1.

The first step in the process for revenue recognition is to A

a. determine the transaction price.
b. identify the contract with customers.
c. allocate transaction price to the separate performance obligations.
d. identify the separate performance obligations in the contract.
B is correct
2. The second step in the process for revenue recognition is to
a. allocate transaction price to the separate performance obligations.
b. determine the transaction price.
c. identify the contract with customers.
d. identify the separate performance obligations in the contract.
D is correct
3. On January 15, 2018, Bella Vista Company enters into a contract to build custom
equipment for ABC Carpet Company. The contract specified a delivery date of March 1.
The equipment was not delivered until March 31. The contract required full payment of
$75,000 30 days after delivery. The revenue for this contract should be
a. recorded on January 15, 2018.

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b. recorded on March 1, 2018.
c. recorded on March 31, 2018.

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d. recorded on April 30, 2018.
C is correct

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4. New Age Computers manufactures and sells pagers and radio paging systems which
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include a 180 day warranty on product defects. It also sells an extended warranty which
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provides an additional two years of protection. On May 10, it sold a paging system for
$4,500 and an extended warranty for another $1,400. The journal entry to record this
transaction would include
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a. a credit to Warranty Revenue of $5,900.

b. a credit to Warranty Revenue of $1,400
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c. a credit to Sales of $4,500 and a credit to Warranty Revenue of $1,400

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d. a credit to Unearned Warranty Revenue of $1,400.

D is correct
5 . Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to
providing the software, the company also provides consulting services and support to
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ensure smooth operation of the software. The total transaction price is $420,000. Based
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on standalone values, the company estimates the consulting services and support have
a value of $120,000 and the software license has a value of $300,000. Assuming the
performance obligations are not interdependent, the journal entry to record the
transaction includes
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a. a credit to Sales Revenue for $300,000 and a credit to Unearned Service Revenue of
$120,000.
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b. a credit to Service Revenue of $120,000.

c. a credit to Unearned Service Revenue of $120,000.
d. a credit to Sales Revenue of $420,000.
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A is correct
6. The percentage-of-completion method
a. recognizes revenue and gross profit each period based upon progress.
b. is used primarily for short-term contracts.
c. accumulates construction costs in the Billings on Construction in Progress account.
d. recognizes revenue and gross profits only when contract is completed.
A is correct

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7.In accounting for a long-term construction-type contract using the percentage-of-completion
method, the gross profit recognized during the first year would be the estimated total
gross profit from the contract, multiplied by the percentage of the costs incurred during
the year to the
a. total costs incurred to date.
b. total estimated cost.
c. unbilled portion of the contract price.
d. total contract price.
B is correct
Cooper Construction Company had a contract starting April 2018, to construct a $24,000,000
building that is expected to be completed in September 2020, at an estimated cost of
$22,000,000. At the end of 2018, the costs to date were $10,120,000 and the estimated total
costs to complete had not changed. The progress billings during 2018 were $4,800,000 and the
cash collected during 2018 was 3,200,000. Cooper uses the percentage-of-completion method.

8. At December 31, 2018 Cooper would report Construction in Process in the amount of:
a. $ 920,000

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b. $10,120,000

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c. $11,040,000

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d. $ 9,440,000

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C is correct
GP is (2 mil x 10,120/22,000) = 920,000

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Con in process = costs 10,120,000 + gp 920,000 = 11,040,000
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Horner Construction Co. uses the percentage-of-completion method. In 2018, Horner began
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work on a contract for $22,000,000; it was completed in 2019. The following cost data
pertain to this contract:
Year Ended December 31
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2018 2019
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Cost incurred during the year $7,800,000 $5,600,000

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Estimated costs to complete at the end of year 5,200,000 —

9. The amount of gross profit to be recognized on the income statement for the year ended
December 31, 2019 is
a. $3,200,000.
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b. $3,440,000.
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c. $3,600,000.
d. $8,600,000.
A is correct 2018: ( 9 mil x 7,800/13,000) = 5,400,000
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2019: 8,600,000 – 5,400,000 = 3,200,000

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10. If the completed-contract method of accounting was used, the amount of gross profit to be
recognized for years 2018 and 2019 would be
2018 2019
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a. $9,000,000. $0.
b. $8,600,000. $(400,000).
c. $0. $8,600,000.
d. $0. $9,000,000.
C is correct

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