Question : 51. Wigs and Torys Plc. a leading operator of pubs and : 1246005

 

 

51. 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 franchiseeB. 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 periodE. 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

 

52. In year 1, Southern Construction agrees to construct a school building for $12,000,000, receiving payments for the work of $6,000,000 in both year 1 and year 2. Southern estimates that the costs will be $4,000,000 in Year 1 and $6,000,000 in Year 2. If Southern uses the percentage-of-completion method (based on total costs), what amount of profit is recognized in each year of the contract?                       Year 1              Year 2 A. $0                  $2,000,000B. $2,000,000                 $0C. $1,000,000                 $1,000,000D. $800,000                 $1,200,000E. $2,000,000                 $1,000,000

 

53. In year 1, Northern Construction agrees to build a fire station that will be completed in year 2. Construction starts in year 1. The station will have costs of $2,000,000 in year 1 and $2,000,000 in year 2. Northern receives payment for the station of $5,000,000 in advance, in year 1. If Northern uses the completed contract method, what net profit is recognized by Northern in each year?                      Year 1              Year 2 A. $0                 $1,000,000  B. $1,000,000                 $0C. $3,000,000                 ($2,000,000)D. $500,000                 $500,000E. $250,000                 $750,000

 

54. (CMA adapted, Dec 92 #18) The mining industry frequently recognizes revenue using the completion of production method. This method is acceptable under the revenue recognition principle because         Sales prices are     Assets are        Production cost             reasonably          readily            can be readily               assured            realizable            determined A. Yes                       Yes                       NoB. Yes                        No                       YesC. No                         Yes                        NoD. No                          No                        YesE. No                          Yes                      Yes

 

55. Rock Aerospace CompanyRock Aerospace Company signed a contract on April 1, Year 4, to build a satellite for $28,000,000. Estimated costs for the contract are: 

Year 4

$  5,600,000

Year 5

$11,200,000

Year 6

$  5,600,000

 

 

Assume that actual costs incurred coincide with expectations. Cash collections of the contract price are as follows: 

Year 4

$  4,200,000

Year 5

$  7,000,000

Year 6

$16,800,000

 

 

Refer to the Rock Aerospace Company example. Income from the contract for Year 5 under the percentage-of-completion method is: A. $1,000,000B. $1,400,000C. $2,800,000D. $3,360,000E. None of the above

 

56. Rock Aerospace CompanyRock Aerospace Company signed a contract on April 1, Year 4, to build a satellite for $28,000,000. Estimated costs for the contract are: 

Year 4

$  5,600,000

Year 5

$11,200,000

Year 6

$  5,600,000

 

 

Assume that actual costs incurred coincide with expectations. Cash collections of the contract price are as follows: 

Year 4

$  4,200,000

Year 5

$  7,000,000

Year 6

$16,800,000

 

 

Refer to the Rock Aerospace Company example. Income from the contract for Year 5 under the cost-recovery-first method is: A. $1,000,000B. $1,400,000C. $2,800,000D. $3,360,000E. None of the above

 

57. Rock Aerospace CompanyRock Aerospace Company signed a contract on April 1, Year 4, to build a satellite for $28,000,000. Estimated costs for the contract are: 

Year 4

$  5,600,000

Year 5

$11,200,000

Year 6

$  5,600,000

 

 

Assume that actual costs incurred coincide with expectations. Cash collections of the contract price are as follows: 

Year 4

$  4,200,000

Year 5

$  7,000,000

Year 6

$16,800,000

 

 

Refer to the Rock Aerospace Company example. Income from the contract for Year 5 under the installment method is: A. $1,000,000B. $1,400,000C. $2,800,000D. $3,360,000E. None of the above

 

58. Rock Aerospace CompanyRock Aerospace Company signed a contract on April 1, Year 4, to build a satellite for $28,000,000. Estimated costs for the contract are: 

Year 4

$  5,600,000

Year 5

$11,200,000

Year 6

$  5,600,000

 

 

Assume that actual costs incurred coincide with expectations. Cash collections of the contract price are as follows: 

Year 4

$  4,200,000

Year 5

$  7,000,000

Year 6

$16,800,000

 

 

Refer to the Rock Aerospace Company example. Income from the contract for Year 5 under the completed contract method is: A. $1,000,000B. $1,400,000C. $2,800,000D. $3,360,000E. None of the above

 

59. Recognizing income after the time of sale is A. never appropriate.B. always appropriate.C. never in accordance with U.S. GAAP.D. appropriate for some specific circumstances.E. never in accordance with IFRS.

 

60. An accounting issue for accounts receivable is measurement of the amount on the balance sheet.  With regard to measurement, both U.S. GAAP and IFRS require that sellers report accounts receivable _____.  A. the amount that all customers have agreed to payB. at the present value of future cash flowsC. net of the estimated uncollectible amountD. at the future value of present cash flowsE. plus the estimated uncollectible amount