Timing Issues: Matching of Revenue and Expenses, Correcting and Adjusting Accounts

Question 1

Increases in assets or decreases in liabilities

Answer 1

revenues

Question 2

Four criteria that must be met for each element of a contract before any revenue can be recognized (GAAP)

Answer 2

1) Evidence of an arrangement exists
2) Delivery occurred or services rendered
3) Price fixed & determinable
4) Collection reasonably assured

Question 3

Revenue from products is recognized on the ____ __ ____

Answer 3

date of sale

Question 4

Revenues that stem from allowed others to use the entity’s assets is recognized ___ _____ _____

Answer 4

as time passes (when the assets are used)

Question 5

Revenue from the performance of services is recognized in the period the services have been ______

Answer 5

rendered

Question 6

Four criteria for revenue recognition of sale of goods (IFRS)

Answer 6

1) Revenue & costs incurred can be measured reliably
2) Probable that economic benefit from transaction will flow to the entity
3) Entity has transferred to the buyer the significant risk and rewards of ownership
4) Entity does not retain managerial involvement

Question 7

Three criteria for revenue recognition of rendering of services (IFRS)

Answer 7

1) Revenues and costs incurred can be measured reliably
2) Probable that economic benefits from the transaction will flow to the entity
3) Stage of completion of the transaction at the end of the reporting period can be measured reliably

Question 8

Two criteria for revenue recognition from interest, royalties, and dividends (IFRS)

Answer 8

1) revenue can be measured reliably

2) Probable economic benefits from the transaction will flow to the entity

Question 9

Three criteria for revenue recognition for construction contracts

Answer 9

1) Revenues and costs can be measured reliably
2) Probable that economic benefits from the transaction will flow to the entity
3) the stage of contract completion at the end of the reporting period can be measured reliably

Question 10

When a sales contract includes multiple products or services, the FV of the contract must be allocated to the separate contract elements. Revenue is recognized separately for each element based on the revenue recognition criteria appropriate for each element

Answer 10

multiple element arrangements (GAAP)

Question 11

Deferred credits are:

Answer 11

liabilities

Question 12

When cash is received before it is earned, a ___ ____ is reported.

Answer 12

deferred credit

Question 13

A deferred credit is recognized as revenue as it is _____

Answer 13

earned

Question 14

Expenses are recognized according to the _____ ______

Answer 14

principle

Question 15

Occurs when the entity obtains cash or the right to receive cash or has converted a noncash resource into cash

Answer 15

realization

Question 16

Actual recording of transactions and events in the financial statements

Answer 16

recognition

Question 17

The matching principal is associated with ______ ______

Answer 17

accrual accounting

Question 18

Records transactions and events as they occur, not when the cash is received or expended and recognizes revenue when it is earned and expenses when the obligation is incurred

Answer 18

accrual accounting

Question 19

Accrual accounting is required by ______

Answer 19

GAAP

Question 20

Accrual accounting has an ____ _____ impact and no _____ ______ impact

Answer 20

income statement; current cash

Question 21

Occurs when cash is received or expended but is not recognizable for financial statement purposes

Answer 21

deferral

Question 22

Deferral typically results in the recognition of a ______ or a _____ expense

Answer 22

liability; prepaid

Question 23

Accrued assets journal entry

Answer 23

DR: Accts rec
CR: Accrued revenue

Question 24

Accrued liabilities journal entry

Answer 24

DR: accrued expenses
CR: accrued liability (Accts pay)

Question 25

Estimated liabilities journal entry

Answer 25

DR: accrued expenses CR: accrued liability (accts pay)

Question 26

Expired costs are ______ on the income statement

Answer 26

expensed

Question 27

Insurance expense, cost of goods sold, period costs are:

Answer 27

expired costs

Question 28

Unexpired costs stay on the ______ _____

Answer 28

balance sheet

Question 29

Prepaid expenses become ______ ______

Answer 29

expired costs

Question 30

Deferred charges are _____ ______

Answer 30

unexpired costs

Question 31

Expenditures or accruals that cannot be charged to a tangible asset

Answer 31

Deferred charges

Question 32

Deferred charges journal entry

Answer 32

DR: deferred charge CR: cash/asset

Question 33

Deferred credits are ______ _______

Answer 33

unearned/deferred revenues

Question 34

Deferred credits are located in the _____ ______ of the balance sheet

Answer 34

liability section

Question 35

Deferred credit journal entry

Answer 35

DR: cash CR: unearned rev

Question 36

Royalty revenue is recognized when _______

Answer 36

earned

Question 37

5 criteria for revenue recognition when the right to return exists

Answer 37

1) sales price substantially fixed at time of sale 2) buyer assumes risks of loss (goods considered in buyers possession) 3) buyer has paid some form of consideration 4) product sold is substantially complete 5) amount of future returns can be reasonably estimated

Question 38

Initial franchise fees are revenue when _______ _______

Answer 38

substantially performed

Question 39

Continuing franchise fees are revenue when ______

Answer 39

earned

Question 40

Franchisor accounting for unearned revenue:

Answer 40

unearned revenue is recognized as revenue once substantial performance on such future services has occurred

Question 41

Initial franchise fee and prepaid continuing franchise fee are _____ ______

Answer 41

unearned revenue

Question 42

Purchased intangible assets are recorded at _____

Answer 42

cost

Question 43

Internally developed intangible assets are _____

Answer 43

expensed

Question 44

Legal fees and other costs related to a successful defense of the (intangible) asset, registration or consulting fees, design costs, and other direct costs to secure the asset are:

Answer 44

capitalized

Question 45

Fees associated with the unsuccessful defense of intangible asset are _______ and the asset is tested for _______

Answer 45

expensed; impairment

Question 46

Under IFRS, research costs related to an internally developed intangible asset are _______ but an intangible asset arising from development is ________

Answer 46

expensed; capitalized

Question 47

Intangible assets with a _____ ______ are amortized

Answer 47

finite life

Question 48

Goodwill has an ________ life and is ______ amortized

Answer 48

indefinite; not

Question 49

Under IFRS, intangible assets can be reported under either the ______ model or the _______ model

Answer 49

cost; revaluation

Question 50

Revaluation model carrying value =

Answer 50

fair value on revaluation date - subsequent amortization - subsequent impairment

Question 51

Revaluation losses are reported on the ____ _____

Answer 51

income statement

Question 52

A revaluation loss that reverses a previously recognized revaluation gain is recognized in ______ ________ _______

Answer 52

other comprehensive income

Question 53

Revaluation gains are reported in _____ ______ ______

Answer 53

other comprehensive income

Question 54

Gains are reported on the _____ ______ to the extent that they reverse a perviously recognized revaluation loss

Answer 54

income statement

Question 55

If revalued intangible assets subsequently become impaired, the impairment is recored by first reducing any revaluation surplus in _____ to zero with further impairment losses reported on the _____ ______

Answer 55

equity; income statement

Question 56

Initial franchise fees are _____ _____ on the balance sheet and are _______ (for franchisee's)

Answer 56

intangible assets; amortized

Question 57

Franchisee's expense continuing franchise fees as ______

Answer 57

incurred

Question 58

Initial franchise fee amortization =

Answer 58

(franchise balance / expected life) x (#months / 12)

Question 59

Start-up costs, including organizational costs, should be ______ __ ______

Answer 59

expensed as incurred

Question 60

Organizational expenses are _______ capitalized as an intangible asset

Answer 60

not

Question 61

Costs associated with maintaining, developing, or restoring goodwill are _________

Answer 61

expensed

Question 62

R&D costs are ________ under GAAP

Answer 62

expensed

Question 63

Materials, equipment, or facilities that have alternative future uses are _______ and ________

Answer 63

capitalized; depreciated

Question 64

R&D costs of any nature undertaken on behalf of others under a contractual agreement are not ______

Answer 64

expensed

Question 65

For computer software developed to be sold, leased or licensed costs incurred until technological feasibility has been established are _______ and costs incurred after technological feasibility has been established are ________

Answer 65

expensed; capitalized

Question 66

Annual amortization is the _________ of percentage of revenue or straight-line

Answer 66

greater

Question 67

Percentage of revenue amortization for capitalized software costs =

Answer 67

total capitalized amount x (current gross revenue for period / total projected gross revenue for product)

Question 68

Costs incurred to actually produce the product are product costs charged to ______

Answer 68

inventory

Question 69

Computer software developed internally or obtained for internal use only is treated _______ to software for sale except that capitalized costs after technological feasibility are amortized on a _______ basis

Answer 69

similarly; straight-line

Question 70

If software previously developed for internal use is then sold to outsiders, proceeds received should be applied first to the _____ _______ of the software, then recognized as _______

Answer 70

carrying amount; revenue

Question 71

Impairment for intangible assets with finite lives calculation (2 steps)

Answer 71

step 1: determining the impairment - use undiscounted future net cash flow step 2: amount of impairment - use FV (discounted cash flow)

Question 72

Impairment for intangible assets with indefinite lives (1 step)

Answer 72

amount of impairment - use FV (discounted cash flow)

Question 73

Impairment loss is reported as a component of ______ ____ ________ _______ before income taxes

Answer 73

income from continuing operations

Question 74

Goodwill impairment is calculated at a ______ _____ level

Answer 74

reporting unit

Question 75

Evaluation of goodwill impairment (2 steps)

Answer 75

step 1: identify potential impairment by comparing FV of each reporting unit with its carrying amount, including goodwill step 2: measure the amount of goodwill impairment loss by comparing the implied FV of the reporting unit's goodwill with the carrying amount of that goodwill

Question 76

If the qualitative assessment of goodwill indicates that there is a greater than ____ percent chance that the fair value of the reporting unit of indefinite life intangible asset is less than its carrying amount, then the entity must perform the quantitative impairment test

Answer 76

50

Question 77

Journal entry for goodwill impairment

Answer 77

DR: loss due to impairment CR: goodwill

Question 78

Under IFRS, goodwill impairment testing is done at the __________ unit level

Answer 78

cash-generating

Question 79

The objective of correcting and adjusting accounts is to ______ expenses against related revenues

Answer 79

match