ACCT 5301 Module 5 Questions 2

1. All of the following statements are true, EXCEPT:

A) According to GAAP, revenue recognized must be both earned and realized (or realizable).

B) Research and development expenditures are recognized as expenses, unless they are for buildings and equipment that have uses on future projects.

C) Income or loss from discontinued operations is reported separately on income statements.

D) Revenues from barter transactions are rarely questioned.

E) Revenue is not recorded when goods are shipped on consignment.

2. Sam’s Club (part of the WalMart consolidated operations) collects annual non-refundable membership fees from customers. When should Sam’s Club recognize revenue for these membership fees?

A) Immediately when cash is received because the fees are nonrefundable

B) Evenly over the membership year

C) As determined by the store manager

D) At the end of the membership year when Sam’s has discharged its obligation to the customer

E) Pro rata over the customer’s actual purchasing pattern

3. Dow Chemical Corporation has built a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be:

A) Capitalized and depreciated

B) Expensed in the current year

C) Depreciated and expensed

D) Capitalized only

E) None of the above

4. Revenue is recognized when it is:

A) Received in cash

B) Earned and is realized or realizable

C) Estimable

D) Capitalized

E) None of the above

5. Recognition of restructuring expenses for a company will typically require all of the following, EXCEPT:

A) Write-off of research and development costs

B) Employee severance pay

C) Asset write-downs

D) Formal restructuring plan

E) Employee notification of plan

6. Unearned revenue exists when:

A)  Cash is received after the sale and the services will be performed at a later date

B)  Cash is received in advance and goods are shipped before the sale

C)  Cash is received in advance and services will be performed at a later date

D)  The revenues are recorded as an asset

E)  None of the above

7. A deferred tax liability will typically arise from:

A) Recording an unearned revenue

B) Recording a prepaid expense

C) Reported income higher than taxable income

D) Reported income lower than taxable income

E) Bad debt expenses

8. All of the following are considered operating activities, EXCEPT:

A) Sales

B) Interest expenses

C) Research and development expenses

D) Selling and general expenses

E) Income tax expenses

EXERCISES

Exercise. The income tax footnote to the financial statements of Life Technologies Company for the year ended December 31, 2011, includes the following information (in thousands):

Current tax provision
Federal / $ 113,783
State / 1,771
Foreign / 45,237
Total current tax provision / 160,791
Deferred tax provision
Federal / (49,290)
State / (6,119)
Foreign / (4,514)
Total deferred tax provision / (59,923)
Provision for income taxes / $100,868

a.  What amount of income tax expense did Life Technologies Company report in its 2011 income statement? ______

b. How much of the income tax expense is payable in 2011? ______

SHORT ANSWER

A.  1. When is the use of the percentage-of-completion method of revenue recognition appropriate?

2. How is the revenue calculated each year with the percentage-of-completion method?