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Multiple Choice Quiz
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Enter the letter corresponding to the response that best completes each of the following statements or questions.

1
In general, revenue is recognized as earned when there is reasonable certainty as to the collectibility of the asset to be received and:
A)The sales price has been collected.
B)The earnings process is virtually complete.
C)Production is completed.
D)A purchase order has been received.
2
Western Appliance Company, which began business on January 1, 2006, appropriately uses the installment sales method of accounting. The following data are available for 2006:

Installment sales $350,000
Cash collections on installment sales 150,000
Gross profit on sales40%

The gross profit on installment sales for 2006 should be:

A)Realized: $60,000; Deferred: $80,000
B)Realized: $80,000; Deferred: $60,000
C)Realized: $140,000; Deferred: $80,000
D)Realized: $140,000; Deferred: 60,000
3

The Pattison Company began operations on January 2, 2006, and appropriately uses the installment sales method of accounting. The following data are available for 2006 and 2007:

 2006  2007 
Installment sales $600,000$750,000
Cash collections from:  
      2006 sales 200,000 250,000
      2007 sales 300,000
Gross profit on sales30% 40%

The deferred gross profit that would appear in the 2007 balance sheet is:

A)$180,000
B)$200,000
C)$285,000
D)$225,000
4
For profitable long-term contracts, income is recognized in each year under the:
A)Completed contract method: No; Percentage-of-completion method: No
B)Completed contract method: Yes; Percentage-of-completion method: No
C)Completed contract method: Yes; Percentage-of-completion method: Yes
D)Completed contract method: No; Percentage-of-completion method: Yes
5
When accounting for a long-term construction contract using the percentage-of-completion method, as gross profit is recognized in any year it is debited to:
A)Construction in progress.
B)Billings on construction contract
C)Deferred income
D)Accounts receivable
6
Hollywood Construction Company uses the percentage-of-completion method of accounting for long-term construction contracts. During 2006, Hollywood began work on a $3,000,000 fixed-fee construction contract, which was completed in 2009. The accounting records disclosed the following data at year-end:

 Cumulative
contract costs
incurred		Estimated
costs to complete
at end of year
2006$   200,000 $1,800,000
2007 1,100,000 1,100,000
20082,000,000400,000

For the 2008 year, Hollywood should have recognized gross profit on this contract of:

A)$100,000
B)$500,000
C)$266,667
D)$225,000
7
Sandlewood Construction Inc. uses the percentage-of-completion method of accounting for long-term construction contracts. In 2006, Sandlewood began work on a $10,000,000 construction contract, which was completed in 2007. The accounting records disclosed the following data at the end of 2006:

Costs incurred$5,400,000
Estimated cost to complete 3,600,000
Progress billings 4,100,000
Cash collections 3,200,000

How much gross profit should Sandlewood have recognized in 2006?

A)$700,000
B)$1,000,000
C)$600,000
D)$0
8
Based on the same data in question 7, in addition to accounts receivable, what would appear in the 2006 balance sheet related to the construction accounts?
A)A current asset of $1,300,000
B)A current liability of $900,000
C)A current asset of $900,000
D)A current asset of $1,900,000
9
The Simpson Construction Company uses the percentage-of-completion method of accounting for long-term construction contracts. In 2006, Simpson began work on a construction contract. Information on this contract at the end of 2006 is as follows:

Cost incurred during the year$1,500,000
Estimated cost to complete6,000,000
Gross profit recognized in 2006250,000
What is the contract price (total revenue) on this contract?
A)$7,000,000
B)$8,750,000
C)$7,500,000
D)$9,000,000
10
Smith Company earns a 12% return on assets. If net income is $720,000, average total assets must be:
A)$86,400
B)$6,000,000
C)$6,086,400
D)$3,000,000
11
The Esquire Company reported sales of $1,600,000 and cost of goods sold of $1,122,000 for the year ended December 31, 2006. Ending inventory for 2005 and 2006 was $420,000 and $460,000, respectively. Esquire's inventory turnover for 2006 is:
A)2.44
B)2.55
C)3.64
D)3.48
12
The following data for the McQuire Corporation apply to questions 12 and 13:

Income statement: 2006   
Sales $2,500,000 
Cost of goods sold 1,300,000 
Net income 200,000 
 
Balance sheets: 2006  2005 
Accounts receivable$   300,000 $   200,000
Total assets 2,000,0001,800,000
Total shareholders' equity 900,000 700,000

The accounts receivable turnover for 2006 is:

A)10.0
B)8.33
C)5.2
D)4.33
13
The return on shareholders' equity for 2006 is:
A)20%
B)8%
C)22.22%
D)25%
14

Question 14 is based on Appendix 5.

Which of the following is not a required disclosure for interim period reporting?

A)Earnings per share.
B)Extraordinary items.
C)General and administrative expenses.
D)Sales.





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