Accounting 4356 Exam 2- Questions and Correct Answers

Which of the following items creates complications related to revenue recognition? A) Bonuses tied to sales goals B) Long-term construction contracts C) Multiple element sales contracts D) Consignment goods E) All of the above E) All of the above The company's accountants provide the following contract details relating to the project: Contract price $624 million Estimated construction costs $480 million Estimated total profit $144 million During the three-year construction period, State Construction incurred costs as follows: Year 1 $48 million Year 2 $288 million Year 3 $144 million State Construction uses the cost-to-cost method to recognize revenue. Which of the following represent the revenue recognized in Year 1, Year 2, and Year 3? A) $62 million, $374 million, $187 million B) $62 million, $312 million, $250 million C) $0 million, $0 million, $624 million D) $60 million, $376 million, $188 million E) None of these are correct. % of Revenue = Yearly Cost / Total Cost $48, $288, $144 million / $480 million % of Revenue x Contract Price 10%, 60%, 30% x $624 million A) $62 million, $374 million, $187 million In spring of this year, Parmac Engineering Company signed a $192 million contract with the city of Parkersburg, to construct a new city hall. Parmac expects to construct the building within two years and incur expenses of $144 million. The city of Parkersburg paid $48 million when the contract was signed, $196 million within the next six months, and the final $48 million exactly one year from the signing of the contract. Parmac incurred $58 million in costs during the year and rest in the following year to complete the contract on time. Using the cost-to-cost method how much revenue should Parmac recognize in the current year? A) $48 million B) $77 million C) $86 million D) $144 million E) None of these are correct. % of Revenue = Current Year Cost / Total Cost $58 million / $144 million % of Revenue x Contract Price 40% x $192 million B) $77 million Costco Wholesale Corporation collects annual non-refundable membership fees from customers. When should Costco recognize revenue for these membership fees? A) Immediately when cash is received because the fees are nonrefundable B) Evenly over the membership year C) Evenly over the current fiscal year D) At the end of the membership year when Costco has discharged its obligation to the customer E) Pro rata over the customer's actual purchasing pattern B) Evenly over the membership year