Question

1. B&B Corporations are on the accrual basis of accounting, revenue should be recognized on the Income Statement when:

A.    Cash is received

B.    Revenue is earned and collectability of any cash is reasonably assured

C.   Revenue is earned regardless of the collectability of any uncollected cash

D.   Revenue is earned even if the full sales price is uncertain

2. B&B Tech disclosed the following information in its recent annual report:

	Year 1	Year 2
Cost of goods sold	$16,000,000	$20,100,000
Revenue	20,000,000	25,100,000
Ending inventory	4,000,000	5,150,000

What is the B&B Tech’s’s Gross Profit for Years 1 & 2?

A.    $4,000,000 & $8,000,000

B.     $12,000,000 &$14,950,000

C.     $4,000,000 & $5,000,000

D.    None of the Above

3. B&B Co. opened a new business location on April 1.  During April, Copy Co. sold

$50,000 of copies for cash along with $280,000 of copies on account to customers.

Payments collected from these customers amounted to $212,000 during April, with

the balance to be collected during May.  

How much revenue should B&B. report on its April income statement?

A.    $150,000

B.    $430,000

C.     $380,000

D.    $530,000

Presented below are selected amounts from B&B, Inc.’s financial statements:

Amounts in thousands
Balance sheet
Accounts receivable	$  22,800
Inventory	41,000
Total assets	569,000
Accounts payable	135,500
Shareholders’ equity	288,000
Income Statement
Net sales	621,000
Cost of goods sold	430,000
Interest expense	27,000
Net income	124,000

How many days, on average, does it take B&B's to pay an outstanding account payable?  

A.    139.days

B.    115 days

C.     123 days

D.    119 days    

E.     None of the above

4. Presented below are selected ratios derived from B&B's financial statements:

Return on sales	1.7%
Total asset turnover	4.25
Financial leverage	2.75
Treasury stock return Dividend retention rate	3.25    1.95

Using the ROE model framework, how much is B&B’s ROE?

A.    12.95%

B.    19.87%

C.     29.18%

D.    39.59%

Answer 1

Question 1

As per the principles of revenue recognition when an entrity is using accrual basis of accounting then it should recognise it's revenues when either the services performed or the goods delivered. It does not require any certainty with respect to collection of cash but the thing that is to be understood that the revenue is to be recognised as soon as the work is performed without any priority to collections.

On the basis of this

Option C is the Correct Answer to the Question No.1.

Revenue is earned regardless of the collectability of any uncollected cash.

Question 2

Formula for Gross Profit = Revenue - Cost of Goods Sold

For Year 1

Gross Profit = 20,000,000 - 16,000,000

Gross Profit for Year 1 = $ 4,000,000

For Year 2

Gross Profit = 25,10,000 - 20,100,000

Gross Profit = $ 5,000,000

Option C is the Correct Answer.

Question 3

Revenue to be recognised on Income Statement = Total Cash Sales + Total Credit Sales

Revenue to be recognised on Income Statement = 50,000 + 280,000 = $ 330,000

As per the data provided there is no matching option provided for the right answer so please check if some type of error has happened while typing the question. If so please change the answer as per the formul being provided.

Revenue are recognised when the work is performed regardless of collection so it is better to recognise both cash and credit sales in the month of sale itself.

Question 4

Accounts Payables Turnover Ratio = Cost of Goods Sold / Accounts Payables

Accounts payables Turnover Ratio = 430,000 / 135,500 = 3.18 Times

Days to pay debts = 365 Days / Accounts Payables Turnover Ratio

Days to pay Debts = 365 / 3.18 = 115 Days

Option B is the Correct Answer.

Question 5

Return on Equity = Return on Sales * Total Assets Turnover * Financial Leverage

Return on Equity = 1.7% * 4.25 * 3.75 = 19.87%

Option B is the Correct Answer.