chap005 - Chapter 5 Income Measurement True/False Questions...

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Chapter 5 Income Measurement True/False Questions 1. Revenue is not recognized under the realization principle unless the earnings process is complete or virtually complete and there is reasonable certainty about collectibility of the asset received. Answer: True Learning Objective: 1 Level of Learning: 1 2. Under the percentage-of-completion method, amounts billed and the cash actually received affect income recognition. Answer: False Learning Objective: 4 Level of Learning: 1 3. The first disclosure note to the financial statements is typically the summary of significant accounting policies. Answer: True Learning Objective: 1 Level of Learning: 1 4. Estimated losses on long-term contracts are recognized ratably over the contract term regardless of the revenue recognition method used. Answer: False Learning Objective: 4 Level of Learning: 2 5. Use of the percentage-of-completion method is dependent on a firm's ability to make dependable forecasts of future costs. Answer: True Learning Objective: 4 Level of Learning 1 6. SAB 101 was issued by the FASB to clarify its guidelines on revenue recognition. Answer: False Learning Objective: 1 Level of Learning: 1 7. Use of the installment sales method indicates little uncertainty about collection of the receivable. Answer: False Learning Objective: 2 Level of Learning: 8. When the right of return exists, revenue can be recognized at the point of sale if the seller can make reliable estimates of future returns. Answer: True Learning Objective: 3 Level of Learning: 1 9. Recognition of franchise fee revenue is dependent on judgments of both substantial performance and fee collectibility. Answer: True Learning Objective: 5 Level of Learning: 2 10. Revenue from the sale of computer software is always recognized at the point of sale. Answer: False Learning Objective: 5 Level of Learning: 1 Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition 155
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Chapter 5 Income Measurement 11. A decrease in the receivables turnover ratio indicates a decrease in the time between credit sales and cash collection. Answer: False Learning Objective: 6 Level of Learning: 2 12. The decomposition of return on assets illustrates why some companies with low profit margins can be very profitable if their asset turnover is high. Answer: True Learning Objective: 6 Level of Learning: 2 Matching Pair Questions Use the following to answer questions 13-17: 13-17. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. Terms: A. Billings in excess of cost B. SOP 97-2 C. Sales revenue recorded D. Interim reports E. Long-term contract losses F. SAB 101 G. Realization principle H. SFAS 45 I. Unearned revenue J. Sales returns Phrases: 13. ____ When realization principle is met. 14.
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chap005 - Chapter 5 Income Measurement True/False Questions...

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