Intermediate Accounting Exam 2 Review Questions With Correct Answers

Intermediate Accounting Exam 2 Review Questions With Correct Answers True or false: An annuity due is the same as an ordinary annuity. - answerFalse In an annuity due, the payment occurs at the beginning of the period. In an ordinary annuity, the payment occurs at the end of the period. In a deferred annuity, a two-step process can be used to calculate the present value of the annuity. The first step requires the calculation of the present value of the annuity at the beginning of the annuity period. The second step involves discounting the amount calculated in step 1 -to its future value at maturity -to its future value as of today -to its present value as of today -to its present value at maturity - answerto its present value as of today The amount received for an extended warranty is initially -recognized as a deferred revenue liability. -ignored. -combined with the contract price for the related product. - answerrecognized as a deferred revenue liability. Options for additional goods or services are considered performance obligations if they provide a material right to the customer that the customer -did not expect when entering into the contract. -expected when entering into the contract. -would not receive otherwise. -would receive otherwise. - answerwould not receive otherwise. Which of the following situations may make the contract price less apparent? (Select all that apply.) -Fixed price listed in contract -Determining whether the seller is acting as principal or agent -Variable consideration provisions -Sales with right of return - answer-Determining whether the seller is acting as principal or agent -Variable consideration provisions -Sales with right of return In a(n) ______________ ______________, the payment is received or made at the beginning of the period, whereas in a(n) _____________ _____________, the payment is received at the end of each period. (Enter one word per blank.) - answerannuity due, ordinary annuity On January 1st, Guarder Consulting enters into a one-year contract with Smith Co. to restructure some of Smith's processes with a goal of cost savings. Smith pays Guarder an up- front fixed fee of $48,000 on January 1st. Guarder will also earn an additional $12,000 bonus if Smith achieves $100,000 of cost savings. Guarder estimates a 70% chance that Smith will achieve $100,000 of cost savings. Assuming that Guarder determines the transaction price as the most likely amount, what amount of revenue will be recorded at the end of the first month? - answer5,000 1/31 Deferred revenue (48,000 / 12) 4,000 Bonus receivable (12,000 / 12) 1,000 Sales revenue (60,000 / 12) 5,000 Which of the following steps are involved in calculating the present value of a deferred annuity? (Select all that apply.) -Calculate the FV of the annuity as of the end of the annuity period. -Discount the lump sum from the annuity calculation to its present value as of today. -Calculate the PV of the annuity as of the beginning of the annuity period. -Discount the lump sum from the annuity calculation to its future value at maturity. - answer-Discount the lump sum from the annuity calculation to its present value as of today. -Calculate the PV of the annuity as of the beginning of the annuity period. Koster Inc. recognized $10,000 of service revenue, which represents one-half of the estimated bonus it expects to receive at the end of the year. On October 1, Koster re-assesses the situation and is unable to conclude that it is probable it will meet the conditions for receiving the bonus. What should Koster do? -Reverse half of the already recognized revenue on October 1 -Reverse the already recognized revenue on October 1 -Wait until the end of the year when the uncertainty is resolved - answerReverse the already recognized revenue on October 1 Because extended warranties usually are priced and sold separately from the related product, they (Select all that apply.) -can be viewed as separate transactions -are considered separate performance obligations -cannot be viewed as separate transactions -are not accounted for as separate performance obligations - answer-can be viewed as separate transactions -are considered separate performance obligations Which of the following are in essence financing (loan) arrangements? (Select all that apply.) -Customer pays prior to delivery of goods -Customer may pay within 60 days of delivery -Customer pays purchase price on delivery - answer-Customer pays prior to delivery of goods