Financial Reporting And Analysis MCQ - Financial Reporting And Analysis Section 1

21 A customer orders customized industrial equipment from a manufacturing company in June. The equipment was shipped and delivered to the customer in August. The customer was invoiced in August and payment was made to the manufacturing company in September. The most appropriate month in which the manufacturing company should show the revenue is:

The appropriate time to recognize revenue would be in the month of August; the risks and rewards have been transferred to the buyer (shipped and delivered), the revenue can be reliably measured, and it is probable that the economic benefits will flow to the seller.

22 Which of the following is least likely correct regarding revenue recognition principles?

Receiving cash is not a pre-requisite for revenue recognition.

23 Telecom Ltd. has a four year license to provide communication services to a corporation. The total amount of the license fee that Telecom Ltd. will receive is $50,000. Revenue is recognized on a prorated basis as it is a long term contract. What revenue would Telecom Ltd. recognize at the end of year 1?

The revenue recognized will be the total amount divided by the time period. Therefore, 50000/4 = $12,500.

24 Which of the following standards states that the revenue from barter transactions can be recognized at fair value only if the company has historically received cash payments for such services?

Under U.S. GAAP, revenue from barter transactions can be recognized at fair value only if the company has historically received cash payments for such services.

25 Under U.S. GAAP, which of the following is not a criterion for deciding whether to report gross revenues rather than net revenue?

Under U.S. GAAP, one of the criteria for deciding whether to report revenues gross or net is that the company does bear the inventory risk.