1. Consider the following facts: - On July 31, Company A contracted to have two
ID: 2501359 • Letter: 1
Question
1. Consider the following facts:
- On July 31, Company A contracted to have two products built by Company B for a total of $185,000.
- The contract specifies payment will only occur after both products have been shipped to Company A.
- Company A determines that the standalone prices are $100,000 for Product 1 and $85,000 for Product 2.
- On August 1, Product 1 is shipped by Company B to Company A. On August 1, Company B should prepare a journal entry to record this event. The journal entry should include a:
A. debit to Accounts Receivable for $85,000.
B. None of these answers are correct
C. debit to Contract Assets for $100,000.
D. debit to Contract Assets for $85,000.
E. debit to Accounts Receivable for $100,000.
2.
Which of the following statements is not true about a deferred tax liability?
a. None of these answers are correct
b. It causes taxable income in future periods to be less than financial income
c. It represents a future sacrifice
d. It is a present obligation
e. It results from a past transaction
3.
If a company has changes due to errors, it should use the current and prospective approach to account for the change.
True
False
Explanation / Answer
C. debit to Contract Assets for $100,000.
the accounts receivable would be debited when both the asset are delivered as per the agreement.
d. It is a present obligation
An account on a company's balance sheet that is a result of temporary differences between the company's accounting and tax carrying values, the anticipated and enacted income tax rate, and estimated taxes payable for the current year. This liability may or may not be realized during any given year, which makes the deferred status appropriate.Because there are differences between what a company can deduct for tax and accounting purposes, there will be a difference between a company's taxable income and income before tax. A deferred tax liability records the fact that the company will, in the future, pay more income tax because of a transaction that took place during the current period, such as an installment sale receivable.
3)
FALSE:
CHANGE DUE TO ERROR:
(Not considered a change in accounting principle!)
Employ the retroactive approach by:
a. Correcting all prior period statements presented.
b. Restating the beginning balance of retained earnings for the first period presented when the error-effects extend to a period prior to th e one in which the error was discovered.
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