Topaz Metals Inc. produces precious metals from its mining operations. The selling price for its product is reasonably assured, the units are interchangeable, and the costs of selling and distributing the product are insignificant. In order for Topaz to recognize revenue as early in the revenue cycle as is permitted under generally accepted accounting principles, the revenue recognition method that Topaz should use is the ________.
Answer(s): B
Revenue is recognized when the conditions of "realized" or "realizable" and earned are met. If products are readily realizable because they are salable at reliably determinable prices without significant effort, revenues may be recognized at completion of production.
The following financial data on CashCow, Inc. have been taken from its financial statements for 1996:
Answer(s): C
Note that the loss on equipment is a non-cash event. Using the direct method, beginning cash balance + net cash inflow = ending cash balance Hence, ending balance = 312,000 + (-25,000+64,000-29,000 - 208,000 + 90,000 + 17,000 - 2,400 - 107,400 + 28,400) = $139,600.
The par value of a common stock represents
Par value represents a stock's legal capital. It is an arbitrary value assigned to stock before it is issued. Par value represents a shareholder's liability ceiling because, as long as the par value has been paid in to the corporation, the shareholder obtains the benefits.
Which of the following is NOT a revenue recognition method when there is uncertainty surrounding the realizability of income?
Answer(s): A
The completed contract method is used for revenue recognition in the case of long-term contracts. In particular, it is chosen instead of the percentage-of-completion method if there are no reliable measures of the degree to which the contract obligations have been fulfilled.
Which of the following would be considered a liability that arises from operating activities?
All of these answers represent liabilities that originate from the operation of a business; i.e., from the normal course of operating a business. Liabilities that arise from "operations" typically do not require compensation in the form of interest. This can be contrasted with liabilities that arise from financing activities where the lender requires the payment of interest to compensate for the extension of credit.
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