CHAPTER 18
REVENUE RECOGNITION
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
Answer No. Description F
1. Recognition of revenue.
T 2. Realization of revenue.
T 3. Delayed recognition of revenue.
F 4. Recognizing revenue when right of return exists.
T 5. Recognizing revenue prior to product completion.
F 6. Use of percentage-of-completion method.
T 7. Input measure for contract progress.
T 8. Reporting Construction in Process and Billings on Construction in Process.
F 9. Construction in Process account balance.
F 10. Recognition of revenue under completed-contract method.
T 11. Principal advantage of completed-contract method.
F 12. Recognizing loss on an unprofitable contract.
F 13. Recognizing current period loss on a profitable contract.
T 14. Recognizing revenue under completion-of-production basis.
F 15. Recording a loss on an unprofitable contract.
F 16. Deferring revenue under installment-sales method.
T 17. Deferring gross profit under installment-sales method.
T 18. Classification of deferred gross profit.
F 19. Recognizing revenue under cost-recovery method.
T 20. Recognizing profit under cost-recovery method.
EXERCISES
Item Description
E18-121 Revenue recognition (essay).
E18-122 Revenue recognition (essay).
E18-123 Long-term contracts (essay).
E18-124 Journal entries—percentage-of-completion.
E18-125 Percentage-of-completion method.
E18-126 Percentage-of-completion method.
E18-127 Percentage-of-completion and completed-contract methods.
E18-128 Installment sales.
E18-129 Installment sales.
E18-130 Installment sales.
*E18-131 Franchises. PROBLEMS
,18 - 2 Test Bank for Intermediate Accounting, Fourteenth Edition
Item Description
P18-132 Long-term construction project accounting.
P18-133 Accounting for long-term construction contracts.
P18-134 Long-term contract accounting—completed-contract.
P18-135 Installment sales.
CHAPTER LEARNING OBJECTIVES
1. Apply the revenue recognition principle.
2. Describe accounting issues for revenue recognition at point of sale.
3. Apply the percentage-of-completion method for long-term contracts.
4. Apply the completed-contract method for long-term contracts.
5. Identify the proper accounting for losses on long-term contracts.
6. Describe the installment-sales method of accounting.
7. Explain the cost-recovery method of accounting.
*8. Explain revenue recognition for franchises and consignment sales.
SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Learning Objective 1
S P
1. TF 3. TF 22. MC 24. MC 26. MC 121. E
P
2. TF 21. MC 23. MC 25. MC 110. MC 122. E
Learning Objective 2
4. TF 6. TF 28. MC 30. MC
5. TF 27. MC 29. MC 122. E
Learning Objective 3
7. TF 34. MC 66. MC 72. MC 80. MC 123. E 133. P
8. TF 35. MC 67. MC 73. MC 82. MC 124. E
9. TF 36. MC 68. MC 74. MC 83. MC 125. E
31. MC 37. MC 69. MC 75. MC 84. MC 126. E
, To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Revenue Recognition 18 - 3
S
32. MC 38. MC 70. MC 76. MC 111. MC 127. E
33. MC 65. MC 71. MC 78. MC 112. MC 132. P
Learning Objective 4
10. TF 40. MC 81. MC 87. MC 123. E 134. P
11. TF 77. MC 85. MC 88. MC 127. E
S
39. MC 79. MC 86. MC 113. MC 133. P
Learning Objective 5
S
12. TF 14. TF 41. MC 43. MC 45. MC 114. MC 133. P
S
13. TF 15. TF 42. MC 44. MC 46. MC 132. P
Learning Objective 6
16. TF 49. MC 91. MC 96. MC 101. MC 118. MC 130. E
17. TF 50. MC 92. MC 97. MC 102. MC 119. MC 135. P
S
18. TF 51. MC 93. MC 98. MC 115. MC 120. MC
47. MC 89. MC 94. MC 99. MC 116. MC 128. E
48. MC 90. MC 95. MC 100. MC 117. MC 129. E
Learning Objective 7
P
19. TF 52. MC 54. MC 56. MC 103. MC
20. TF 53. MC 55. MC 57. MC 104. MC
Learning Objective 8*
58. MC 60. MC 62. MC 64. MC 106. MC 108. MC 131. E
59. MC 61. MC 63. MC 105. MC 107. MC 109. MC
Note: TF = True-False
MC = Multiple Choice
E = Exercise
P = Problem
TRUE-FALSE—Conceptual
1. Companies should recognize revenue when it is realized and when cash is received.
2. Revenues are realized when a company exchanges goods and services for cash or claims
to cash.
3. Delayed recognition of revenue is appropriate if the sale does not represent substantial
completion of the earnings process.
, 18 - 4 Test Bank for Intermediate Accounting, Fourteenth Edition
4. If a company sells its product but gives the buyer the right to return it, the company should
not recognize revenue until the sale is collected.
5. Companies can recognize revenue prior to completion and delivery of the product under
certain circumstances.
6. Companies must use the percentage-of-completion method when estimates of progress
toward completion are reasonably dependable.
7. The most popular input measure used to determine the progress toward completion is the
cost-to-cost basis.
8. If the difference between the Construction in Process and the Billings on Construction in
Process account balances is a debit, the difference is reported as a current asset.
9. The Construction in Process account includes only construction costs under the percentage-
of-completion method.
10. Under the completed-contract method, companies recognize revenue and costs only when
the contract is completed.
11. The principal advantage of the completed-contract method is that reported revenue reflects
final results rather than estimates.
12. Companies must recognize a loss on an unprofitable contract under the percentage-
ofcompletion method but not the completed-contract method.
13. A loss in the current period on a profitable contract must be recognized under both the
percentage-of-completion and completed-contract method.
14. Under the completion-of-production basis, companies recognize revenue when agricultural
crops are harvested since the sales price is reasonably assured and no significant costs are
involved in product distribution.
15. The provision for a loss on an unprofitable contract may be combined with the Construction
in Process account balance under percentage-of-completion but not completed-contract.
16. Under the installment-sales method, companies defer revenue and income recognition until
the period of cash collection.
17. The installment-sales method defers only the gross profit instead of both the sales price and
cost of goods sold.
18. Deferred gross profit is generally treated as an unearned revenue and classified as a current
liability.
19. Under the cost-recovery method, a company recognizes no revenue or profit until cash
payments by the buyer exceed the cost of the merchandise sold.
REVENUE RECOGNITION
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
Answer No. Description F
1. Recognition of revenue.
T 2. Realization of revenue.
T 3. Delayed recognition of revenue.
F 4. Recognizing revenue when right of return exists.
T 5. Recognizing revenue prior to product completion.
F 6. Use of percentage-of-completion method.
T 7. Input measure for contract progress.
T 8. Reporting Construction in Process and Billings on Construction in Process.
F 9. Construction in Process account balance.
F 10. Recognition of revenue under completed-contract method.
T 11. Principal advantage of completed-contract method.
F 12. Recognizing loss on an unprofitable contract.
F 13. Recognizing current period loss on a profitable contract.
T 14. Recognizing revenue under completion-of-production basis.
F 15. Recording a loss on an unprofitable contract.
F 16. Deferring revenue under installment-sales method.
T 17. Deferring gross profit under installment-sales method.
T 18. Classification of deferred gross profit.
F 19. Recognizing revenue under cost-recovery method.
T 20. Recognizing profit under cost-recovery method.
EXERCISES
Item Description
E18-121 Revenue recognition (essay).
E18-122 Revenue recognition (essay).
E18-123 Long-term contracts (essay).
E18-124 Journal entries—percentage-of-completion.
E18-125 Percentage-of-completion method.
E18-126 Percentage-of-completion method.
E18-127 Percentage-of-completion and completed-contract methods.
E18-128 Installment sales.
E18-129 Installment sales.
E18-130 Installment sales.
*E18-131 Franchises. PROBLEMS
,18 - 2 Test Bank for Intermediate Accounting, Fourteenth Edition
Item Description
P18-132 Long-term construction project accounting.
P18-133 Accounting for long-term construction contracts.
P18-134 Long-term contract accounting—completed-contract.
P18-135 Installment sales.
CHAPTER LEARNING OBJECTIVES
1. Apply the revenue recognition principle.
2. Describe accounting issues for revenue recognition at point of sale.
3. Apply the percentage-of-completion method for long-term contracts.
4. Apply the completed-contract method for long-term contracts.
5. Identify the proper accounting for losses on long-term contracts.
6. Describe the installment-sales method of accounting.
7. Explain the cost-recovery method of accounting.
*8. Explain revenue recognition for franchises and consignment sales.
SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS
Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Learning Objective 1
S P
1. TF 3. TF 22. MC 24. MC 26. MC 121. E
P
2. TF 21. MC 23. MC 25. MC 110. MC 122. E
Learning Objective 2
4. TF 6. TF 28. MC 30. MC
5. TF 27. MC 29. MC 122. E
Learning Objective 3
7. TF 34. MC 66. MC 72. MC 80. MC 123. E 133. P
8. TF 35. MC 67. MC 73. MC 82. MC 124. E
9. TF 36. MC 68. MC 74. MC 83. MC 125. E
31. MC 37. MC 69. MC 75. MC 84. MC 126. E
, To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com
Revenue Recognition 18 - 3
S
32. MC 38. MC 70. MC 76. MC 111. MC 127. E
33. MC 65. MC 71. MC 78. MC 112. MC 132. P
Learning Objective 4
10. TF 40. MC 81. MC 87. MC 123. E 134. P
11. TF 77. MC 85. MC 88. MC 127. E
S
39. MC 79. MC 86. MC 113. MC 133. P
Learning Objective 5
S
12. TF 14. TF 41. MC 43. MC 45. MC 114. MC 133. P
S
13. TF 15. TF 42. MC 44. MC 46. MC 132. P
Learning Objective 6
16. TF 49. MC 91. MC 96. MC 101. MC 118. MC 130. E
17. TF 50. MC 92. MC 97. MC 102. MC 119. MC 135. P
S
18. TF 51. MC 93. MC 98. MC 115. MC 120. MC
47. MC 89. MC 94. MC 99. MC 116. MC 128. E
48. MC 90. MC 95. MC 100. MC 117. MC 129. E
Learning Objective 7
P
19. TF 52. MC 54. MC 56. MC 103. MC
20. TF 53. MC 55. MC 57. MC 104. MC
Learning Objective 8*
58. MC 60. MC 62. MC 64. MC 106. MC 108. MC 131. E
59. MC 61. MC 63. MC 105. MC 107. MC 109. MC
Note: TF = True-False
MC = Multiple Choice
E = Exercise
P = Problem
TRUE-FALSE—Conceptual
1. Companies should recognize revenue when it is realized and when cash is received.
2. Revenues are realized when a company exchanges goods and services for cash or claims
to cash.
3. Delayed recognition of revenue is appropriate if the sale does not represent substantial
completion of the earnings process.
, 18 - 4 Test Bank for Intermediate Accounting, Fourteenth Edition
4. If a company sells its product but gives the buyer the right to return it, the company should
not recognize revenue until the sale is collected.
5. Companies can recognize revenue prior to completion and delivery of the product under
certain circumstances.
6. Companies must use the percentage-of-completion method when estimates of progress
toward completion are reasonably dependable.
7. The most popular input measure used to determine the progress toward completion is the
cost-to-cost basis.
8. If the difference between the Construction in Process and the Billings on Construction in
Process account balances is a debit, the difference is reported as a current asset.
9. The Construction in Process account includes only construction costs under the percentage-
of-completion method.
10. Under the completed-contract method, companies recognize revenue and costs only when
the contract is completed.
11. The principal advantage of the completed-contract method is that reported revenue reflects
final results rather than estimates.
12. Companies must recognize a loss on an unprofitable contract under the percentage-
ofcompletion method but not the completed-contract method.
13. A loss in the current period on a profitable contract must be recognized under both the
percentage-of-completion and completed-contract method.
14. Under the completion-of-production basis, companies recognize revenue when agricultural
crops are harvested since the sales price is reasonably assured and no significant costs are
involved in product distribution.
15. The provision for a loss on an unprofitable contract may be combined with the Construction
in Process account balance under percentage-of-completion but not completed-contract.
16. Under the installment-sales method, companies defer revenue and income recognition until
the period of cash collection.
17. The installment-sales method defers only the gross profit instead of both the sales price and
cost of goods sold.
18. Deferred gross profit is generally treated as an unearned revenue and classified as a current
liability.
19. Under the cost-recovery method, a company recognizes no revenue or profit until cash
payments by the buyer exceed the cost of the merchandise sold.
