Q11. The calculation of the income recognized in the third year of a five-year construction contract accounted for using

     the percentage-of-completion method includes the ratio of:

A)   costs incurred in year 3 to total estimated costs.

B)   total costs incurred to total estimated cost.

C)   costs incurred in year 3 to total billings.

Q12. According to the installment method of accounting, gross profit on an installment sale is recognized:

A)   in proportion to the cash collection.

B)   after cash collections equal to the cost of sales have been received.

C)   on the date the final cash collection is received.

Q13. Cash collection is a critical event for income recognition under the:

Cost-Recovery Method     Installment Method

A) Yes                                              Yes

B) No                                              Yes

C) Yes                                              No

Q14. CPP Corporation has a contract to build a custom test chamber for a client for $100,000. CPP Corporation uses the

percentage-of-completion method for accounting and estimates the total costs for the project to be equal to $80,000. CPP

Corporation has promised to complete the project within three years. At year-end the customer has paid $60,000, equaling the

total amount billed for the year, and total costs incurred to date are $40,000. On the income statement, net income for the

year-end will be:

A)   $20,000.

B)   -$10,000.

C)   $10,000.

Q15. An analyst has gathered the following data pertaining to Hegel Company’s construction projects, which began during 2002:

If Hengel used the completed contract method, what amount of gross profit (loss) would Hengel report in its 2002 income statement for:

    Project 1                                  Project 2

A) $0                                                ($20,000)

B) $0                                                $0

C) ($20,000)                                   $0

答案和详解如下：

Q11. The calculation of the income recognized in the third year of a five-year construction contract accounted for using

     the percentage-of-completion method includes the ratio of:

A)   costs incurred in year 3 to total estimated costs.

B)   total costs incurred to total estimated cost.

C)   costs incurred in year 3 to total billings.

Correct answer is B)         

The percentage of completion method recognizes revenues in proportion to the proportion of expenses incurred.

Q12. According to the installment method of accounting, gross profit on an installment sale is recognized:

A)   in proportion to the cash collection.

B)   after cash collections equal to the cost of sales have been received.

C)   on the date the final cash collection is received.

Correct answer is A)

The installment sales method recognizes sales and COGS in proportion to cash collections.

Q13. Cash collection is a critical event for income recognition under the:

Cost-Recovery Method     Installment Method

A) Yes                                              Yes

B) No                                              Yes

C) Yes                                              No

Correct answer is A)

Recognition of income depends on cash collected under both methods.

Q14. CPP Corporation has a contract to build a custom test chamber for a client for $100,000. CPP Corporation uses the

percentage-of-completion method for accounting and estimates the total costs for the project to be equal to $80,000. CPP

Corporation has promised to complete the project within three years. At year-end the customer has paid $60,000, equaling the

total amount billed for the year, and total costs incurred to date are $40,000. On the income statement, net income for the

year-end will be:

A)   $20,000.

B)   -$10,000.

C)   $10,000.

Correct answer is C)

Under the percentage-of-completion method, one-half of the total revenue is recognized because one-half of the costs have been incurred ($40,000 / $80,000). Therefore, revenue will be equal to $50,000, expenses are $40,000, and net income will be $10,000.

Q15. An analyst has gathered the following data pertaining to Hegel Company’s construction projects, which began during 2002:

If Hengel used the completed contract method, what amount of gross profit (loss) would Hengel report in its 2002 income statement for:

    Project 1                                  Project 2

A) $0                                                ($20,000)

B) $0                                                $0

C) ($20,000)                                   $0

Correct answer is A)

No profit is recognized until the completion of the project, however losses are recognized. Project 2 has an expected loss of $20,000.

THANKS

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