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INTERMEDIATE ACCOUNTING, 18TH EDITION, QUESTIONS WITH ANSWERS
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INTERMEDIATE ACCOUNTING, 18TH EDITION, QUESTIONS WITH ANSWERS Billings account - CORRECT ANSWERUnder the percentage-of-completion method, when a company records a receivable from a sale, it must subtract the balance from this account from Construction in Process to avoid double-counting inv...

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  • February 2, 2025
  • 14
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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INTERMEDIATE ACCOUNTING, 18TH EDITION, QUESTIONS
WITH ANSWERS
Billings account - CORRECT ANSWER✅✅✅Under the percentage-of-completion method,
when a company records a receivable from a sale, it must subtract the balance from this account
from Construction in Process to avoid double-counting inventory.


Completed-contract method - CORRECT ANSWER✅✅✅Revenue recognition method in
which companies recognize revenue and gross profit only at the point of sale—the point at which
a contract is deemed completed. Under this method, companies do not record interim charges or
credits to income statement accounts for revenues, costs, and gross profit.


Completion-of-production basis - CORRECT ANSWER✅✅✅Revenue recognition method
in which companies recognize revenue at the completion of production (e.g., mining of metals or
harvesting of crops) even though no sale has been made.


Consignee - CORRECT ANSWER✅✅✅The dealer who acts as an agent for the consignor
in selling the merchandise.


Consignment - CORRECT ANSWER✅✅✅Specialized type of marketing in which
manufacturers (or wholesalers) deliver goods but retain title to the goods until they are sold.


Consignor - CORRECT ANSWER✅✅✅The manufacturer or the wholesaler who provides
the consigned goods.


Cost-recovery method - CORRECT ANSWER✅✅✅Revenue recognition method in which
companies recognize profit only when cash collections exceed the total cost of the goods sold.
Any additional cash collection after the seller has recovered all costs is recorded as income. This
method is required under GAAP for franchises and real estate where a high degree of uncertainty
exists related to the collection of receivables.


Cost-to-cost basis - CORRECT ANSWER✅✅✅Technique that measures the percentage of
completion on a contract by comparing costs incurred to date with the most recent estimate of the
total costs to complete the contract.

, Deposit method - CORRECT ANSWER✅✅✅Revenue recognition method used in cases
when companies receive cash from the buyer before transfer of the goods or property. Under this
method, the seller reports the cash received from the buyer as a deposit on the contract and
classifies it on the balance sheet as a liability, while continuing to report the property as an asset.
The seller recognizes revenue and income only when the sale is complete.


Earned revenues - CORRECT ANSWER✅✅✅Revenue recognition criterion indicating that
a company has substantially accomplished what it must do to be entitled to the benefits
represented by the revenues—that the earnings process is complete or virtually complete.


High rate of returns - CORRECT ANSWER✅✅✅A high ratio of returned merchandise to
sales, which results in companies needing to postpone revenue recognition until the return
privilege has substantially expired. (p. 1071).


Input measures - CORRECT ANSWER✅✅✅Measures of the extent of progress based on
efforts devoted to the contract (costs incurred, labor hours worked, etc.). (p. 1082).


Installment-sales method - CORRECT ANSWER✅✅✅Revenue recognition method in
which companies recognize income in the periods of collection rather than in the period of sale.
"Installment sales" generally describes any type of sale for which payment is required in periodic
installments over an extended period of time. Theoretically, the installment-sales method is not
generally preferred, except for some sales of real estate; a better approach generally is for a
company to recognize a sale when completed and keep a bad debt account to estimate
uncollectibles. (p. 1092).


Multiple-deliverable arrangements - CORRECT ANSWER✅✅✅When multiple products or
services are provided to a customer as part of a single arrangement. In accounting for MDAs, all
units of an MDA are considered separately if each unit has standalone value, includes a general
right of return, and delivery or performance is probable and substantially in the control of the
seller. (p. 1078).


Output measures - CORRECT ANSWER✅✅✅Measures of the extent of progress based on
results or achievements (tons of output, floors of a building completed, etc.). (p. 1082).

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