Intermediate Accounting Chapter 18 Exam Questions and Answers Latest update (Graded A+)
The approach recognizes and measures revenue
based on changes in assets and liabilities. - Answers Asset-liability
approach
A warranty that the product meets agreed-upon
specifications in the contract at the time the product
is sold. - Answers Assurance-type
warranty
A contract under which an entity bills a customer for a product but the entity retains physical possession
of the product until it is transferred to the customer at a point in time in the future. - Answers Bill-and-
hold arrangement.
Under the percentage-of-completion method, the balance in this account is subtracted from
Construction in Process to avoid double-counting the inventory. - Answers Billings account.
The risk that a customer will be unable to pay the
amount of consideration in accordance with a
contract. - Answers Collectibility.
The accounting for long-term construction contracts where revenues and gross profit are recognized at a
point in time, that is, when the contract is completed. - Answers Completed-contract
method.
The party that receives goods from a consignor under a consignment. - Answers Consignee.
The consignor (manufacturer or wholesaler) ships merchandise to the consignee (dealer), who is to act
as an agent for the consignor in selling the merchandise. - Answers Consignment.
The party that sends goods to a consignee under
consignment. - Answers Consignor.
The payments received in return for the continuing rights granted by the franchise agreement and for
providing such services as management training, advertising and promotion, legal assistance, and other
support. - Answers Continuing franchise fees.
An agreement that creates enforceable rights or obligations. - Answers Contract.
,There are two types: (1) unconditional rights to
receive consideration because the company has
satisfied its performance obligation with a customer,
and (2) conditional rights to receive consideration
because the company has satisfied one performance
obligation but must satisfy another performance
obligation in the contract before it can bill the
customer. - Answers Contract assets.
A company's obligation to transfer goods or services
to a customer for which the company has received
consideration form the customer also generally referred to as Unearned Sales Revenue. - Answers
Contract liabilities.
When parties to a contract change the contract terms while it is ongoing. - Answers Contract
modification.
A method used under the percentage-of-completion method to estimate the extent of progress toward
completion. Compares costs incurred to date with the most recent estimate of the total costs required
to complete the contract. - Answers Cost-to-cost
basis.
A contractual arrangement whereby a franchisor
grants business rights and provides services to a
franchisee who in return agrees to pay an initial
franchise fee to operate a business and pay
continuing fees based on the operations of the
business. - Answers Franchise.
The party who operates the franchised business. - Answers Franchisee.
The party who grants business rights under the franchise. - Answers Franchisor.
A payment for establishing the franchise relationship
,and providing some initial services. - Answers Initial franchise fee.
When measuring the extent of progress under the percentage-of-completion method, these are the
costs incurred and labor hours worked and other efforts devoted to a contract. - Answers Input
measures.
When measuring the extent of progress under the percentage-of-completion method, these are the
quantities or units completed on the project (such as tons produced, floors of building completed, miles
of highway completed). - Answers Output measures.
The accounting for long-term construction contracts where revenues, costs, and gross profit are
recognized as a company makes progress toward completion of the contract based on the percentage of
completion. - Answers Percentage-of-completion method.
A promise to provide a product or service to a customer. - Answers Performance obligation.
The principal's performance obligation is to provide
goods or perform services for a customer. The
agent's performance obligation is to arrange for the
principal to provide these goods or services to a
customer. - Answers Principal-agent
relationship.
This results when additional products are not a separate performance obligation because (1) the
promised goods or services are not distinct, or (2) the new products are not priced at the proper stand-
alone selling price. - Answers Prospective modification.
An agreement which allows a company to transfer an asset to a customer but have an unconditional
forward obligation or unconditional right (call option) to repurchase that asset at a later date. - Answers
Repurchase agreement.
The principle recognizes revenue when the
performance obligation is satisfied. - Answers Revenue-recognition
principle.
When a customer returns a product in exchange for
a refund, a credit against amounts owed or that will
be owed, and/or another product in exchange. - Answers Sales returns and allowances.
, When a company accounts for a contract
modification as a new contract if (1) the promised
goods are distinct, and (2) the company has the right
to receive an amount of consideration that reflects
the standalone selling price of the promised goods or
services. - Answers Separate performance obligation.
A warranty that provides an additional service beyond the assurance-type warranty. - Answers Service-
type warranty.
The amount of consideration that a company expects
to receive from a customer in exchange for
transferring goods and services. - Answers Transaction price.
Payments that a company receives from customers before they deliver a product or perform a service.
They generally relate to the initiation, activation, or setup of a good or service to be provided or
performed in the future. In most cases these fees are nonrefundable. - Answers Upfront fees
(nonrefundable).
A warranty can be an assurance-type
(product meets
agreed-upon
specifications) or service-type
(provides
additional service beyond the assurance-type
warranty). - Answers Warranty.
(L.O. 1) The new standard, Revenue from Contracts with Customers, adopts an expense liability
approach as the basis for revenue recognition. T or F. - Answers (F) The new standard, Revenue from
Contracts with Customers, adopts an asset-liability approach as the basis for revenue recognition.
(L.O. 1) The revenue recognition principle states that revenue is recognized when
the performance obligation is satisfied. Indicate whether each of the following is true (T) of false (F) -
Answers T
The approach recognizes and measures revenue
based on changes in assets and liabilities. - Answers Asset-liability
approach
A warranty that the product meets agreed-upon
specifications in the contract at the time the product
is sold. - Answers Assurance-type
warranty
A contract under which an entity bills a customer for a product but the entity retains physical possession
of the product until it is transferred to the customer at a point in time in the future. - Answers Bill-and-
hold arrangement.
Under the percentage-of-completion method, the balance in this account is subtracted from
Construction in Process to avoid double-counting the inventory. - Answers Billings account.
The risk that a customer will be unable to pay the
amount of consideration in accordance with a
contract. - Answers Collectibility.
The accounting for long-term construction contracts where revenues and gross profit are recognized at a
point in time, that is, when the contract is completed. - Answers Completed-contract
method.
The party that receives goods from a consignor under a consignment. - Answers Consignee.
The consignor (manufacturer or wholesaler) ships merchandise to the consignee (dealer), who is to act
as an agent for the consignor in selling the merchandise. - Answers Consignment.
The party that sends goods to a consignee under
consignment. - Answers Consignor.
The payments received in return for the continuing rights granted by the franchise agreement and for
providing such services as management training, advertising and promotion, legal assistance, and other
support. - Answers Continuing franchise fees.
An agreement that creates enforceable rights or obligations. - Answers Contract.
,There are two types: (1) unconditional rights to
receive consideration because the company has
satisfied its performance obligation with a customer,
and (2) conditional rights to receive consideration
because the company has satisfied one performance
obligation but must satisfy another performance
obligation in the contract before it can bill the
customer. - Answers Contract assets.
A company's obligation to transfer goods or services
to a customer for which the company has received
consideration form the customer also generally referred to as Unearned Sales Revenue. - Answers
Contract liabilities.
When parties to a contract change the contract terms while it is ongoing. - Answers Contract
modification.
A method used under the percentage-of-completion method to estimate the extent of progress toward
completion. Compares costs incurred to date with the most recent estimate of the total costs required
to complete the contract. - Answers Cost-to-cost
basis.
A contractual arrangement whereby a franchisor
grants business rights and provides services to a
franchisee who in return agrees to pay an initial
franchise fee to operate a business and pay
continuing fees based on the operations of the
business. - Answers Franchise.
The party who operates the franchised business. - Answers Franchisee.
The party who grants business rights under the franchise. - Answers Franchisor.
A payment for establishing the franchise relationship
,and providing some initial services. - Answers Initial franchise fee.
When measuring the extent of progress under the percentage-of-completion method, these are the
costs incurred and labor hours worked and other efforts devoted to a contract. - Answers Input
measures.
When measuring the extent of progress under the percentage-of-completion method, these are the
quantities or units completed on the project (such as tons produced, floors of building completed, miles
of highway completed). - Answers Output measures.
The accounting for long-term construction contracts where revenues, costs, and gross profit are
recognized as a company makes progress toward completion of the contract based on the percentage of
completion. - Answers Percentage-of-completion method.
A promise to provide a product or service to a customer. - Answers Performance obligation.
The principal's performance obligation is to provide
goods or perform services for a customer. The
agent's performance obligation is to arrange for the
principal to provide these goods or services to a
customer. - Answers Principal-agent
relationship.
This results when additional products are not a separate performance obligation because (1) the
promised goods or services are not distinct, or (2) the new products are not priced at the proper stand-
alone selling price. - Answers Prospective modification.
An agreement which allows a company to transfer an asset to a customer but have an unconditional
forward obligation or unconditional right (call option) to repurchase that asset at a later date. - Answers
Repurchase agreement.
The principle recognizes revenue when the
performance obligation is satisfied. - Answers Revenue-recognition
principle.
When a customer returns a product in exchange for
a refund, a credit against amounts owed or that will
be owed, and/or another product in exchange. - Answers Sales returns and allowances.
, When a company accounts for a contract
modification as a new contract if (1) the promised
goods are distinct, and (2) the company has the right
to receive an amount of consideration that reflects
the standalone selling price of the promised goods or
services. - Answers Separate performance obligation.
A warranty that provides an additional service beyond the assurance-type warranty. - Answers Service-
type warranty.
The amount of consideration that a company expects
to receive from a customer in exchange for
transferring goods and services. - Answers Transaction price.
Payments that a company receives from customers before they deliver a product or perform a service.
They generally relate to the initiation, activation, or setup of a good or service to be provided or
performed in the future. In most cases these fees are nonrefundable. - Answers Upfront fees
(nonrefundable).
A warranty can be an assurance-type
(product meets
agreed-upon
specifications) or service-type
(provides
additional service beyond the assurance-type
warranty). - Answers Warranty.
(L.O. 1) The new standard, Revenue from Contracts with Customers, adopts an expense liability
approach as the basis for revenue recognition. T or F. - Answers (F) The new standard, Revenue from
Contracts with Customers, adopts an asset-liability approach as the basis for revenue recognition.
(L.O. 1) The revenue recognition principle states that revenue is recognized when
the performance obligation is satisfied. Indicate whether each of the following is true (T) of false (F) -
Answers T
