Learning Objective 2.2 Questions
1) According to U.S. GAAP, revenue is recognized when it is
A) realized or realizable only.
B) earned only.
C) received in a timely fashion.
D) earned and realized or realizable.
E) received in cash.
2) Which of the following is an example of revenue that may be realized but not yet earned?
A) A customer paying in advance for services to be performed in the future.
B) A credit sale made to a customer who has a strong credit history. The goods have been delivered.
C) A credit sale made to a customer with a weak credit history such that the collection of the outstanding receivable is questionable. The goods have been delivered.
D) The cash sale of a fixed asset, as opposed to the sale of inventory. The fixed asset has been delivered.
E) It is impossible to have revenue that is realized but not earned.
3) Performing a service and receiving a promise to pay from the customer would
A) increase revenue.
B) decrease assets.
C) increase liabilities.
D) decrease expenses.
E) decrease revenue.
4) Ace Office Equipment is an office equipment company specializing in sales of printers, scanners, and copiers. When should Ace Office Equipment recognize revenue from its sales?
A) When the customer calls to accept delivery of a new copier
B) When the customer signs a contract to buy a copier
C) When the copier is delivered to the customer
D) When the payment is received from the customer
E) When the financial statements are prepared that includes this sale
5) Armingham Cable Company sells cable services and related accessories. Which of these situations demonstrate proper revenue recognition for Armingham Cable Company?
A) Insurance is paid one month in advance of the due date because the Armingham Cable Company has extra cash.
B) Cable services are sold to customers, and customers are billed in advance of receiving services. Revenue is recorded before rendering services.
C) Cable boxes are purchased for sale to customers, but the accountant has not yet paid the bill.
D) An interest bearing certificate of deposit is purchased. Interest will be received at the end of 60 days. Interest revenue will be recorded at the end of 60 days.
E) Employees are paid for hours worked last month.
6) Revenue is recognized when a customer's promise to pay exists, even if the company is not relatively certain that they will receive payment.