Accounting Theory 1-11

1. Revenue from sale of goods shall be recognized when all of the following conditions have been satisfied, except

a. the entity has transferred to the buyer the significant risks and rewards of ownership of the goods.
b. the entity retains either continuing managerial involvement of effective control the goods sold.
c. the amount of revenue can be measured reliably
d. it is probable that economic benefits will flow to the entity

2. Which is incorrect concerning recognition of revenue?

a. revenue from rendering of services shall be recognized by reference to the stage of completion of the transaction at balance sheet date.
b. interest revenue shall be recognized on a time proportion basis that does not take into account the proportion basis that does not take into account the effective yield on the asset
c. royalty revenue shall be recognized on an accrual basis in accordance with the substance of the relevant agreement.
d. dividend revenue shall be recognized when the shareholder's right to receive payment is established.

3. Which definition is correct relating to elements of financial performance?

a. gains are increases in equity from ongoing major or central operations of an entity
b. expenses are outflows of assets or liabilities incurred from peripheral or incidental transactions of an entity
c. revenues are inflows or other enhancements of assets or settlements of liabilities from ongoing major or central operations.
d. losses are all decreases in equity other than from transactions with owners.

4. According to conceptual framework, the term "income"

a. includes change in market value of investments in marketable securities classified as available for sale
b. includes foreign currency translation adjustment
c. includes gain resulting from the sale of a productive asset to another party in an arm's length transaction
d. is the same as comprehensive income

5. The revenue principle states that revenue shall be recognized at a point when

a. an exchange transaction involving goods and services has occurred and the earnings process is essentially complete
b. an order for shipment of a definite amount of merchandise has been received
c. a contract between buyer and seller has been signed by both parties
d. the seller has shipped merchandise to a customer under the terms that the customer need not pay for the merchandise until it is sold

6.What is an example of an accounting principle

a. the fact that one type of accounting is designed to help managers identify, measure and control operating costs
b. the definition of when income is to be recognized
c. the fact that business transactions involve a completed exchange of economic transactions
d. the definition of assets minus liabilities equals shareholders' equity

7. Normally, revenue is recognized

a. when the customer's order is received
b. when the customer's order is accompanied by a check
c. only if the transaction will create an account receivable
d. when the title to the goods changes

8. Depending on the nature of the entity, revenue may be recognized based on different acceptable  criteria. Which of the following is not an acceptable basis for recognition of revenue?

a. passage of time
b. performance of service
c. completion of percentage of a projects
d. upon signing of contract

9. Generally, recognition criteria  are met and revenue is recognized

a. at the point of sale
b. when cause and effect are associated
c. at the point of cash collection
d. at the appropriate points throughout the operating cycle

10. Which of the following best describes the conditions that must be present for the recognition of revenue?

a. the revenue must be earned, measurable and collected
b. the revenue must be earned, measurable and collectible
c. the revenue must be earned and collectible
d. the revenue must be measurable and collectible
 

Answer:
1.b
2.b
3.c
4.c
5.a
6.b
7.d
8.d
9.a
10.b