1. (CMA adapted, Dec 96 #1) Bad debt expense must be estimated in order to satisfy the matching principle where expenses are recorded in the same periods as the related revenues. In estimating the provision for doubtful accounts for a period, companies generally accrue

a. either an amount based on a percentage of total sales or an amount based on a percentage of accounts receivable after adjusting for any balance in the allowance for doubtful accounts
b. a percentage of accounts receivable transactions for the period
c. a percentage of total sales
d. either an amount based on a percentage of credit sales or an amount based on a percentage of accounts receivable after adjusting for any balance in the allowance for doubtful accounts.

2. Which method of recognizing uncollectible accounts is considered generally accepted?

a. direct write-off method
b. percent of receivables method
c. percent of sales method
d. both (b) and (c)

3. Selling accounts receivable to a lending institution that then physically controls the receivables and collects payments from customers is an example of

a. assigning the accounts receivable
b. pledging the accounts receivable
c. factoring the accounts receivable
d. recoursing the accounts receivable

4. In year 1, Southern Construction agrees to construct a school building for $12,000,000, receiving payments for the work of $6,000,000 in both year 1 and year 2. Southern estimates that the costs will be $4,000,000 in Year 1 and $6,000,000 in Year 2. If Southern uses the percentage?of?completion method (based on total costs), what amount of profit is recognized in each year of the contract?

a.

Year 1	Year 2
$0	$2,000,000

b.

Year 1	Year 2
$2,000,000	$0

c.

Year 1	Year 2
$1,000,000	$1,000,000

d.

Year 1	Year 2
$800,000	$1,200,000

5. In year 1, Northern Construction agrees to build a fire station that will be completed in year 2. Construction starts in year 1. The station will have costs of $2,000,000 in year 1 and $2,000,000 in year 2. Northern receives payment for the station of $5,000,000 in advance, in year 1. If Northern uses the completed contract method, what net profit is recognized by Northern in each year?

a.

Year 1	Year 2
$0	$1,000,000

b.

Year 1	Year 2
$1,000,000	$0

c.

Year 1	Year 2
$3,000,000	($2,000,000)

d.

Year 1	Year 2
$500,000	$500,000

6. (CMA adapted, Dec 92 #17) Although the transfer of ownership has not occurred before the recognition of revenue under the percentage-of-completion method, this method is acceptable under the revenue recognition principle because

a. the assets are readily convertible into cash
b. the production process can be readily divided into definite stages
c. cash has been received from the customer
d. the earning process may be considered completed at various stages

7. (CMA adapted, Dec 92 #18) The mining industry frequently recognizes revenue using the completion of production method. This method is acceptable under the revenue recognition principle because

a.

Sales prices are reasonably assured	Assets are readily realizable	Production costs can be readily determined
Yes	Yes	No

b.

Sales prices are reasonably assured	Assets are readily realizable	Production costs can be readily determined
Yes	No	Yes

c.

Sales prices are reasonably assured	Assets are readily realizable	Production costs can be readily determined
No	Yes	No

d.

Sales prices are reasonably assured	Assets are readily realizable	Production costs can be readily determined
Yes	No	Yes

8. Recognizing income after the time of sale is

a. never appropriate
b. always appropriate
c. never in accordance with GAAP
d. appropriate for some specific circumstances

9. (CMA adapted, Dec 92 #13) Guarrerro Baking Company is a distributor of perishable breads and other baked goods. Guarrerro's customers have the right to return unsold goods within a specified period of time. As a result, Guarrerro must

a. use the cost recovery method of revenue recognition
b. record sales when the return privilege has expired
c. use the installment method of revenue recognition
d. record sales reduced by an estimate of future returns

10. Ullrich Co. sells an asset to a buyer for a total sales price of $6,000 with a payment schedule of $2,000 in year 1, $2,000 in year 2, and $2,000 in year 3. The cost of the asset is $5,000. Under the cost-recovery-first method, how much revenue is recognized in year 3?

a. $2,000
b. $1,000
c. $333.33
d. $0

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