Question :
21. Which of the following true regarding income recognition? A. The seller must : 1230638
21. Which of the following is true regarding income recognition?
A. The seller must have substantially performed its obligations to the customer (for example, by transferring ownership of goods to the customer).
B. The seller must have obtained an asset from the customer that it can reliably measure. If the asset is not cash, the seller must be reasonably certain of converting it into cash.
C. The firm recognizes expenses when it consumes assets.
D. If an event or transaction leads to the recognition of revenue, the firm matches the consumption of any assets (the expense), in time, with the revenue recognized.
E. all of the above
22. Pete’s Wholesale Corporation
Pete’s Wholesale Corporation (“Pete’s”) operates discount retail stores. To shop in a Pete’s store, customers must pay a nonrefundable, annual membership fee in advance, using either cash or an American Express card. A customer purchases an annual membership from Pete’s for $120, a 20-pack of paper towels for $10.99, and four new tires for $480. The tire purchase includes mounting and aligning by a Pete’s tire technician at the time of initial installation and alignment and tire rotation services for three years afterward. The customer pays with an American Express card.
Using the Pete’s Wholesale Corporation example, when should Pete’s recognize the $120 membership fee as revenue?
A. Pete’s should recognize all of the membership fee ($120.00) at the time that the annual membership fee is sold to the customer because it is nonrefundable
B. Pete’s should recognize all of the membership fee ($120.00) one year from the time that the annual membership fee is sold to the customer because the membership fee has been fully earned
C. Pete’s should recognize 1/12th of the membership fee, or $10.00, each month during the annual membership period..
D. Pete’s should recognize two-thirds of the membership fee, or $90.00, at the time that the annual membership fee is sold to the customer because it is nonrefundable, and the other one-third of the membership fee, or $30.00, at the end of the annual membership period.
E. Pete’s should recognize one-quarter of the membership fee, or $30.00, at the time that the annual membership fee is sold to the customer because it is nonrefundable, and the other three-quarters of the membership fee, or $90.00, at the end of the annual membership period.
23. Pete’s Wholesale Corporation
Pete’s Wholesale Corporation (“Pete’s”) operates discount retail stores. To shop in a Pete’s store, customers must pay a nonrefundable, annual membership fee in advance, using either cash or an American Express card. A customer purchases an annual membership from Pete’s for $120, a 20-pack of paper towels for $10.99, and four new tires for $480. The tire purchase includes mounting and aligning by a Pete’s tire technician at the time of initial installation and alignment and tire rotation services for three years afterward. The customer pays with an American Express card.
When should Pete’s recognize revenue from selling the tires plus mounting, alignment, and rotation services?
A. At the time of initial installation, Pete’s performs its obligation to provide both tires and initial mounting and alignment services. Pete’s should recognize revenue for the portion of the $480 selling price applicable to the sale of tires and installation services at the time of installation
B. Pete’s should delay recognition of revenue for the portion of the $480 selling price applicable to the subsequent alignment and rotation services until it performs the required services.
C. Pete’s should delay recognition of revenue from selling the tires plus mounting, alignment, and rotation services until it performs all of the required services at the end of the three year period.
D. At the time of initial installation, Pete’s should recognize revenue for all of the $480 selling price applicable to the tires plus mounting, alignment, and rotation services.
E. choices a and b
24. When should Pete’s recognize revenue from selling the paper towels?
A. it will recognize $10.99 in revenue at the time it pays the paper towel vendor the wholesale price of the paper towels
B. it will recognize $10.99 in revenue at the end of the month of sale
C. it will recognize $10.99 in revenue at the end of the quarter of sale
D. it will recognize $10.99 in revenue at the time of sale.
E. it will recognize $10.99 in revenue at the end of the year of sale
25. 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
26. 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
27. Five Points 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 Five Points contracts to sell a quantity of champagne to a customer for €30 million. Under the terms of the contract, Five Points 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 Five Points €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 Five Points Vineyards recognize revenue from selling the champagne?
A. Five Points Vineyards should delay revenue recognition until it delivers the champagne to the customer.
B. Five Points Vineyards should recognize revenue when it sells the champagne to the customer.
C. Five Points Vineyards should recognize one fifth of the revenue per year after it sells the champagne to the customer.
D. Five Points 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
28. Marshall Software Corporation sells Hijack Me Again 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 Marshall Software develops them. Marshall Software sells Hijack Me Again for approximately $100; customers pay cash or with a credit card. When should Marshall Software recognize revenue from selling Hijack Me Again?
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
29. Rio de Janeiro Trains Inc., incorporated in Brazil, manufactures high-speed trains. In this industry, the time to manufacture products usually exceeds one year. Assume that Rio de Janeiro 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 Rio de Janeiro Trains recognize the revenue from this contract?
A. at the time Rio de Janeiro Trains signs the contract and receives €500 million cash from the customer
B. assuming that Rio de Janeiro 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. Rio de Janeiro 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 Rio de Janeiro Trains signs the contract and receives the cash payments from the customer
E. none of the above
30. Wigs and Torys Plc. is a leading operator of pubs and pub restaurants in the United Kingdom. It operates and franchises about 10 wine restaurants under the name Bottoms Up Bar, primarily in London. Suppose that in contracting with a franchisee of an Bottoms Up Bar wine restaurant, Wigs and Torys agrees to provide services, including site selection, décor design, marketing, advertising, and recruiting; and the franchisee agrees to pay Wigs and Torys £100,000. It is common in the industry to permit the franchisee to pay in equal installments over several years. When should Wigs and Torys recognize revenue from the franchisee contract?
A. at the time Wigs and Torys Plc. signs the contract with the franchisee
B. as the cash is received by Wigs and Torys from the franchisee
C. as the income is earned by Wigs and Torys
D. at the end of the franchise period
E. half should be recognized when Wigs and Torys Plc. signs the contract with the franchisee and the other half after all the installments are received
