ACC 305 Week 3 Quiz 02 Chapter 18

Multiple Choice Question 34

How should the balances of progress billings and construction in process be shown at
reporting dates prior to the completion of a long-term contract?
o Progress billings as income, construction in process as inventory.
o Net balance, as a current asset if debit balance, and current liability if credit balance.
o Net balance, as income from construction if credit balance, and loss from construction if
debit balance.
o Progress billings as deferred income, construction in progress as a deferred expense.

Multiple Choice Question 99

During 2014, Martin Corporation sold merchandise costing $3,500,000 on an installment
basis for $5,000,000. The cash receipts related to these sales were collected as follows: 2014,
$2,000,000; 2015, $1,750,000; 2016, $1,250,000.
What is the rate of gross profit on the installment sales made by Martin Corporation
during 2014?
o
o
o
o

30%
60%
40%
70%

Multiple Choice Question 35

In accounting for a long-term construction-type contract using the percentage-ofcompletion method, the gross profit recognized during the first year would be the estimated
total gross profit from the contract, multiplied by the percentage of the costs incurred
during the year to the
o
o
o
o

Total contract price.

Total costs incurred to date.
Unbilled portion of the contract price.
Total estimated cost.

Multiple Choice Question 57

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ACC 305 Week 3 Quiz 02 Chapter 18

The cost-recovery method
o Is used by sellers when there is a reasonable basis for estimating collectability.
o Requires a company to defer profit recognition until all cash payments are received from
the buyer.
o Recognizes total revenue and total cost of goods sold in the period of sale.
o Is prohibited under current GAAP due to its conservative nature.

Multiple Choice Question 87

Gorman Construction Co. began operations in 2015. Construction activity for 2015 is
shown below. Gorman uses the completed-contract method.

Contract
1
2
3

Contract
Price
$4,800,000
3,600,000
3,300,000

Billings
Through
12/31/15
$4,725,000
1,500,000
1,900,000

Collections
Through
12/31/15
$3,900,000
1,000,000
1,800,000

Costs to
12/31/15
$3,225,000
820,000
2,250,000

Estimated
Costs to
Complete

$1,880,000
1,200,000

Which of the following should be shown on the balance sheet at December 31, 2015 related
to Contract 2?
o
o
o
o

Inventory, $820,000
Current liability, $680,000
Current liability, $1,500,000
Inventory, $680,000

Multiple Choice Question 85

Hiser Builders, Inc. is using the completed-contract method for a $9,800,000 contract that
will take two years to complete. Data at December 31, 2015, the end of the first year, are as
follows:
Costs incurred to date
Estimated costs to complete
Billings to date
Collections to date

$4,480,000
5,740,000
4,200,000
3,500,000

The gross profit or loss that should be recognized for 2015 is

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ACC 305 Week 3 Quiz 02 Chapter 18

o
o
o
o

A $210,000 loss
A $184,800 loss
$0
A $420,00 loss

Multiple Choice Question 42

Cost estimates at the end of the second year indicate that a loss will result on completion of
the entire contract. Which of the following statements is correct?
o Under the completed-contract method, the loss is not recognized until the year the
construction is completed.
o Under the completed-contract method, when the billings exceed the accumulated costs,
the amount of the estimated loss is reported as a current liability.
o Under the percentage-of-completion method, the gross profit recognized in the first year
must not be changed.
o Under the completed-contract method, when the Construction in Process balance exceeds
the billings, the estimated loss is added to the accumulated costs.

Multiple Choice Question 95

Sutton Company sells plasma-screen televisions on an installment basis and appropriately
uses the installment-sales method of accounting. A customer with an account balance of
$2,400 refuses to make any more payments and the merchandise is repossessed. The gross
profit rate on the original sale is 40%. Sutton estimates that the television can be sold as is
for $750, or for $900 if $60 is spent to refurbish it. The loss on repossession is
o
o
o
o

$960
$600
$1,650
$690

Multiple Choice Question 69

Cooper Construction Company had a contract starting April 2015, to construct a
$18,000,000 building that is expected to be completed in September 2017, at a total
estimated cost of $16,500,000. At the end of 2015, the costs to date were $7,590,000 and the
estimated total costs to complete had not changed. The progress billings during 2015 were
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ACC 305 Week 3 Quiz 02 Chapter 18

$3,600,000 and the cash collected during 2015 was 2,400,000.
For the year ended December 31, 2015, Cooper would recognize gross profit on the building
of:
o
o
o
o

$0
$810,000
$632,500
$690,000

Multiple Choice Question 96

During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment
basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014,
$1,200,000; 2015, $1,050,000; 2016, $750,000.
What is the rate of gross profit on the installment sales made by Vaughn Corporation
during 2014?
o
o
o
o

25%
40%
75%
60%

Multiple Choice Question 45

For which of the following products is it appropriate to recognize revenue at the completion
of production even though no sale has been made?
o
o
o
o

Single family residential units

Precious metals
Automobiles
Large appliances

Multiple Choice Question 81

Horner Construction Co. uses the percentage-of-completion method. In 2014, Horner
began work on a contract for $16,500,000; it was completed in 2015. The following cost
data pertain to this contract:
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ACC 305 Week 3 Quiz 02 Chapter 18

Costs incurred during the year

Estimated costs to complete at the end of year

Year ended December 31

2014
2015
$5,850,000
$4,200,000
3,900,000

If the completed-contract method of accounting was used, the amount of gross profit to be
recognized for years 2014 and 2015 would be
2014
o
o
o
o

$0
$6,750,000
$0
$6,450,000

2015
$6,450,000
$0
$6,750,000
$(300,000)

Multiple Choice Question 37

The principal disadvantage of using the percentage-of-completion method of recognizing
revenue from long-term contracts is that it
o Is unacceptable for income tax purposes.
o Is likely to assign a small amount of revenue to a period during which much revenue was
actually earned.
o Gives results based upon estimates which may be subject to considerable uncdrtainty.
o None of these answers are correct.

Multiple Choice Question 51

The realization of income on installment sales transactions involves
o Recording the net income related to installment sales and recognizing the income as cash
is collected.
o Deferring gross profit while recognizing operating or financial expenses in the period
incurred.
o Deferring gross profit and all additional expenses related to installment sales until cash is
ultimately collected.
o Recognition of the difference between the cash collected on isstallment sales and the cash
expenses incurred.

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ACC 305 Week 3 Quiz 02 Chapter 18

Multiple Choice Question 86
Gorman Construction Co. began operations in 2015. Construction activity for 2015 is
shown below. Gorman uses the completed-contract method.

Contract
1
2
3

Contract
Price
$4,800,000
3,600,000
3,300,000

Billings
Through
12/31/15
$4,725,000
1,500,000
1,900,000

Collections
Through
12/31/15
$3,900,000
1,000,000
1,800,000

Costs to
12/31/15
$3,225,000
820,000
2,250,000

Estimated
Costs to
Complete

$1,880,000
1,200,000

Which of the following should be shown on the income statement for 2015 related to
Contract 1?
o
o
o
o

Gross profit, $900,000

Gross profit, $675,000
Gross profit, $1,500,000
Gross profit, $1,575,000

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