ACCT 3110 Exam 2 Review

Rothbart Manufacturing agrees to manufacture bumper cars for Banners Amusement Parks.

Under the terms of the contract, Banners will pay Rothbart a total of $79,000, and Banners

can cancel the contract if it so chooses but must pay Rothbart for work completed. Rothbart

believes that, if Banners cancelled the contract, Rothbart could sell the bumper cars to

another amusement park and still make a profit. The manufacturing contract is expected to

last six months, and as of December 31, 2024, the job is 70% complete. How much revenue

should Rothbart recognize in 2024 for this contract?

• A) $55,800

• B) $0

• C) $23,700

• D) $79,000

Answer explanation

There is an alternative use for the asset (could sell to another amusement park)

Minarski Electronics sells computers and provides hardware maintenance services. On April

1st, Minarski sold a package deal containing a computer and a one-year unlimited

maintenance/repair service for the computer at a bundle price of $1,000. If sold separately,

the computer costs $696 and the one-year unlimited maintenance/repair service costs $504.

How much revenue does Minarski Electronics recognize for the month ended April 30th,

assuming that revenue is accrued monthly?

Note: Do not round intermediate calculations.

• $42.00

• B) $1,000

• C) $615.00

• D) $738.00

Answer explanation

Consider the following three scenarios:

1. I. ABC Lawncare performed lawn maintenance services for Drake Incorporated on June

1st, and received payment of $500 for those services.

2. II. On June 1st, Melly Corporation received payment for 100 pounds of raw material to

be delivered to Drake Incorporated in 6 months.

3. III. Lodo, LLC collected cash on June 1st for services rendered on May 1st.

Given these scenarios, revenue cannot be recognized on June 1st for:

• A) I, II

• B) I only

• C) II, III only

• D) III only

Answer explanation

For II, no revenue until May 1st

Doug sells Nina equipment under an arrangement whereby Doug receives cash on January 1,

2024 and delivers the equipment on June 30, 2026. When delivery of the equipment occurs,

Doug will record a journal entry that includes:

• A) debit to cash.

• B) credit to sales revenue.

• C) credit to deferred revenue.

• D) credit to interest revenue.

Answer explanation

Waldman Associates received a written, approved contract to deliver economic consulting

services, with service and payment commencing in one month. The contract specifies the

services that Waldman is to perform, and the payment terms. Waldman and the customer

both can cancel the contract without penalty prior to commencing service. Does Waldman

have a contract for purposes of revenue recognition on the day the contract is received?

• A) Yes, because Waldman has a written approved contract.

• B) No, because Waldman and the customer can cancel without penalty, and neither has

  performed an obligation under the contract.

• C) Maybe, depending on whether Waldman can estimate collectability of the receivable.

• D) There is insufficient data on which to base an answer.

Cashmere Soap Corporation had the following items listed in its trial balance at 12/31/2024.

What amount will Cashmere Soap include in its year-end balance sheet as cash and cash equivalents?

• A) $7,850.

• B) $9,850.

• C) $22,750.

• D) $12,350.

Answer explanation

Chez Fred Bakery estimates the allowance for uncollectible accounts at 1% of the ending

balance of accounts receivable. During 2024, Chez Fred's credit sales and collections were

$117,000 and $141,000, respectively. What was the balance of accounts receivable on

January 1, 2024, if $240 in accounts receivable were written off during 2024 and if the

allowance account had a balance of $750 on December 31, 2024?

• A) $41,000

• B) $480

• C) $99,240

• D) None of these answer choices are correct.

Answer explanation

For 2024, Rahal's Auto Parts estimates bad debt expense at 3% of credit sales. The company

reported accounts receivable and an allowance for uncollectible accounts of $95,000 and

$3,800, respectively, at December 31, 2023. During 2024, Rahal's credit sales and collections

were $421,000 and $425,000, respectively, and $4,040 in accounts receivable were written

off.

Rahal's 2024 bad debt expense is:

• A) $3,800.

• B) $4,040.

• C) $12,750.

• D) None of these answer choices are correct.

Answer explanation

Tags

CCSS.7.SP.C.6

Frasquita acquired equipment from the manufacturer on 6/30/2024 and gave a noninterest-

bearing note in exchange. Frasquita is obligated to pay $558,000 on 4/30/2025 to satisfy the

obligation in full. If Frasquita accrued interest of $18,000 on the note in its 2024 year-end financial statements,

what amount would it have recorded the equipment for on 6/30/2024?

• A) $498,000

• B) $528,000

• C) $516,000

• D) $558,000

Answer explanation

Hazelton Manufacturing prepares a bank reconciliation at the end of every month. At the end

of May, the general ledger checking account showed a balance of $1,440 and the bank

statement showed a bank balance of $1,365. Outstanding checks totaled $390 and deposits in

transit were $190. The bank statement listed service charges of $70 and NSF checks totaling

$205. The corrected cash balance is:

• A) $890.

• B) $960.

• C) $1,165.

• D) $1,365.

Answer explanation