Intermediate Accounting 9th Edition By Spiceland – Test Bank

Intermediate Accounting 9th Edition By Spiceland – Test Bank

True/False Questions
1. Companies recognize revenue when goods or services are transferred to customers for the
amount the company expects to be entitled to receive in exchange for those goods or
services.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-01
Topic Area: Core principle and 5 steps to apply it
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
2. Companies always recognize revenue when goods or services are transferred to
customers for the amount the company expects to receive in exchange for those goods or
services.
Answer: False
Level of Learning: 2 Medium
Learning Objective: 05-01
Topic Area: Core principle and 5 steps to apply it
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
3. “Determine whether it is probable the seller will collect the consideration it is entitled to
receive” is one of the five steps to applying the core revenue recognition principle.
Answer: False
Level of Learning: 2 Medium
Learning Objective: 05-01
Topic Area: Core principle and 5 steps to apply it
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
4. Staff Accounting Bulletin No. 101 was issued by the FASB to clarify its guidelines on
revenue recognition.
Answer: False
Level of Learning: 1 Easy
5–2
Learning Objective: 05-01
Topic Area: Core principle and 5 steps to apply it
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Research
5. A transfer of goods or services is complete when the customer has control over the goods
or services.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-02
Topic Area: Transfer of control and indicators
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
6. Revenue always is recognized once the buyer has physical possession of goods.
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-02
Topic Area: Transfer of control and indicators
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
7. Sellers should recognize revenue over time for a long term contract in which the seller is
receiving periodic payments for progress to date but may need to refund those payments
in the event the contract is cancelled.
Answer: False
Level of Learning: 2 Medium
Learning Objective: 05-03
Topic Area: Revenue over time―Criteria
Blooms: Understand
AACSB: Reflective thinking
AICPA: FN Measurement
8. A common output method used to measure progress towards completion is to compare
cost incurred to date to total costs estimated to complete the job.
5–3
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-03
Topic Area: Revenue over time―Progress to completion
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
9. Revenue should be recognized over time for the construction of an annex to a building
that the customer owns, even if the seller will not receive payment until the annex is
completed.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-03
Topic Area: Revenue over time―Criteria
Blooms: Understand
AACSB: Reflective thinking
AICPA: FN Measurement
10. A common output method used to measure progress towards completion is to determine
the proportion of promised goods or services that have been transferred to date.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-03
Topic Area: Revenue over time―Progress to completion
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
11. No allocation of contract price is required if the transaction involves a performance
obligation to be satisfied over time.
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-04
Topic Area: Revenue over time―Progress to completion
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
5–4
12. The transaction price should be allocated to the contract’s performance obligations in
proportion to the stand-alone selling prices of the performance obligations.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-04
Topic Area: Mult perf oblig―Allocate transact price
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
13. No allocation of contract price is required if the transaction involves multiple
performance obligations that are satisfied at different points in time.
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-04
Topic Area: Mult perf oblig―Allocate transact price
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
14. If the contract contains multiple performance obligations, revenue must be recognized in
an amount equal to the fair value of each of the separate performance obligations.
Answer: False
Level of Learning: Easy
Learning Objective: 05-04
Topic Area: Mult perf oblig―Allocate transact price
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
15. The transaction price is only allocated to goods or services that are both capable of being
distinct and that are separately identifiable.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-04
Topic Area: Mult perf oblig―Identify the perf oblig
5–5
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
16. Goods or services are distinct if they are either capable of being distinct or are separately
identifiable.
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-04
Topic Area: Mult perf oblig―Identify the perf oblig
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
17. A contract between a seller and a buyer need not be in writing to be enforceable.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-05
Topic Area: Contract features―Identify the contract
Blooms: Remember
AACSB: Reflective thinking
AICPA: BB Legal
18. If the contract is not in writing, revenue cannot be recognized, even though goods have
been transferred and payment is expected to be received in exchange.
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-05
Topic Area: Contract features―Identify the contract
Blooms: Understand
AACSB: Reflective thinking
AICPA: BB Legal
19. The probability that the customer will pay the seller does not affect whether a contract
exists for purposes of revenue recognition.
Answer: False
5–6
Level of Learning: 1 Easy
Learning Objective: 05-05
Topic Area: Contract features―Identify the contract
Blooms: Understand
AACSB: Reflective thinking
AICPA: FN Measurement
20. A contract exists for purposes of revenue recognition if either the seller or customer has
performed an obligation specified by the contract.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-05
Topic Area: Contract features―Identify the contract
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
21. An option for a customer to purchase additional goods at a discount from list price is only
a performance obligation if the discount is a material right that the customer would not
receive otherwise.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-05
Topic Area: Contract features―Customer options
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
22. A warranty that the customer can purchase separately and that covers a long period of
time after the purchase date is likely to be a quality-assurance warranty.
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-05
Topic Area: Contract features―Warranties
Blooms: Understand
AACSB: Reflective thinking
AICPA: BB Industry
5–7
23. If an option to purchase an extended warranty at a special discount is included with a
product when the product is purchased, a portion of the contract price needs to be
allocated to the option.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-05
Topic Area: Contract features―Warranties
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
24. A fee for recording a new customer in the seller’s information system should be treated
as a separate performance obligation and should be recognized upon payment.
Answer: False
Level of Learning: 2 Medium
Learning Objective: 05-05
Topic Area: Contract features―Prepayments
Blooms: Understand
AACSB: Reflective thinking
AICPA: FN Measurement
25. An option for a customer to purchase additional goods at a discount from list price is
always a performance obligation, because it confers a material right.
Answer: False
Level of Learning: 2 Medium
Learning Objective: 05-05
Topic Area: Contract features―Customer options
Blooms: Understand
AACSB: Reflective thinking
AICPA: FN Measurement
26. Accounting for quality-assurance warranties includes a credit to warranty expense and a
debit to contingent liability.
Answer: False
Level of Learning: 2 Medium
Learning Objective: 05-05
Topic Area: Contract features―Warranties
Blooms: Analyze
AACSB: Analytical thinking
5–8
AICPA: FN Measurement
27. When a contract includes variable consideration, the probability-weighted amount must
be used when there are different probabilities of occurrence.
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-06
Topic Area: Transaction price―Variable consideration
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
28. To account for variable consideration using the most likely amount, the probability of
each possible amount is multiplied by the possible amount to get an expected contract
price.
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-06
Topic Area: Transaction price―Variable consideration
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
29. If the estimate of a transaction price is revised, the price change is allocated entirely to
the remaining performance obligations that are yet to be satisfied.
Answer: False
Level of Learning: 2 Medium
Learning Objective: 05-06
Topic: Transaction price―Variable consideration
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
30. The amount of variable consideration that can be recognized is limited to the amount for
which it is probable that there won’t be a significant reversal of revenue recognized to
date when uncertainty resolves in the future.
Answer: True
Level of Learning: 1 Easy
5–9
Learning Objective: 05-06
Topic Area: Transaction price―Variable consid constraint
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
31. The right of return is a separate performance obligation, and a portion of the transaction
price needs to be allocated to it for revenue recognition.
Answer: False
Level of Learning: 1 Easy
Learning Objective: 05-06
Topic Area: Transaction price―Right of return
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
32. When the right of return exists, revenue can be recognized at the point of sale if the seller
can make reliable estimates of future returns.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-06
Topic Area: Transaction price―Right of return
Blooms: Remember
AACSB: Reflective thinking
AICPA: FN Measurement
33. If the seller is a principal, the seller has primary responsibility for delivering a product or
service.
Answer: True
Level of Learning: 1 Easy
Learning Objective: 05-06
Topic Area: Transaction price―Principal or agent
Blooms: Remember
AACSB: Reflective thinking
AICPA: BB Legal
34. If the seller is a principal, the seller typically is not vulnerable to risks associated with
delivering the product or service.
Answer: False
Level of Learning: 1 Easy