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Exam 5: Income Measurement

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Question 81

True/False

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Use of the installment sales method indicates little uncertainty about collection of the receivable.

A) True
B) False

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Question 82

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Return on Shareholders' Equity is increased if a firm can maintain its return on assets but increase its leverage.

A) True
B) False

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Question 83

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Assume that Beavis uses the completed contract method for revenue recognition. Required: Compute the amount of gross profit recognized during 2008 and 2009.

Assume that Beavis uses the percentage-of-completion method for revenue recognition. Required: Compute the amount of gross profit recognized during 2008 and 2009.

Are differences between McDonalds and the industry likely driven by differences in size between McDonalds and the average company in their industry peer group? Explain briefly.

The decomposition of return on assets illustrates why some companies with low profit margins can be very profitable if their asset turnover is high.

Under the realization principle, revenue should not be recognized until the earnings process is deemed virtually complete and:

Sweeney most likely should recognize revenue when:

Using the information provided above, use the DuPont framework to briefly summarize the operating performance of McDonalds's relative to its benchmark competitors.

In 2008, Reliable would recognize gross profit of:

In 2009, Chicago Construction began work on a three-year construction project to build a new performing arts complex (the "PAC"). The PAC contract price is $150 million. Chicago uses the percentage-of-completion method of accounting. At the end of 2009, the following financial statement information indicate the results to date for the PAC: Required: Compute the following, placing your answer in the spaces provided and showing supporting computations below:

Its asset turnover ratio for 2009.

Besides size differences, what other differences between McDonalds and its industry peer group could limit your ability to make meaningful comparisons about the performance of McDonalds from the data above?