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Exam 5: Income Measurement and Profitability Analysis

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Question 101

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GAAP that covers revenue recognition for multiple-part arrangements requires that a seller recognize revenue for a particular part if:

A) The part has value on a stand-alone basis.
B) Customer acceptance of the part is not contingent on successful delivery of a later part.
C) The part constitutes at least a "preponderance of the fair value" of the total arrangement.
D) Both the part has value on stand-alone basis and customer acceptance of the part is not contingent on successful delivery of a later part are required.

E) A) and D)
F) B) and C)

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Question 102

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The following footnote appeared in a recent annual report to stockholders of Starbucks Corporation: "Initial nonrefundable development fees required under licensing agreements are recognized upon substantial performance of services for new market business development activities, such as initial business, real estate, and store development planning, as well as providing operational materials and functional training courses for opening new licensed retail markets. Additional store licensing fees are recognized when new licensed stores are opened." Briefly explain why Starbucks recognizes this type of revenue as it does.

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Starbucks' revenues from its franchising...

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Question 103

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When the right of return exists and a seller cannot make reliable estimates of future returns, the installment method can be used.

Its return on stockholders' equity for 2013. Round your answer to one decimal place, e.g., .1234 as 12.3%.

If the seller is a principal, the seller has primary responsibility for delivering a product or service.

Using the information provided above, use the DuPont framework to briefly summarize the operating performance of McDonald's relative to its benchmark competitors.

Assuming BCC uses the percentage-of-completion method of revenue recognition, the gross profit recognized in 2012 would be (rounded to the nearest thousand) :

In its December 31, 2013, balance sheet, Rigsby would report:

In 2014, Lake would recognize realized gross profit of:

Boomerang Computer Company sells computers with an unconditional right to return the computer if the customer is not satisfied. Boomerang has a long history selling these computers under this returns policy and can provide precise estimates of the amount of returns associated with each sale. Boomerang most likely should recognize revenue:

Dowling's 2013 profit margin is (rounded) :

Hulkster's 2013 average days in inventory is (rounded) :

In 2012, Lake would recognize realized gross profit of:

What is the fixed contract price for CCC's project?

Sanjeev enters into a contract offering uncertain consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000, and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev estimates uncertain consideration using the probability-weighted amount. What is the amount of revenue Sanjeev would recognize for the first month of the contract?

After Sweeney has transferred a painting to a barbershop, the painting:

Hulkster's 2013 receivables turnover is:

The decomposition of return on assets illustrates why some companies with low profit margins can be very profitable if their asset turnover is high.

Revenue is not recognized under the realization principle unless the earnings process is complete or virtually complete and there is reasonable certainty about the expected collection of the asset received.

Assume that Beavis reports under IFRS and uses the cost recovery method for revenue recognition. Required: Compute the amount of gross profit recognized during 2012 and 2013.