1.â€‹â€‹ The converged standard on revenue recognition
a.â€‹reduces the number of disclosures required for revenue reporting.
b.â€‹increases the complexity of financial statement preparation.
c.â€‹recognizes and measures revenue based on changes in assets and liabilities.
d.â€‹simplify revenue recognition practices across entities and industries.

2.â€‹â€‹ The last step in the process for revenue recognition is to
a.â€‹allocate transaction price to the separate performance obligations.
b.â€‹recognize revenue when each performance obligation is satisfied.
c.â€‹determine the transaction price.
d.â€‹identify the contract with customers.

3. â€‹â€‹On January 15, 2014, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of April 1. The equipment was not delivered until April 30. The contract required full payment of $85,000 30 days after delivery. This contract should be
a.â€‹recorded on January 15, 2014.
b.â€‹recorded on April 30, 2014.
c.â€‹recorded on April 1, 2014.
d.â€‹recorded on May 30, 2014.

4.â€‹â€‹ New Age Computers manufactures and sells pagers and radio paging systems which include a 180 day warranty on product defects. It also sells an extended warranty which provides an additional two years of protection. On May 10, it sold a paging system for $3,750 and an extended warranty for another $1,300. The journal entry to record this transaction would include
a.â€‹a credit to Service Revenue of $5,050.
b.â€‹a credit to Service Revenue of $1,200
c.â€‹a credit to Sales of $3,750 and a credit to Service Revenue of $1,300
d.â€‹a credit to Unearned Service Revenue of $1,300.

5. Transaction price for multiple performance obligations should be allocated
a.â€‹based on selling price from the companyâ€™s competitors.
b.â€‹based on what the company could sell the goods for on a standalone basis.
c.â€‹based on forecasted cost of satisfying performance obligation.
d.â€‹based on total transaction price less residual value.

6.â€‹â€‹ A company must account for a contract modification as a new contract if
a.â€‹Goods or services are interdependent on each other.
b.â€‹The promised goods or services are distinct.
c.â€‹The company has the right to receive consideration equal to standalone price.
d.â€‹Goods or services are distinct and company has right to receive the standalone price.

7. â€‹â€‹When a contract modification does not result in a separate performance obligation, the additional products are priced at the
a.â€‹standalone price of the product.
b.â€‹blended price of original contract and contract modification.
c.â€‹average selling price of original selling price and standalone price.
d.â€‹selling price specified in contract modification

8.â€‹â€‹ If a contract involves a significant financing component,
a.â€‹the time value of money is used to determine the fair value of the transaction.
b.â€‹the time value of money is not required to determine transaction price, if the payment is more than a year.
c.â€‹the transaction amount should be based on the current sales price of goods or services.
d.â€‹interest must be accrued on the current sales price of goods or services.

9.â€‹â€‹ The most popular input measure used to determine the progress toward completion is
a.â€‹units-of-delivery method.
b.â€‹cost-to-cost basis.
c.â€‹labor hours worked.
d.â€‹tons produced.

10.â€‹â€‹ When a company has an obligation or right to repurchase an asset for an amount greater than or equal to its selling price, the transaction should be treated as a
a.â€‹outright sale.
b.â€‹financing transaction.
c.â€‹repurchase transaction.
d.â€‹put option.

11.â€‹â€‹ When a customer purchases a product but is not yet ready for delivery, this is referred to as
a.â€‹a repurchase agreement.
b.â€‹a consignment.
c.â€‹a principal-agent relationship.
d.â€‹a bill-and-hold arrangement

12.â€‹â€‹ Consigned goods are recognized as revenues by the
a.â€‹consignor when a sale to a third party has occurred.
b.â€‹consignor when the merchandise has been shipped to a consignee.
c.â€‹consignee when a sale to a third party has occurred.
d.â€‹consignor when it receives payment from consignee for goods sold.

13.â€‹â€‹ Marle Construction enters into a contract with a customer to build a warehouse for $850,000 on March 30, 2014 with a performance bonus of $50,000 if the building is completed by July 31, 2014. The bonus is reduced by $10,000 each week that completion is delayed. Marle commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:

Completed by
Probability
July 31, 2014
75%
August 7, 2014
15%
August 14, 2014
5%
August 21, 2014
5%

â€‹â€‹The transaction price for this transaction is
a.â€‹$897,500
b.â€‹$850,000
c.â€‹$896,000
d.â€‹$885,000

*14.â€‹ Franchise revenues are recognized over time if
a.â€‹franchise rights are transferred at a point in time.
b.â€‹the franchisor is providing access to the right rather than transferring control.
c.â€‹when performance obligations regarding franchise rights are completed.
d.â€‹franchisee fee is payable upon signing of contract.

15.â€‹â€‹ Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the first 90 days. Entertainment Tonight also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,200 and $900, respectively. The estimated cost of the assurance-warranty is $450. The accounting for warranty will include a

a.â€‹debit to Warranty Expense, $800.
b.â€‹credit to Unearned Warranty Revenue, $900
c.â€‹credit to Warranty Liability, $800
d.â€‹credit to Unearned Warranty Revenue, $450

16.â€‹â€‹ On July 31, Oâ€™Malley Company contracted to have two products built by Taylor Manufacturing for a total of $205,000. The contract specifies that payment will only occur after both products have been transferred to Oâ€™Malley Company. Oâ€™Malley determines that the standalone prices are $110,000 for Product 1 and $95,000 for Product 2. On August 1, when Product 1 has been transferred, the journal entry to record this event include
a.â€‹debit to Accounts Receivable for $110,000.
b.â€‹debit to Accounts Receivable for $95,000.
c.â€‹debit to Contract Assets for $95,000.
d.â€‹debit to Contract Assets for $110,000.

*17. â€‹Franchise fees should be recognized
a.â€‹on the date the contract was signed.
b.â€‹on the date the franchise is opened for business.
c.â€‹on the date the franchise fee is paid to franchisor.
d.â€‹when performance obligations are satisfied.

â€‹18.â€‹ Roche Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug under development. Roche will receive $8,750,000 if the new drug receives FDA approval. Based on prior approval, Roche determines that it is 75% likely that the drug will gain approval. The transaction price of this arrangement should be
a.â€‹$8,750,000.
b.â€‹$2,187,500.
c.â€‹$6,562,500.
d.â€‹$0 until approval is received.

19. â€‹â€‹P & G Auto Parts sells parts to AAA Car Repair during 2014. P&G offers rebates of 2% on purchases up to $35,000 and 3% on purchases above $35,000 if the customerâ€™s purchases for the year exceed $100,000. In the past, AAA normally purchases $150,000 in parts during a calendar year. On March 25, 2014, AAA Car Repair purchased $37,000 of parts. The journal entry to record the purchase includes a
a.â€‹debit to Accounts Receivable for $37,000.
b.â€‹debit to Accounts Receivable for $36,400.
c.â€‹credit to Sales Revenue for $35,000.
d.â€‹credit to Sales Revenue for $36,240.

20. Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $135,000 on March 15, 2014. Estimated standalone fair values of the equipment, installation, and training are $75,000, $50,000, and $25,000 respectively. The transaction price allocated to equipment, installation and training is
a.â€‹$67,500, $45,000, $22,500 respectively
b.â€‹$45,000, $45,000, $45,000 respectively
c.â€‹$135,000 for the entire bundle.
d.â€‹$75,000, $50,000 and $25,000 respectively.

21. â€‹â€‹On August 5, 2014, Famous Furniture shipped 20 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was $350 each. The cost of shipping the dining sets amounted to $2,000 and was paid for by Famous Furniture. On December 30, 2014, the consignee reported the sale of 15 dining sets at $850 each. The consignee remitted payment for the amount due after deducting a 8% commission, advertising expense of $300, and installation and setup costs of $390. The amount cash received by Famous furniture is
a.â€‹$12,750
b.â€‹$11,040
c.â€‹$11,295
d.â€‹$11,585

22.â€‹â€‹ On August 5, 2014, Famous Furniture shipped 20 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was $350 each. The cost of shipping the dining sets amounted to $2,000 and was paid for by Famous Furniture. On December 30, 2014, the consignee reported the sale of 15 dining sets at $850 each. The consignee remitted payment for the amount due after deducting a 8% commission, advertising expense of $300, and installation and setup costs of $390. The total profit on units sold for the consignor is
a.â€‹$4,290
b.â€‹$11,040
c.â€‹$7,500
d.â€‹$10,000

23.â€‹â€‹ Arizona Communications contracted to set up a call center for the City of Phoenix. Under the terms of the contract, Arizona Communications will design and set-up a call center with the following costs:

Design of call center
$10,000

Computers, servers, telephone equipment
$235,000

Software
$85,000

Installation and testing of equipment
$15,000

Selling commission
$25,000

Annual service contract
$50,000

In addition, Arizona Communications will maintain and service the equipment and software to ensure smooth operations of the call center for an annual fee of $80,000. Ownership of equipment installed remains with the City of Phoenix. The contract costs that should be capitalized is
a.â€‹$460,000
b.â€‹$410,000
c.â€‹$360,000
d.â€‹$370,000

24. â€‹â€‹Bella Pool Company sells prefabricated pools that cost $120,000 to customers for $200,000. The sales price includes an installation fee, which is valued at $25,000. The fair value of the pool is $180,000. The installation is considered a separate performance obligation and is expected to take 3 months to complete. The transaction price allocated to the pool and the installation is
a.â€‹$155,676 and $24,324 respectively
b.â€‹$200,000 and $25,000 respectively
c.â€‹$180,000 and $25,000 respectively
d.â€‹$175,610 and $24,390 respectively

25.â€‹â€‹ Botanic Choice sell natural supplements to customers with an unconditional right of return if they are not satisfied. The right of returns extends 60 days. On February 10, 2014, a customer purchases $3,000 of products (cost $1,800). Assuming that based on prior experience, estimated returns are 25%. The journal entry to record the sale and cost of goods sold includes a
a.â€‹debit to Cash and a credit to Sales Revenue of $3,000.
b.â€‹credit to Refund Liability of $600 and a credit to Sales Revenue of $2,400.
c.â€‹debt to Cost of Goods Sold for $1,350 and credit to Inventory for $1,800.
d.â€‹credit to Estimated Inventory Returns of $450

26.â€‹â€‹ Botanic Choice sells natural supplements to customers with an unconditional right of return if they are not satisfied. The right of returns extends 60 days. On February 10, 2014, a customer purchases $3,000 of products (cost $1,800). Assuming that based on prior experience, estimated returns are 25%. The journal entry to record the return of $200 of merchandise includes a
a.â€‹credit to Refund Liability for $200.
b.â€‹debit to Returned Inventory for $120.
c.â€‹credit to Estimated Inventory Returns for $100.
d.â€‹debit to Estimated Inventory Returns for $120.

27. On November 1, 2014, Green Valley Farm entered into a contract to buy a $75,000 harvester from John Deere. The contract required Green Valley Farm to pay $75,000 in advance on November 1, 2014. The harvester (cost of $55,000) was delivered on November 30, 2014. The journal entry to record the contract on November 1, 2014 includes a
a.â€‹credit to Accounts Receivable for $75,000.
b.â€‹credit to Sales Revenue for $75,000.
c.â€‹debit to Unearned Sales Revenue for $75,000.
d.â€‹credit to Unearned Sales Revenue for $75,000.

28.â€‹â€‹On November 1, 2014, Green Valley Farm entered into a contract to buy a $75,000 harvester from John Deere. The contract required Green Valley Farm to pay $75,000 in advance on November 1, 2014. The harvester (cost of $55,000) was delivered on November 30, 2014. The journal entry to record the delivery of the equipment includes a
a.â€‹debit to Unearned Sales Revenue for $75,000.
b.â€‹credit to Unearned Sales Revenue for $75,000.
c.â€‹credit to Cost of Goods Sold for $55,000.
d.â€‹debit to Inventory for $55,000

Use the following information for questions 29 and 30.
Kiner, Inc. began work in 2014 on a contract for $16,800,000. Other data are as follows:

â€‹â€‹2014â€‹ 2015â€‹

Costs incurred to dateâ€‹$7,200,000â€‹$11,200,000
Estimated costs to completeâ€‹4,800,000â€‹â€”
Billings to dateâ€‹5,600,000â€‹17,800,000
Collections to dateâ€‹4,000,000â€‹14,400,000

*29.â€‹If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2014 is
a.â€‹$2,880,000.
b.â€‹$3,200,000.
c.â€‹$3,480,000.
d.â€‹$5,800,000.

*30.â€‹If Kiner uses the completed-contract method, the gross profit to be recognized in 2015 is
a.â€‹$2,720,000.
b.â€‹$5,800,000.
c.â€‹$6,600,000.
d.â€‹ $11,200,000.

1.â€‹â€‹ The converged standard on revenue recognition a.â€‹reduce...