

Question 107: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2008. Collections on this sale were $20,000 in 2008, $15,000 in 2009, and $20,000 in 2010.

In 2008, Reliable would recognize gross profit of:
Your Answer:
ChoiceSelectedCorrect
$ 8,333.
  
$ 8,090.
  
$ 0.
 
$25,000.
  
Feedback:
Costs not yet recovered.

Question 108: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the cost recovery method to recognize revenue on these installment sales. In 2008 Lake began operations and sold jet skis with a total price of $990,000 that cost Lake $495,000. Lake collected $330,000 in 2008, $330,000 in 2009, and $330,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,590,000 that cost Lake $954,000. Lake collected $530,000 in 2009, $424,000 in 2010, and $516,000 in 2011 associated with those sales. In 2011 Lake also repossessed $120,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $45,000 at the time they were repossessed.

In 2008, Lake would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$ 0.
 
$165,000.
  
$330,000.
  
$495,000.
  
Feedback:
$495,000 cost $330,000 collections = $165,000 unrecovered costs

Question 109: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the cost recovery method to recognize revenue on these installment sales. In 2008 Lake began operations and sold jet skis with a total price of $630,000 that cost Lake $315,000. Lake collected $210,000 in 2008, $210,000 in 2009, and $210,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,890,000 that cost Lake $1,134,000. Lake collected $630,000 in 2009, $504,000 in 2010, and $356,000 in 2011 associated with those sales. In 2011 Lake also repossessed $400,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $150,000 at the time they were repossessed.

In 2010, Lake would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$210,000.
 
$220,000.
  
$ 0.
  
$790,000.
  
Feedback:
2008 sales:
Cost = $315,000; $210,000 collected in each year 2008-2010. $210,000 of cost recovered in 2008, the other $105,000 of cost recovered in 2009, so $525,000 of gross profit recognized in 2009, leaving $210,000 recognized in 2010.
2009 sales:

Cost = $1,134,000; $630,000 collected in 2009, $504,000 collected in 2010. $630,000 of cost recovered in 2009, the other $504,000 of cost recovered in 2009, so $0 of gross profit recognized in 2010.
Total: $210,000 + $0 = $210,000

Question 110: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $28,250 was sold for $57,750 in 2008. Collections on this sale were $20,200 in 2008, $15,700 in 2009, and $21,850 in 2010.

In 2008, Reliable would recognize gross profit of:
Your Answer:
ChoiceSelectedCorrect
$ 8,655.
  
$29,500.
  
$ 0.
 
$9,833.
  
Feedback:
Costs not yet recovered.

Question 111: Score 0/1

On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $3,400,000 for $5,000,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $450,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignore interest charges. Rigsby has a December 31 year-end.


In its December 31, 2009, balance sheet, Rigsby would report:

Your Answer:
ChoiceSelectedCorrect
Installment receivables (net) of $4,550,000.
  
Deferred gross profit of $144,000.
  
Installment receivables (net) of $3,094,000.
 
Realized gross profit of $144,000.
  
Feedback:
Sale:
Installment receivables
5,000,000
Inventory
3,400,000
Deferred gross profit
1,600,000
Payment:
Cash
450,000
Installment receivables
450,000
Deferred gross profit
144,000
Realized gross profit
144,000

Balance sheet:
Installment receivables $5,000,000 – 450,000
$4,550,000
Deferred gross profit: $1,600,000 – 144,000
1,456,000
Installment receivables (net)
$3,094,000

Question 112: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $810,000 that cost Lake $405,000. Lake collected $270,000 in 2008, $270,000 in 2009, and $270,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,680,000 that cost Lake $1,008,000. Lake collected $560,000 in 2009, $505,000 in 2010, and $505,000 in 2011 associated with those sales. In 2011 Lake also repossessed $110,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $41,250 at the time they were repossessed.

In 2011, Lake would record a loss on repossession of:
Your Answer:
ChoiceSelectedCorrect
$66,000.
  
$24,750.
 
$44,000
  
$110,000.
  
Feedback:
Installment receivable = $110,000
Deferred gross profit = $44,000 ($110,000 40%)
Fair value = $41,250
 
Repossessed inventory
$41,250
Deferred gross profit
$44,000
Loss on repossession (plug)
$24,750
 
Installment Receivable
$110,000

Question 113: Score 0/1
On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $3,400,000 for $5,000,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $490,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignore interest charges. Rigsby has a December 31 year-end.

At December 31, 2010, Rigsby would report in its balance sheet:
Your Answer:
ChoiceSelectedCorrect
Deferred gross profit of $721,600.
 
Cost of installment sales $1,533,400.
  
Realized gross profit of $721,600.
  
Realized gross profit of $490,000.
  
Feedback:
12/15/10
Cash
2,255,000
 
 
    Installment receivables
 
2,255,000
 
Deferred gross profit
721,600
 
 
    Realized gross profit
 
721,600
 
 
 
 

Balance sheet:
Deferred gross profit: $1,443,200 - 721,600 = $721,600
Realized gross profit of $721,600 would be reported in the income statement.

Question 114: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $29,750 was sold for $58,500 in 2008. Collections on this sale were $21,900 in 2008, $14,200 in 2009, and $22,400 in 2010.

In its 2009 year-end balance sheet, Reliable would report installment receivables (net) of:
Your Answer:
ChoiceSelectedCorrect
$ 0.
 
$14,200.
  
$6,500.
  
$22,400.
  
Feedback:
Sale:
Installment receivables
58,500
 
 
    Inventory
 
29,750
 
    Deferred gross profit
 
28,750
2008:
Cash
21,900
 
 
   Installment receivables
 
21,900
 
Cash
14,200
 
 
   Installment receivables
 
14,200
2009:
Deferred gross profit
6,350
 
 
    Realized gross profit
 
6,350

Balance sheet:
 
Installment receivables
$22,400
 
 
Deferred gross profit
(22,400)
 
Installment receivables (net)
$        0
 
 

Question 115: Score 0/1

On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $3,200,000 for $5,000,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $430,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignore interest charges. Rigsby has a December 31 year-end.


In 2009, Rigsby would recognize realized gross profit of:

Your Answer:
ChoiceSelectedCorrect
$1,800,000.
  
$ 0.
  
$154,800.
 
$430,000.
  
Feedback:
Gross profit % = ($5,000,000 – 3,200,000)/$5,000,000 = 36%
2009: 36% × $430,000 = $154,800

Question 116: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $28,250 was sold for $59,000 in 2008. Collections on this sale were $20,800 in 2008, $14,800 in 2009, and $23,400 in 2010.

In 2010, Reliable would recognize gross profit of:
Your Answer:
ChoiceSelectedCorrect
$23,400.
 
$ 0.
  
$ 11,500.
  
$ 4,000.
  
Feedback:
Cost
$28,250
 
2008 cost recovery
(20,800
)
2009 cost recovery
(7,450
)
Remaining cost
0
 

The entire $23,400 payment received in 2010 is recognized as gross profit.

Question 117: Score 0/1
Indiana Co. began a construction project in 2009 that will provide it $165 million when it is completed in 2011. During 2009, Indiana incurred $38 million of costs and estimates an additional $87 million of costs to complete the project.
(Do not round your percentage calculated. Round your final answer to the nearest whole million dollar amount.)

Using the percentage-of-completion method, Indiana:
Your Answer:
ChoiceSelectedCorrect
Recognized $38 million loss on the project in 2009.
  
Recognized $78 million loss on the project in 2009.
  
Recognized no gross profit or loss on the project in 2009.
  
Recognized $12 million gross profit on the project in 2009.
 
Feedback:
The project is expected to make a gross profit of $40 million (i.e., $165 million – $38 million – $87 million) and the % completed is 30% (i.e., $38 million / $125 million). Therefore, 30% x $40 million = $12 million.

Question 118: Score 0/1
Indiana Co. began a construction project in 2009 that will provide it $163 million when it is completed in 2011. During 2009, Indiana incurred $40 million of costs and estimates an additional $84 million of costs to complete the project.

In 2010, Indiana incurred costs of $56 million and estimated an additional $36 million in costs to complete the project. Using the percentage-of-completion method, Indiana:
(Do not round interim percentage calculations. Round your final answer to the nearest two decimal places in millions.)
Your Answer:
ChoiceSelectedCorrect
Recognized $6 million gross profit on the project in 2010.
  
Recognized $31 million gross profit on the project in 2010.
  
Recognized $9.97 million gross profit on the project in 2010.
 
Recognized $29.5 million gross profit on the project in 2010.
  
Feedback:
The project is 72.73% complete after 2010 (i.e., $96 million costs to date/ $132 million estimated total costs). The estimated gross profit is now $31 million (i.e., $163 million – $132 million), so gross profit to date is $22.55 million (72.73% x $31 million). $12.58 million was recognized in 2009. So $9.97 million more is recognized in 2010.

Question 119: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $1,050,000 that cost Lake $525,000. Lake collected $350,000 in 2008, $350,000 in 2009, and $350,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,710,000 that cost Lake $1,026,000. Lake collected $570,000 in 2009, $445,000 in 2010, and $445,000 in 2011 associated with those sales. In 2011 Lake also repossessed $250,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $93,750 at the time they were repossessed.

Total cash collections on installment sales during 2009 would be:
Your Answer:
ChoiceSelectedCorrect
$0.
  
$350,000.
  
$920,000.
 
$800,000.
  
Feedback:
$350,000 (2008 sales) + $570,000 (2009 sales) = $920,000

Question 120: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $32,000 was sold for $58,250 in 2008. Collections on this sale were $21,200 in 2008, $15,600 in 2009, and $21,450 in 2010.

In its 2008 year-end balance sheet, Reliable would report installment receivables (net) of:
Your Answer:
ChoiceSelectedCorrect
$37,050.
  
$29,659.
  
$21,200.
  
$10,800.
 
Feedback:
Sale:
Installment receivables
58,250
 
 
    Inventory
 
32,000
 
    Deferred gross profit
 
26,250
Payment:
Cash
21,200
 
 
   Installment receivables
 
21,200

Balance sheet:
 
Installment receivables $58,250 – 21,200
$37,050
 
 
Deferred gross profit
(26,250
)
 
Installment receivables (net)
$10,800
 
 
 
 
 
 

Question 121: Score 0/1

On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $3,300,000 for $5,000,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $410,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignore interest charges. Rigsby has a December 31 year-end.


In 2010, Rigsby would recognize realized gross profit of:

Your Answer:
ChoiceSelectedCorrect
$780,300.
 
$ 0.
  
$830,300.
  
$680,300.
  
Feedback:
Gross profit % = ($5,000,000 – 3,300,000)/$5,000,000 = 34%
2009: 34% × $410,000 = $410,000

2010: 34% × [($5,000,000 – $410,000)/2] = $780,300

Question 122: Score 0/1
Indiana Co. began a construction project in 2009 that will provide it $165 million when it is completed in 2011. During 2009, Indiana incurred $36 million of costs and estimates an additional $80 million of costs to complete the project.

Suppose that, in 2010, Indiana incurred costs of $63.25 million and estimated an additional $52 million in costs to complete the project. Using the percentage-of-completion method, Indiana:
(Do not round interim percentage calculations. Round your final answer to the nearest two decimal places in millions.)
Your Answer:
ChoiceSelectedCorrect
Recognized $6.19 million loss on the project in 2010.
 
Recognized $6.19 million gross profit on the project in 2010.
  
Recognized $9.19 million gross profit on the project in 2010.
  
None of these is correct.
  
Feedback:
The project is 65.62% complete after 2010 (i.e., $99.25 million costs to date/ $151.25 million estimated total costs). The estimated gross profit is now $13.75 million (i.e., $165 million – $151.25 million), so gross profit to date is $9.02 million. $15.21 million was recognized in 2009, so a $6.19 million loss is recognized in 2010.

Question 123: Score 0/1
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $28,250 was sold for $55,750 in 2008. Collections on this sale were $19,300 in 2008, $14,200 in 2009, and $22,250 in 2010.

In 2009, Reliable would recognize gross profit of:
Your Answer:
ChoiceSelectedCorrect
$8,950.
  
$ 0.
  
$ 6,250.
  
$ 5,250.
 
Feedback:
Cost
$28,250
 
2009 payment
$14,200
 
2008 cost recovery
(19,300
)
Cost recovery
(8,950
)
Remaining cost
$8,950
 
Gross profit
$5,250
 
 

Question 124: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $600,000 that cost Lake $300,000. Lake collected $200,000 in 2008, $200,000 in 2009, and $200,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,350,000 that cost Lake $810,000. Lake collected $450,000 in 2009, $300,000 in 2010, and $300,000 in 2011 associated with those sales. In 2011 Lake also repossessed $300,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $112,500 at the time they were repossessed.

In 2010, Lake would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$ 0.
  
$560,000.
  
$300,000.
  
$220,000.
 
Feedback:
2008 sales:
Gross profit % = ($600,000 - $300,000)/$600,000 = 50%
50% × $200,000 received in 2010 = $100,000

2009 sales:
Gross profit % = ($1,350,000 - $810,000)/$1,350,000 = 40%
40% × $300,000 received in 2010 = $120,000

Total: $100,000 + $120,000 = $220,000

Question 125: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $2,010,000 that cost Lake $1,206,000. Lake collected $670,000 in 2009, $565,000 in 2010, and $565,000 in 2011 associated with those sales. In 2011 Lake also repossessed $210,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $78,750 at the time they were repossessed.

In its December 31, 2009, balance sheet, Lake would report:
Your Answer:
ChoiceSelectedCorrect
Installment receivables (net) of $954,000.
 
Deferred gross profit of $940,000.
  
Installment receivables (net) of $900,000.
  
Deferred gross profit of $1,560,000.
  
Feedback:
As of 12/31/2009, the installment receivable would be as follows:
 
2008 Sales: Installment receivables = $900,000 – $300,000 (08 collections) – $300,000 (09 collections) = $300,000
Deferred gross profit = $450,000 – $150,000 (08 collections) – $150,000 (09 collections) = $150,000
Net installment receivable for 2008 sales = $150,000
 
2009 Sales: Installment receivables = $2,010,000 – $670,000 (09 collections) = $1,340,000
Deferred gross profit = $804,000 – $268,000 (09 collections) = $536,000
Net installment receivable for 2009 = $804,000
Total = $954,000
 
 

Question 126: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the cost recovery method to recognize revenue on these installment sales. In 2008 Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2008, $300,000 in 2009, and $300,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,980,000 that cost Lake $1,188,000. Lake collected $660,000 in 2009, $528,000 in 2010, and $692,000 in 2011 associated with those sales. In 2011 Lake also repossessed $100,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $37,500 at the time they were repossessed.

In its December 31, 2009, balance sheet, Lake would report:
Your Answer:
ChoiceSelectedCorrect
Installment receivables (net) of $828,000.
  
Installment receivables (net) of $528,000.
 
Deferred gross profit of $828,000.
  
Deferred gross profit of $600,000.
  
Feedback:
 
 
 
As of 12/31/2009, the installment receivable would be as follows:
 
2008 Sales: Installment receivables = $900,000 – $300,000 (08 collections) - $300,000 (09 collections) = $300,000
Deferred gross profit = $450,000 – $0 (all 08 collections to cost recovery)
- $150,000 ($150,000 of 09 collections to cost recovery) = $300,000
Net installment receivable for 2008 sales =             $0
 
2009 Sales: Installment receivables = $1,980,000 – $660,000 (09 collections) = $1,320,000
Deferred gross profit = $792,000 – $0 (all 09 collections to cost recovery) = $792,000
Net installment receivable for 2009 sales = 528,000
Total = $528,000

Question 127: Score 0/1
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2008 Lake began operations and sold jet skis with a total price of $660,000 that cost Lake $330,000. Lake collected $220,000 in 2008, $220,000 in 2009, and $220,000 in 2010 associated with those sales. In 2009 Lake sold jet skis with a total price of $1,350,000 that cost Lake $810,000. Lake collected $450,000 in 2009, $290,000 in 2010, and $290,000 in 2011 associated with those sales. In 2011 Lake also repossessed $320,000 of jet skis that were sold in 2009. Those jet skis had a fair value of $120,000 at the time they were repossessed.

In 2008, Lake would recognize realized gross profit of:
Your Answer:
ChoiceSelectedCorrect
$220,000.
  
$ 0.
  
$110,000.
 
$330,000.
  
Feedback:
Gross profit % = ($660,000 - $330,000)/$660,000 = 50%
2008: 50% × $220,000 = $110,000