41. Firms extending credit to customers should
A. strive for zero uncollectible accounts to eliminate the need for establishing a bad debt expense and maintaining an allowance for uncollectible accounts.
B. grant credit indiscriminately otherwise the firm may be charged with discrimination in the granting of credit and could be found to be in violation of Federal laws.
C. grant credit to a given group of customers whenever the amount collected from the credit sales to that group exceeds the cost of goods sold and the other costs of serving that group.
D. should ignore collection efforts aimed at those customers who have not paid their bills because the cost of staffing and maintaining a collection department are never cost effective.
E. none of the above.
42. When the seller has received cash, but has not earned all of the revenues represented by the cash by providing goods and services, the seller has incurred an obligation to provide goods or services. These liabilities
A. are referred to as deferred performance obligations.
B. may use an account title of Advances from Customers.
C. may use an account title of Deferred Revenues.
D. may use an account title of Unearned Revenues.
E. can be all of the above.
43. The cost recovery method
A. matches the costs of generating revenue with cash receipts until the seller recovers all its costs.
B. is a method by which the seller sets expenses equal to revenue in each period until it recovers all its costs.
C. is a method by which the seller does not recognize gross margin in income until it has recovered all of the costs of the sale.
D. is a method by which the seller reports revenue without any matching expenses in its income statement after cumulative cash receipts equal total costs.
E. all of the above.
44. Conceptual guidance in U.S. GAAP refers to the selling entity having earned the revenues (that is, having completed the earnings process). IFRS refers to
A. transferring the risks and rewards of ownership to customers (in the case of revenues involving goods).
B. having rendered services (in the case of revenues involving services).
C. measuring the costs of any obligations that the seller has not performed at the time it recognizes revenue with reasonable reliability.
D. all of the above.
E. none of the above.
45. When the customer pays with a credit card
A. the retailer receives payment from the credit card issuer promptly, typically within a few days.
B. the retailer treats the transaction like a cash sale.
C. the credit card issuer bears the risk of nonpayment by the customer.
D. the customer compensates the issuer by paying finance charges and other fees.
E. all of the above.
46. Project Paso Vineyards processes grapes into champagne, which it bottles, corks, and places on shelves in underground caverns to age for several years. During the aging process, the winemakers hand-turn the bottles a quarter rotation every few months; also, at fixed intervals, they release yeast gases to preclude unwanted fermentation. Assume that Project Paso contracts to sell a quantity of champagne to a customer for €30 million. Under the terms of the contract, Project Paso will store the champagne in its caverns and perform all necessary functions associated with the aging process (for example, turning the bottles and releasing yeast gases). The selling price includes the costs of producing the champagne and providing services during the aging process. The customer pays Project Paso €15 million at the beginning of the aging and storage process, and agrees to pay the remainder in five years upon delivery of the champagne.When should Project Paso Vineyards recognize revenue from selling the champagne?
A. Project Paso Vineyards should delay revenue recognition until it delivers the champagne to the customer.
B. Project Paso Vineyards should recognize revenue when it sells the champagne to the customer.
C. Project Paso Vineyards should recognize one fifth of the revenue per year after it sells the champagne to the customer.
D. Project Paso Vineyards should recognize one half of the revenue 2 1/2 years after it sells the champagne to the customer.
E. none of the above.
47. The percentage-of-completion method
A. recognizes a portion of the contract price as revenue during each accounting period of construction.
B. bases the amount of revenue, expense, and income on the proportion of total work performed during the accounting period.
C. measures the proportion of total work carried out during the accounting period either from engineers' estimates of the degree of completion or from the ratio of costs incurred to date to the total costs expected for the entire contract.
D. all of the above.
E. none of the above.
48. Rogers Manufacturing sells an old machine to KSS Corp. which is having financial difficulty. Rogers agrees to accept payment over 3 years. The adjusted basis of the machine to the seller is $5,000 and the buyer is expected to make payments of $2,000 per year for 3 years. What amount of net profit is recognized by the seller in year 3 if the seller uses the installment method? (Assume that the buyer makes the payments.)
A. $2,000
B. $1,000
C. $333.33
D. $0
E. $666.67
49. Jaymar Software Corporation sells SPAM BE GONE to customers, who receive the software and have access to postdelivery telephone support and the right to receive certain upgrades and enhancements if and when Jaymar Software develops them. Jaymar Software sells SPAM BE GONE for approximately $100; customers pay cash or with a credit card. When should Jaymar Software recognize revenue from selling SPAM BE GONE?
A. It recognizes revenue from sale of the software at the time of delivery and revenue associated with future obligations over the product’s life cycle.
B. It recognizes revenue from sale of the software over the product’s life cycle and revenue associated with future obligations at the time of delivery.
C. It recognizes revenue from sale of the software and the revenue associated with future obligations over the product’s life cycle.
D. It recognizes revenue from sale of the software and the revenue associated with future obligations at the time of delivery.
E. none of the above.
50. Sao Paulo Trains Inc., incorporated in Brazil, manufactures high-speed trains. In this industry, the time to manufacture products usually exceeds one year. Assume that Sao Paulo Trains recently signed a €8 billion contract to provide 10 new high-speed trains to a customer in the European Union. The customer has paid a deposit of €500 million and will pay the remainder in equal installments over the next four years. When should Sao Paulo Trains recognize the revenue from this contract?
A. at the time Sao Paulo Trains signs the contract and receives €500 million cash from the customer
B. assuming that Sao Paulo Trains can reliably estimate both the revenue from the contract and the costs to complete the contract, it will recognize revenue (as well as the costs associated with delivering on the contract) over the contract life.
C. Sao Paulo Trains will recognize all of the revenue (as well as all of the costs associated with delivering on the contract) at the completion of the contract
D. at the time Sao Paulo Trains signs the contract and receives the cash payments from the customer
E. none of the above