4. Winser, Inc. is engaged in extensive exploration for water in Utah. If, upon discovery of water, Winser does not recognize any revenue from water sales until the sales exceed the costs of exploration, the basis of revenue recognition being employed is the
cash (or collection) basis.
sales (or accrual) basis.
cost recovery basis.
5. Petry Construction Corporation contracted to construct a building for $2,400,000. Construction began in 2004 and was completed in 2005. Data relating to the contract are summarized below: Year ended December 31, 2004 2005 Costs incurred $960,000 $720,000 Estimated costs to complete 640,000 — Petry uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2004, and 2005, respectively, Petry should report gross profit of
$432,000 and $288,000.
$1,440,000 and $960,000
$480,000 and $240,000.
$0 and $720,000.
8. Harber Co. uses the installment sales method. When an account had a balance of $5,600, no further collections could be made and the dining room set was repossessed. At that time, it was estimated that the dining room set could be sold for $1,600 as repossessed, or for $2,000 if the company spent $200 reconditioning it. The gross profit rate on this sale was 70%. The gain or loss on repossession was a
9. Seeman Furniture uses the installment sales method. No further collections could be made on an account with a balance of $12,000. It was estimated that the repossessed furniture could be sold as is for $3,600, or for $4,200 if $200 were spent reconditioning it. The gross profit rate on the original sale was 40%. The loss on repossession was
10. On January 1, 2004, Carr Co. sold land that cost $150,000 for $200,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of $80,425 starting on December 31, 2004. Because collection of the note is very uncertain, Carr will use the cost recovery method. How much revenue from this sale should Carr recognize in 2004?
11. According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is
12. On January 1, 2004, Rolen Co. sold a used machine to Linn, Inc. for $210,000. On this date, the machine had a depreciated cost of $147,000. Linn paid $30,000 cash on January 1, 2004 and signed a $180,000 note bearing interest at 10%. The note was payable in three annual installments of $60,000 beginning January 1, 2005. Rolen appropriately accounted for the sale under the installment method. Linn made a timely payment of the first installment on January 1, 2005 of $78,000, which included interest of $18,000 to date of payment. At December 31, 2005, Rolen has deferred gross profit of
13. The FASB concluded that if a company sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at the time of sale only if all of six conditions have been met. Which of the following is not one of these six conditions?
The amount of future returns can be reasonably estimated. The seller's price is substantially fixed or determinable at time of sale. The buyer's obligation to the seller would not be changed in the event of theft or damage of the product. The buyer is obligated to pay the seller upon resale of the product.
14. Raymond Construction Corp. contracted to construct a building for $1.5 million. Construction began in 2001 and was completed in 2002. Costs incurred in 2001 totalled $600,000 and the estimated costs to complete at year-end 2001 were $400,000. Costs incurred in 2002 were $450,000. Raymond uses the percentage of completion method as the basis for income recognition. For the years ended Dec 31, 2001 and 2002, respectively, Raymond should report gross profit of
$270,000 and $180,000.
$900,000 and $600,000.
$300,000 and $150,000.
$0 and $450,000.