Question :
71. Rock Aerospace CompanyRock Aerospace Company signed a contract April 1, : 1230643
71. 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
72. 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
73. 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
74. 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
75. 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
76. The allowance method does not involve A. estimating the amount of uncollectible accounts that will occur over time in connection with the sales of each periodB. recognizing the amount of uncollectible accounts that will occur over time in connection with the sales of each period in the period of the saleC. matching expenses with associated revenuesD. the valuation method required for income tax reporting in the United States E. none of the above
77. (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
78. Recognizing income after the time of sale is A. never appropriateB. always appropriateC. never in accordance with U.S. GAAPD. appropriate for some specific circumstancesE. never in accordance with IFRS
79. When using the allowance method A. the write-off of specific customers’ accounts does not affect incomeB. the income effect occurs in the year of sale, when the firm provides for estimated uncollectible accountsC. the write-off of specific customers’ accounts does not affect (net) accounts receivableD. all of the aboveE. none of the above
80. The allowance method overcomes shortcomings of the direct write-off method because it A. recognizes the loss from uncollectible accounts in the period in which the sale occurs and the firm recognizes revenueB. reduces the opportunity to manage earnings each period by deciding when particular customers’ accounts become uncollectibleC. reflects the amount a firm expects to collect in cash from the accounts receivable on the balance sheetD. all of the aboveE. none of the above
