Q21. Which, if any, of the following statements about the installment sales method and cost recovery method is correct?

A)   The cost recovery method recognizes revenue and associated costs of goods sold only when cash is received, based on gross profit margin.

B)   Neither statement is correct.

C)   Both statements are correct.

Q22. An oil exploration company has been contracted to dig 100 exploratory holes for $200,000. The cost to complete this job is

estimated to be $150,000, but the company doesn’t recognize any of the $50,000 profit until the job is completed. Which

revenue recognition method is being used?

A)       Completed contract method.

B)      Cost recovery method.

C)      Percentage-of-completion method.

Q23. Which revenue recognition method is used when the payment is assured and revenue is earned as costs are

incurred?

A)     Installment sales method.

B)     Cost recovery method.

C)     Percentage-of-completion method.

答案和详解如下：

Q21. Which, if any, of the following statements about the installment sales method and cost recovery method is correct?

A)   The cost recovery method recognizes revenue and associated costs of goods sold only when cash is received, based on gross profit margin.

B)   Neither statement is correct.

C)   Both statements are correct.

Correct answer is B)

Neither statement is correct because the definitions are reversed.

Q22. An oil exploration company has been contracted to dig 100 exploratory holes for $200,000. The cost to complete this job is

estimated to be $150,000, but the company doesn’t recognize any of the $50,000 profit until the job is completed. Which

revenue recognition method is being used?

A)       Completed contract method.

B)      Cost recovery method.

C)      Percentage-of-completion method.

Correct answer is A)

The completed contract method doesn't recognize revenue and expense until the contract is completed. The percentage-of-completion method would have recognized a portion of the $50,000 profit prior to completion.

Q23. Which revenue recognition method is used when the payment is assured and revenue is earned as costs are

incurred?

A)     Installment sales method.

B)     Cost recovery method.

C)     Percentage-of-completion method.

Correct answer is C)

The installment sales method is used when the assurance of payment and estimated bad debts does not exist before cash is collected. Sales revenue and COGS are recognized only when cash is received.

The cost recovery method is used when future cash collections are not assured even after receipt of partial payments. Gross profit is not recognized until all of the cost of goods sold is collected.

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