D105 Intermediate Accounting III - Set 1 - Part 1

Correct Answer: $9,259

Wooten Technology recognizes the sales revenue on January 1, 2021, considering the time value of money. The payment of $10,000 is discounted using an 8% interest rate. The present value calculation of $10,000 using an 8% interest rate for one year results in $9,259, which is the amount recognized as revenue on January 1.

Correct Answer: $125,000

The cost of construction actually incurred in 2021 is calculated based on the percentage of completion for revenue recognition. The financial statement shows income of $25,000 and billings of $143,000, from which the actual cost of construction can be derived as $125,000.

Correct Answer: $108,000

The cash collected on the contract is shown as $108,000, which reflects the amount of cash received from construction progress billings.

Correct Answer: $1,625,000

The estimated cost to complete the contract is calculated based on the progress made and the total expected costs, which is $1,625,000 at the end of 2021.

Correct Answer: 7.14%

The percentage of completion is calculated by dividing the cost incurred in 2021 by the total estimated cost of the project. The resulting percentage is 7.14%.

Correct Answer: $0

Because Finerly is unsure if the cosmetics can be sold and is committed to accepting returns, no revenue should be recognized upon delivery. The revenue will be recognized when it becomes probable that the sales will not be reversed.

Correct Answer: Acquisition cost adjusted for amortization of discount or premium

Amortized cost refers to the acquisition cost of an asset adjusted for the amortization of any discount or premium, where applicable.

Correct Answer: Recognizing and measuring revenue based on changes in assets and liabilities

The Asset-Liability Approach involves recognizing revenue based on changes in assets and liabilities rather than purely on the cash received.

Correct Answer: A warranty ensuring the product meets the agreed-upon specifications at the time of sale

An assurance-type warranty guarantees that the product meets the agreed-upon specifications at the time of sale, as opposed to providing any additional services.

Correct Answer: Securities classified neither as held-to-maturity nor trading

Available-for-sale securities are those not classified as held-to-maturity or trading securities. These are typically debt or equity securities expected to be sold in the medium to long term.

Correct Answer: An option allowing the lessee to purchase the asset for a price significantly lower than the asset's expected fair value at the exercise date

A Bargain Purchase Option (BPO) gives the lessee the right to purchase the leased asset at a price significantly lower than its expected fair value at the exercise date, incentivizing the purchase at the end of the lease term.

Correct Answer: A contract where a customer purchases goods but the seller retains physical possession until the customer requests delivery

A Bill-and-Hold Arrangement allows the seller to bill the customer for a product, but the seller retains physical possession until a later date, usually until the customer requests delivery.

Correct Answer: An account used under the percentage-of-completion method to avoid double-counting inventory

Under the percentage-of-completion method, a Billings Account is used to subtract billings on the construction contract from Construction in Process to avoid double-counting inventory.

Correct Answer: Changing from one generally accepted accounting principle to another

A Change in Accounting Principle occurs when a company switches from one generally accepted accounting principle (GAAP) to another, such as switching from FIFO to LIFO for inventory accounting.

Correct Answer: Adjusting an estimate due to new information or additional experience

A Change in Accounting Estimate occurs when new information or additional experience prompts a company to revise its previous estimates, such as revising the useful life of an asset.

Correct Answer: The ability to collect payments from customers as outlined in the contract

Collectibility refers to the risk or likelihood that the customer will be able to pay the amount of consideration as stipulated in the contract.

Correct Answer: Accounting for long-term construction contracts where revenues and gross profit are recognized only when the contract is completed

The Completed Contract Method defers revenue recognition until the completion of the contract, as opposed to recognizing revenue as work progresses.

Correct Answer: The party that receives goods from a consignor under consignment

A Consignee is the party that receives goods from the consignor with the responsibility to sell them on behalf of the consignor.

Correct Answer: An arrangement where the consignor ships goods to a consignee to sell on their behalf

Consignment refers to an arrangement where a consignor sends goods to a consignee, who acts as an agent to sell the goods.

Correct Answer: An unconditional right to receive payment because a performance obligation has been satisfied

A Contract Asset represents the company's unconditional right to receive consideration because it has satisfied a performance obligation, but the payment is conditional on fulfilling additional obligations.