ACTG 3120 Midterm: ACTG 3120 - Midterm Review

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amberwombat400

29 Sep 2011

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Cash flow hedge vs. fair value hedge. No plans of going public: a sales/performance contract has multiple deliverables only if. Each component of the contract has value to the customer on a stand-alone basis. There is objective and reliable evidence of the fair value of. If you are unsure of whether the customer will pay or not. Fair value every balance sheet date: changes go into net income each component. Performance completed: delivery, bad debt expense, warranty expense. Fair value through profit or loss: changes go into net income, typically you buy shares because you expect them to appreciate in value so you would want those increases to affect net income. Available for sale: changes go into oci until exercised then the changes go into net income, worried about fluctuating share prices. Changes go to oci until exercised then changes go into net income sheet date. Clue to debt classification: a value price not fixed) Convertible debt hybrid: principal portion.

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I. True/False 2 points

Indicate whether the sentence or statement is true or false.

____ 1. Revenues and gains are generally recognized when they are realized or realizable and they have been earned through substantial completion of the activities involved in the earnings process.

____ 2. The proportional performance method has been developed to reflect revenue earned on service contracts under which many acts of service are to be performed before the contract is completed.

____ 3. Beginning with the Tax Reform Act of 1986, the tax laws eliminated the use of the completed-contract method.

____ 4. The most popular input measure under percentage-of-completion accounting is the cost-to-cost method.

____ 5. Estimates of architects and engineers of percentage-of-completion are not acceptable under generally accepted accounting principles.

____ 6. At the conclusion of a construction contract, the balance in Construction in Progress will be exactly equal to the amount in Progress Billings on Construction Contracts when using the percentage-of-completion method.

____ 7. If analysis of construction contracts indicates that there will be an overall loss on the contract, the loss should immediately be recognized in full under the completed-contract method and the percentage-of-completion method.

____ 8. Under the cost recovery method, no income is recognized on a sale until the cost of the item sold is recovered through cash receipts with all subsequent receipts reported as revenues.

____ 9. The cost recovery method is the most conservative revenue recognition method.

____ 10. If a company is heavily involved in installment sales, the operating cycle of the business is normally defined as the average period of the installment contracts.

magentamink378

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,450,000. The project began in 2018 and was completed in 2019. Data relating to the contract are summarized below: 2018 2019 Costs incurred during the year $ 336,000 $ 1,870,000 Estimated costs to complete as of 12/31 1,344,000 0 Billings during the year 446,000 1,710,000 Cash collections during the year 268,000 1,795,000 Required: 1. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion. 2. Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming this project does not qualify for revenue recognition over time. 3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming Nortel recognizes revenue over time according to percentage of completion. 4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming this project does not qualify for revenue recognition over time.

Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming Nortel recognizes revenue over time according to percentage of completion

Compute the amount of revenue and gross profit or loss to be recognized in 2018 and 2019 assuming this project does not qualify for revenue recognition over time.

Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming Nortel recognizes revenue over time according to percentage of completion.

Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2018 assuming this project does not qualify for revenue recognition over time.

tanweasel398

There are several differences between IFRS and GAAP in regardsto revenue recognition. First, there are differences in theconditions that must exist to recognize revenue from the sale ofgoods. For example, under IFRS, one of the conditions is that âTheentity has transferred to the buyer the significant risks andrewards of the goods.â Where as one of the GAAP conditions issimply that âDelivery has occurred.â Second, there are differencesin recognizing revenue from construction contracts. For example, inGAAP, âIf certain criteria are met, the percentage-of-completionmethod is used. If those criteria are not met, the completedcontract method is used.â In IFRS, âThe completed contract methodis prohibited. If the percentage-of-completion method is not usedbecause the final outcome cannot be reliably estimated, revenue islimited to the amount of recoverable costs incurred.â Third, thereare differences in recognizing revenue involving contingentconsideration. For example, under IFRS, if there is âtheprobability that economic benefits associated with the transactionwill flow to the entityâ¦revenue might be recognized prior toresolution of the contingency.â However, with GAAP, âRevenuerelated to contingent consideration should not be recognized untilthe contingency is resolved.â Lastly, in regards to customerloyalty programs, âthere is not specific guidance related toaccounting for customer loyalty programs. However, IFRS states thatâCredits awarded to program participants must be treated as aseparately identifiable component of a sales transaction.â PLEASECOMMENT ON THIS POST

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ACTG 3120 Midterm: ACTG 3120 - Midterm Review

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