Problem 1. Dot Point, Inc. is a retailer of washers and dryers and offers a three-year service contract on each appliance sold. Although Dot Point sells the appliances on an installment basis, all service contracts are cash sales at the time of purchase by the buyer. Collections received for service contracts should be recorded as
Service revenue
Deferred Service Revenue
A reduction in installment accounts receivable
A direct addition to retained earnings
Problem 2. The percentage-of-completion method must be used when certain conditions exist. Which of the following is NOT one of those necessary conditions?
Estimates of progress toward completion, revenues, and costs are reasonably dependable.
The contractor can be expected to perform the contractual obligation
The buyer can be expected to satisfy some of the obligations under the contract.
The contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged, and the manner and terms of settlement.
Problem 3. During 2008, Steele Corporation sold merchandise costing $1,500,000 on an installment basis for $2,000,000. The cash receipts related to these sales were collected as follows: 2008, $800,000; 2009, $700,000; 2010, $500,000.
What is the rate of gross profit on the installment sales made by Steele Corporation during 2008?
75%
60%
40%
25%