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QUESTION

On April 1, year 1, Pine Construction Company entered into a fixedprice contract to construct an apartment building for $6,000,000.

On April 1, year 1, Pine Construction Company entered into a fixed‐price contract to construct an apartment building for $6,000,000. Pine appropriately accounts for this contract under the percentage‐of‐completion method. Information relating to the contract is as follows: 

 At December 31, year 1At December 31, year 2Percentage of completion20%          60%           Estimated costs at completion$4,500,000              $4,800,000               Income recognized (cumulative)$ 300,000              $ 720,000                What is the amount of contract costs incurred during the year ended December 31, year 2?

$1,200,000

$1,920,000

$1,980,000

$2,880,000

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Question 2

1 pts

During year 1, Mitchell Corp. started a construction job with a total contract price of $600,000. The job was completed on December 15, year 2. Additional data are as follows: 

 Year 1   Year 2    Actual costs incurred$225,000$255,000Estimated remaining costs225,000 Billed to customer240,000360,000Received from customer200,000400,000 Under the completed‐contract method, what amount should Mitchell recognize as gross profit for year 2?

$ 45,000

$ 72,000

$ 80,000

$120,000

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Question 3

1 pts

Shaw Company engages Maya Company to produce a large machine, install the machine, and train their employees on the machine. The machine, installation, and training are distinct, and Maya determines that the contract includes three separate performance obligations. The machine, installation, and training typically cost $800,000, $100,000, and $100,000 respectively when each is provided in a separate contract. Shaw and Maya agree to a total contract price of $920,000. How much of the contract price should Maya allocate to the machine, installation, and training, respectively?

$736,000; $92,000; $92,000

$800,000; $100,000; $100,000

$732,000; $94,000; $94,000

$736,000; $184,000

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Question 4

1 pts

A company enters into a contract that includes three separate performance obligations. The standalone prices are not readily available for the performance obligations. How should the company proceed in allocating the transaction price?

Because the company does not have the stand‐alone pricing readily available, it should not separate the performance obligations and should allocate the sales price to a single performance obligation.

The company should estimate the standalone prices of the performance obligations in order to allocate the transaction price based on the proportion of the total standalone price represented by each performance obligation.

Because the standalone pricing is not available, the company should allocate the transaction price evenly among the three performance obligations.

The company is not able to allocate the transaction price at this time; it should wait until other customers engage the company for similar performance obligations and allocate the transaction price based on the pricing from those contracts.

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Question 5

1 pts

A company enters into a contract to sell 70 products to a customer for $80 each. After the company transfers 30 of the 70 products, the customer orders an additional 25 products. The contract is modified, and the additional 25 products are priced at $40 each. What is the price per product for the remaining 65 products (40 products from the original contract and 25 products from the modification)?

$80 for the remaining 40 from the original contract and $40 for the additional 25 products from the modification

$60, the average of the prices for the remaining products

$40, the new price for the products specified in the contract modification

$64.62, the blended price for the products from the original contract and the modification

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Question 6

1 pts

On August 1, 20X2, a company incurs a cost to fulfill a contract. The company will benefit from the cost over the next 11 months. How should the company account for the cost?

Amortize the cost over 11 months.

Expense the cost in the current period.

Split the cost between the current year and the following year.

Expense the cost in the following period in which the contract is completed.

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Question 7

1 pts

What type(s) of revenue will a contract with a significant financing component generate?

Sales Revenue

Sales Revenue and Interest Revenue

Unearned Revenue and Sales Revenue

Contract Asset Revenue and Sales Revenue

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Question 8

1 pts

A company enters into a contract in which variable consideration is offered. The company will either meet the deadline to receive the variable consideration or receive no variable consideration. Based on experience, the company expects that the most likely outcome is that it will meet the deadline to receive the variable consideration. How should the company determine the transaction price?

Use the expected value approach.

Use the contract sales price that does not include the variable consideration.

Use the most likely outcome approach and measure the transaction price by including the full amount of the variable consideration.

Use the most likely outcome approach and measure the transaction price by probability‐weighting each of the outcomes for variable consideration.

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Question 9

1 pts

Quarry Company enters into a contract with Eclipse Manufacturing to purchase a large piece of machinery. The contract includes both the machine and installation for a single total contract sales price. Quarry does not have the specialized expertise to install the machine, and Eclipse commonly includes installation as part of the single contract price it quotes its customers. How should Eclipse allocate the contract price to the performance obligation(s)?

The contract price should be allocated based on the proportion of the total standalone prices represented by the machine and installation as two separate performance obligations.

The entire sales price for the contract should be allocated to a single performance obligation.

The sales price for the contract should be split between the machine and the installation based on the proportion of service hours represented by each.

The contract price should be allocated to the installation and the machine should be capitalized.

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Question 10

1 pts

Rhonda Company enters into a contract with Petersburg, Inc. on March 5. According to the contract, Rhonda is scheduled to deliver 100 units of Product 1 at a sales price of $60 per unit and 150 units of Product 2 to Petersburg, Inc. by June 30 at a sales price of $75 per unit. Rhonda agrees to deliver both Products 1 and 2 before being entitled to any payments. The following deliveries are made by Rhonda to Petersburg: On March 25, Rhonda delivers 100 units of Product 1.On June 20, Rhonda delivers 150 units of Product 2. 

What amount(s) relating to this contract should Rhonda report on its June 30 balance sheet?

$6,000 Contract Asset and $11,250 Accounts Receivable

$17,250 Contract Asset

$17,250 Accounts Receivable

$6,000 Accounts Receivable and $11,250 Contract Asset

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Question 11

1 pts

Which of the following disclosures is not required of companies with a defined benefit pension plan?

A description of the plan.

The amount of pension expense by component.

The weighted average discount rate.

The estimates of future contributions.

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Question 12

1 pts

The recognition of the amortization of $50 of net gain causes what effect on (1) pension expense, and (2) pension liability? 

_1__2_

decreasedecrease

decreaseno effect

no effectdecrease

no effectno effect

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Question 13

1 pts

Choose the correct statement regarding the treatment of prior service cost (PSC) for defined benefit plans under international accounting.

Firms have an option to record PSC directly into other comprehensive income or in earnings.

The entire PSC amount, at present value, is recognized immediately in pension expense.

The entire PSC amount, at present value, is recognized immediately in other comprehensive income, as per U.S. standards.

The estimated nominal increase in benefits is recognized immediately in pension expense.

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Question 14

1 pts

How many of the following four aspects of accounting for pension gains and losses contribute to the reduction in volatility of reported pension expense: (1) use of corridor amortization as an acceptable method, (2) gains and losses cancel, (3) spreading the amount subject to amortization over the average remaining service period of plan participants, (4) the use of expected return for component 3 of pension expense?

1

2

3

4

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Question 15

1 pts

Choose the correct statement regarding the treatment of prior service cost (PSC) for defined benefit plans under international accounting.

Firms have an option to record PSC directly into other comprehensive income or in earnings.

The entire PSC amount, at present value, is recognized immediately in pension expense.

The entire PSC amount, at present value, is recognized immediately in other comprehensive income, as per U.S. standards.

The estimated nominal increase in benefits is recognized immediately in pension expense.

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Question 16

1 pts

Barrett Co. maintains a defined benefit pension plan for its employees. At each balance sheet date, Barrett should report pension liability equal to the

Accumulated benefit obligation.

Projected benefit obligation.

Unfunded accumulated benefit obligation.

Unfunded projected benefit obligation.

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Question 17

1 pts

What is the present value of all future retirement payments attributed by the pension benefit formula to employee services rendered prior to that date only?

Service cost.

Interest cost.

Projected benefit obligation.

Accumulated benefit obligation.

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Question 18

1 pts

Fowler Inc. purchases new appliances for several new restaurants that are under construction. Godwin sells the appliances to Fowler and agrees to retain physical possession of the appliances until Fowler's restaurants are ready to take delivery. The total contract price is $45,000. Godwin has separated the appliances from its other appliance inventory and clearly marked them as belonging to Fowler. Godwin has already prepped the appliances for immediate delivery, and the product will not be directed to another customer. How much revenue should Godwin recognize in the current period from this contract?

$0

$45,000

$22,500

$15,000

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Question 19

1 pts

Claytor Company offers buyers a right of return on all sales of its devices. Claytor sells 200 devices to a buyer and expects that 15 of the devices will be returned. Each device is sold to the buyer for $40. If the buyer returns 8 devices before the end of the year, what amount should Claytor reflect in its Allowance for Sales Returns and Allowances account?

$320 debit

$320 credit

$280 debit

$280 credit

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Question 20

1 pts

On January 2, year 3, Morey Corp. granted Dean, its president, 20,000 stock appreciation rights for past services. Those rights are exercisable immediately and expire on January 1, year 4. On exercise, Dean is entitled to receive cash for the excess of the stock's market price on the exercise date over the market price on the grant date. Dean did not exercise any of the rights during year 3. The market price of Morey's stock was $30 on January 2, year 3, and $45 on December 31, year 3. Morey should recognize compensation expense under the stock appreciation rights plan for year 3 of

$0

$100,000

$300,000

$600,000

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Question 21

1 pts

Wolf Co.'s grant of 30,000 stock appreciation rights enables key employees to receive cash equal to the difference between $20 and the market price of the stock on the date each right is exercised. The service period is year 1 through year 3, and the rights are exercisable in year 4 and year 5. The market price of the stock was $25 and $28 at December 31, year 1 and year 2, respectively. What amount should Wolf report as the liability under the stock appreciation rights plan in its December 31, year 2 balance sheet?

$0

$130,000

$160,000

$240,000

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Question 22

1 pts

On which of the following dates is a public entity required to measure the cost of employee services in exchange for an award of equity interests, based on the fair market value of the award?

Date of grant.

Date of restriction lapse.

Date of vesting.

Date of exercise.

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Question 23

1 pts

The stockholders of Meadow Corp. approved a stock‐option plan that grants the company's top three executives options to purchase a maximum of 1,000 shares each of Meadow's $2 par common stock for $19 per share. The options were granted on January 1 when the fair value of the stock was $20 per share. Meadow determined that the fair value of the compensation is $300,000 and the vesting period is three years. What amount of compensation expense from the options should Meadow record in the year the options were granted?

$ 20,000

$ 60,000

$ 100,000

$ 300,000

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Question 24

1 pts

Which of the following models for assigning values to options takes into account the volatility of stock prices?  

Black‐Scholes modelLattice value model

NoNo

YesYes

NoYes

YesNo

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Question 25

1 pts

Charlie Company modified an existing contract with a buyer to add on additional goods. The original goods and the additional goods may be used independently and are considered distinct. Charlie intends to modify the existing contract in a manner that will result in a new separate contract. How should Charlie price the additional goods to ensure that a new separate contract is created?

The consideration for the additional goods should reflect appropriate standalone prices.

The consideration for the additional goods must be clearly articulated in the contract so that a blended price may be calculated.

The consideration should reflect the average cost of the additional goods being sold.

The consideration should reflect a market index adjustment for the change in pricing between the original contract and the contract modification.

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