Reference no: EM132489767

Question 1: What could be indicated by a declining gross profit ratio?

a.Sales prices are remaining stable, and costs are declining

b.Sales prices are increasing, and costs are remaining stable

c.Sales prices are declining, and costs are remaining stable

d.Sales prices are increasing, and costs are declining

Question 2: The Completed Contract method for long-term contracts does not record revenue (loss) in the years previous to contract completion, except when:

The Estimated Total Cost is smaller than the Contract Price.

The Revenue to Recognize in the Current Year is greater than the Construction Cost in the Current Year.

The Revenue to Recognize in the Current Year is smaller than the Construction Cost in the Current Year.

The Estimated Total Cost is greater than the Contract Price.

Question 3: On May 31, 2018, the Gusto Beer Company leased a machine from B. A. Lush, Inc. The lease agreement requires Gusto to pay eight annual payments of $16,000 on each May 31, with the first payment due on May 31, 2018. Assuming an interest rate of 6% and that this lease is treated as an installment sale (capital lease), Gusto will initially value the machine by multiplying $16,000 by which of the following?

a.Present value of $1 at 6% for eight periods

b.Future value of an annuity due of $1 at 6% for eight periods

c.Present value of an ordinary annuity of $1 at 6% for eight periods

d.Present value of an annuity due of $1 at 6% for eight periods

Question 4: Builder Co. is engaged in a 3-year contract to complete manufacturing facility. Year 1 was profitable. In Year 2, Builder Co.'s estimate of future costs changes such that Builder Co. expects total costs incurred to be greater than the contract price. If Builder Co. recognizes revenue for its contract upon completion, what would be its Year 2 journal entry?

a.Debit Cost of Construction, Debit CIP, Credit Revenue

b.Debit Cost of Construction, Credit CIP, Credit Revenue

c.No entry required - Builder Co. doesn't recognize any profit or loss until Year 3.

d.Debit Loss on Construction Contract, Credit CIP