192. Dowling’s return on equity for 2016 is (rounded):
a. 22%.
b. 24.3%.
c. 17.4%.
d. 9%.
193. Dowling’s average total assets for 2016 is (rounded):
a. 32.
b. 210.
c. 115.
d. 194.
194. Dowling’s average inventory balance for 2016 is (rounded):
a. 11.
b. 12
c. 11.5.
d. 12.5.
Use the following to answer questions 195–202:
Excerpts from Hulkster Company’s December 31, 2016 and 2015, financial statements are
presented below:
2016
2015
Accounts receivable
$
40,000
$
36,000
Merchandise inventory
28,000
35,000
Net sales
190,000
186,000
Cost of goods sold
114,000
108,000
Total assets
425,000
405,000
Total shareholders’ equity
240,000
225,000
Net income
32,500
28,000
195. Hulkster’s 2016 receivables turnover is:
a. 2.85.
b. 4.70.
c. 5.00.
d. 10.63.
196. Hulkster’s 2016 inventory turnover is (rounded):
a. 3.62.
b. 3.96.
c. 4.07.
d. 6.03.
197. Hulkster’s 2016 asset turnover is (rounded):
a. 3.73.
b. 2.79.
c. 2.24.
d. 0.46.
198. Hulkster’s 2016 average collection period is:
a. 73 days.
b. 104 days.
c. 109 days.
d. 128 days.
199. Hulkster’s 2016 average days in inventory is (rounded):
a. 61 days.
b. 92 days.
c. 101 days.
d. 90 days.
200. Hulkster’s 2016 profit margin is (rounded):
a. 17.1%.
b. 13.5%.
c. 7.6%.
d. 4.5%.
201. Hulkster’s 2016 return on assets is (rounded):
a. 7.1%.
b. 7.8%.
c. 13.5%.
d. 44.7%.
202. Hulkster’s 2016 return on shareholders’ equity is (rounded):
a. 17.1%.
b. 14.0%.
c. 12.6%.
d. 7.1%.
203. Under the realization principle, revenue should not be recognized until the
earnings process is deemed virtually complete and:
a. Revenue is realized.
b. Any receivable is collected.
c. Collection is reasonably certain.
d. Collection is absolutely assured.
204. Under IFRS, which of the following is not a condition for recognizing revenue?
a) The amount of revenue and costs associated with the transaction can be measured
reliably.
b) It is reasonably possible that the economic benefits associated with the transaction
will flow to the seller.
c) For sales of goods, the seller has transferred to the buyer the risks and rewards of
ownership and doesn’t effectively manage or control the goods.
d) For sales of services, the stage of completion can be measured reliably.
205. Under IFRS, revenue for a product sale should occur when:
a) Inventory production is complete.
b) Warranty fulfillment is viewed as unlikely.
c) The seller has transferred to the buyer the risks and rewards of ownership and doesn’t
effectively manage or control the goods.
d) The buyer has paid a preponderance of installment amounts due.
206. 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:
a) Installment sales method.
b) Point of sales method.
c) Cost recovery method.
d) Installment sales method or cost recovery method.
207. 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:
a) Point of sale.
b) Installment sales.
c) Cost recovery.
d) Installment sales or cost recovery.
Use the following to answer questions 208–211:
On December 15, 2016, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for
$4,500,000. Rigsby appropriately uses the installment sales 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, 2017, and December 15, 2018. Ignore interest charges.
208. In 2016, Rigsby would recognize realized gross profit of:
a. $500,000.
b. $0.
c. $900,000.
d. $100,000.
209. In 2017, Rigsby would recognize realized gross profit of:
a. $0.
b. $450,000.
c. $300,000.
d. $400,000.
210. In its December 31, 2016, balance sheet, Rigsby would report:
a. Realized gross profit of $100,000.
b. Deferred gross profit of $100,000.
c. Installment receivables (net) of $3,200,000.
d. Installment receivables (net) of $4,000,000.
211. At December 31, 2017, Rigsby would report in its balance sheet:
a. Realized gross profit of $500,000.
b. Deferred gross profit of $400,000.
c. Realized gross profit of $400,000.
d. Cost of installment sales $1,600,000.
Use the following to answer questions 212–216:
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 is in condition to be re-sold. Therefore, Reliable uses the
cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2015. Collections
on this sale were $20,000 in 2015, $15,000 in 2016, and $20,000 in 2017.
212. In 2015, Reliable would recognize gross profit of:
a. $0.
b. $25,000.
c. $ 8,090.
d. $ 8,333.
213. In 2016, Reliable would recognize gross profit of:
a. $0.
b. $ 6,000.
c. $ 5,000.
d. $10,000.
214. In 2017, Reliable would recognize gross profit of:
a. $0.
b. $ 6,000.
c. $ 8,000.
d. $20,000.
215. In its 2015 year-end balance sheet, Reliable would report installment receivables (net) of:
a. $20,000.
b. $35,000.
c. $25,909.
d. $10,000.
216. In its 2016 year-end balance sheet, Reliable would report installment receivables (net) of:
a. $0.
b. $20,000.
c. $ 4,000.
d. $15,000.
Use the following to answer questions 217–221:
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay one-
third of the sales price of a jet ski when they initially purchase the ski, and then pay another one-
third each year for the next two years. Because Lake has little information about the ability to
collect these receivables, it uses the installment sales method for revenue recognition. In 2015,
Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000.
Lake collected $300,000 in 2015, $300,000 in 2016, and $300,000 in 2017 associated with those
sales. In 2016, Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake
collected $500,000 in 2016, $400,000 in 2017, and $400,000 in 2018 associated with those sales.
In 2018, Lake also repossessed $200,000 of jet skis that were sold in 2016. Those jet skis had a
fair value of $75,000 at the time they were repossessed.
217. Total cash collections on installment sales during 2016 would be:
a. $700,000.
b. $300,000.
c. $800,000.
d. $0
218. In 2015, Lake would recognize realized gross profit of:
a. $150,000.
b. $0.
c. $300,000.
d. $450,000.
219. In 2017, Lake would recognize realized gross profit of:
a. $0.
b. $450,000.
c. $310,000.
d. $700,000.
220. In its December 31, 2016, balance sheet, Lake would report:
a. Deferred gross profit of $700,000.
b. Deferred gross profit of $1,050,000.
c. Installment receivables (net) of $750,000.
d. Installment receivables (net) of $900,000.
221. In 2018, Lake would record a loss on repossession of:
a. $45,000.
b. $200,000.
c. $120,000.
d. $80,000
Use the following to answer questions 222–224:
Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay one-
third of the sales price of a jet ski when they initially purchase the ski, and then pay another one-
third each year for the next two years. Because Lake has little information about the ability to
collect these receivables, it uses the cost recovery method to recognize revenue on these
installment sales. In 2015, Lake began operations and sold jet skis with a total price of $900,000
that cost Lake $450,000. Lake collected $300,000 in 2015, $300,000 in 2016, and $300,000 in
2017 associated with those sales. In 2016, Lake sold jet skis with a total price of $1,500,000 that
cost Lake $900,000. Lake collected $500,000 in 2016, $400,000 in 2017, and $400,000 in 2018
associated with those sales. In 2018, Lake also repossessed $200,000 of jet skis that were sold in
2016. Those jet skis had a fair value of $75,000 at the time they were repossessed.
222. In 2015, Lake would recognize realized gross profit of:
a. $150,000.
b. $0.
c. $300,000.
d. $450,000.
223. In 2017, Lake would recognize realized gross profit of:
a. $0.
b. $300,000.
c. $310,000.
d. $700,000.
224. In its December 31, 2016, balance sheet, Lake would report:
a. Deferred gross profit of $700,000.
b. Deferred gross profit of $600,000.
c. Installment receivables (net) of $700,000.
d. Installment receivables (net) of $400,000.
225. When using the cost recovery method of accounting for long-term construction contracts
under IFRS:
a. Estimated losses on the overall contract are recognized before the contract is
completed.
b. Expenses are recorded each period, but revenue is only recognized when the contract
is completed.
c. Companies can use the percentage-of-completion method if that is their preference.
d. Neither gains nor losses are recognized until the contract is completed.
226. When using the cost recovery method of accounting for long-term construction contracts
under IFRS, early in the life of the contract it is typically the case that:
a. Expenses in excess of revenues are recognized.
b. Revenues in excess of expenses are recognized.
c. An equal amount of revenue and expense is recognized.
d. There is no predictable pattern of revenue and expense.
227. The cost recovery method of accounting for long-term construction contracts under IFRS
is sometimes referred to as the:
a. “Sales–neutral approach.”
b. “Completed contract method.”
c. “Multi–step approach.”
d. “Zero profit method.”
228. The percentage-of-completion method violates the general rule for revenue recognition
that:
a. Collection is reasonably assured.
b. Costs are known or reasonably estimated.
c. The earnings process is complete.
d. Collections have been received.
Use the following to answer questions 229–231:
Sahara Desert Homes (SDH) reports under IFRS and constructed a new subdivision during 2015
and 2016 under contract with Cactus Development Co. Relevant data are summarized below:
Contract
amount
$3,000,000
Cost:
2015
1,200,000
2016
600,000
Gross profit:
2015
800,000
2016
400,000
Contract
billings:
2015
2016
1,500,000
1,500,000
SDH uses the cost recovery method under IFRS to recognize revenue.
229. What is the journal entry in 2015 to record revenue?
a.
Accounts receivable
1,500,000
Revenue fron long-term
construction contracts
1,500,000
b.
Accounts receivable
2,300,000
Gross profit
800,000
Revenue from long-term
construction contracts
1,500,000
c.
Construction in progress
800,000
Cost of construction
1,200,000
Revenue from long-term
construction contracts
2,000,000
d.
Cost of construction
1,200,000
Revenue from long-term
1,200,000
construction contracts
230. In its December 31, 2015, balance sheet, SDH would report:
a. The asset, cost and profits in excess of billings, of $500,000.
b. The liability, billings in excess of cost, of $300,000.
c. The asset, contract amount in excess of billings, of $1,500,000.
d. The asset, deferred profit, of $400,000.
231. What is SDH’s journal entry to record revenue in 2016?
a.
Accounts receivable
1,500,000
Revenue from long-term
construction contracts
1,500,000
b.
Construction in progress
400,000
Cost of construction
600,000
Revenue from long-term
1,000,000