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Income Measurement and the Objectives...
Pre-test

1 .       Which of the following is a product cost for a car dealership? 



2 .       Why are unrealized gains on the value of land and other assets not recognized in the financial statements? 



3 .       When is it appropriate to use the completed-contract method of revenue recognition instead of the percentage-of-completion method? 



4 .       Which of the following best describes the transaction to recognize revenue? 



5 .       Why are preparers of accounting information given choices in how to account for revenue and expenses? 



6 .       If a company recognizes revenue at the completion of production what would be the affect on the financial statements? 



7 .       Which of the following is an example of an accounting estimate? 



8 .       Hamburger Harry’s (HH) is a company that franchises hamburger restaurants. The franchisee (the person who owns and operates an individual restaurant) pays a monthly franchise fee to HH made up of two components: a minimum monthly amount and a small percentage of monthly sales. From HH’s point of view, what should a primary financial reporting objective of a franchisee’s financial statements be? 



9 .       Alpha Company and Beta Company are both engaged in an identical three-year contract. Alpha Company uses the percentage-of-completion method to recognize revenue while Beta Company uses the completed-contract method. Which of the following statements about these two companies is true? 



10 .       The choice of revenue recognition method depends on 



11 .       Costs that can not be specifically matched to revenues are period costs. 

 
 


12 .       If a contract turns out to be unprofitable and the company is using percentage-of-completion, they recognize the loss according to the percentages they were previously applying to the revenues. 

 
 


13 .       Different revenue recognition choices will only affect ratios that are based on income statement numbers, such as profit margin. 

 
 


14 .       An entity may have more than one critical event and hence more than one point at which they could recognize revenue. 

 
 


15 .       The big bath theory lowers current income by writing off some assets and recognizing expenses early. 

 
 


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