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Exercise 5-3 Installment sales method; journal entries LO2

Charter Corporation, which began business in 2009, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales during 2009 and 2010:
 
  2009 2010
Installment sales $360,000 $350,000
Cost of installment sales 234,000 245,000
Cash collections on installment sales during:    
      2009 150,000 100,000
      2010 120,000
 
Required:

Prepare summary journal entries for 2009 and 2010 to account for the installment sales and cash collections. The company uses the perpetual inventory system.

Omit the "$" sign in your response.
2009          To record installment sales
  (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)
     
2009          To record cash collections from installment sales
  (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)
     
2009          To recognize gross profit from installment sales
  (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)
     
     
2010          To record installment sales
  (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)
     
2010          To record cash collections from installment sales
  (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)
     
2010          To recognize gross profit from installment sales
  (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)

Exercise 5-3 Installment sales method; journal entries LO2

Charter Corporation, which began business in 2009, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales during 2009 and 2010:
 
  2009 2010
Installment sales $360,000 $350,000
Cost of installment sales 234,000 245,000
Cash collections on installment sales during:    
      2009 150,000 100,000
      2010 120,000
 
Required:

Prepare summary journal entries for 2009 and 2010 to account for the installment sales and cash collections. The company uses the perpetual inventory system.

Omit the "$" sign in your response.
2009          To record installment sales
Installment Receivables 360,000
       Inventory 234,000
       Deferred Gross Profit 126,000
     
2009          To record cash collections from installment sales
Cash 150,000
       Installment Receivables 150,000
     
2009          To recognize gross profit from installment sales
Deferred Gross Profit 52,500
       Realized Gross Profit 52,500
     
     
2010          To record installment sales
Installment Receivables 350,000
       Inventory 245,000
       Deferred Gross Profit 105,000
     
2010          To record cash collections from installment sales
Cash 220,000
       Installment Receivables 220,000
     
2010          To recognize gross profit from installment sales
Deferred Gross Profit 71,000
       Realized Gross Profit 71,000

Total grade: 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 + 0.0×1/28 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%


Question 2: Score 0/1
Your responseCorrect response

Exercise 5-11 Percentage-of-completion method; loss projected on entire project L04

On February 1, 2009, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2009, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent and cash collected was $2,250,000.

      In 2010, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2010 billings were $2,750,000 and $2,475,000 cash was collected. The project was completed in 2011 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow uses the percentage-of-completion method.

 

Required:

  1. Calculate the amount of gross profit or loss to be recognized in each of the three years.
  2. Prepare journal entries for 2009 and 2010 to record the transactions described (credit various accounts for construction costs incurred).

  3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2009 and 2010.

Round percentage of completion to 2 decimal places. Round your answers to the nearest whole number. Amounts in parentheses do not require a minus sign. Omit the "$" sign in your response.
1.   2009 2010 2011
  Gross Profit or (Loss) Recognition: $      (0%) $(      (0%)) $(      (0%))
       
2.   2009 2010
    (Click for List)   (0%)      (0%)      (0%)
           (Click for List)   (0%)      (0%)      (0%)
  To record construction costs.
   
    (Click for List)   (0%)      (0%)      (0%)
           (Click for List)   (0%)      (0%)      (0%)
  To record progress billings.
   
    (Click for List)   (0%)      (0%)      (0%)
           (Click for List)   (0%)      (0%)      (0%)
  To record cash collections.
   
  (Click for List)   (0%)      (0%)
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
  To record gross profit.
   
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)        (0%)
           (Click for List)   (0%)      (0%)
  To record expected loss.        
       
3. Balance Sheet 2009 2010
  Current Assets:    
        Accounts Receivable $      (0%) $      (0%)
        Costs and Profit in Excess of Billings      (0%)  
       
  Current Liabilities:    
        Billings in Excess of Costs less Loss   $      (0%)
       

Exercise 5-11 Percentage-of-completion method; loss projected on entire project L04

On February 1, 2009, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2009, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent and cash collected was $2,250,000.

      In 2010, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2010 billings were $2,750,000 and $2,475,000 cash was collected. The project was completed in 2011 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow uses the percentage-of-completion method.

 

Required:

  1. Calculate the amount of gross profit or loss to be recognized in each of the three years.
  2. Prepare journal entries for 2009 and 2010 to record the transactions described (credit various accounts for construction costs incurred).

  3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2009 and 2010.

Round percentage of completion to 2 decimal places. Round your answers to the nearest whole number. Amounts in parentheses do not require a minus sign. Omit the "$" sign in your response.
1.   2009 2010 2011
  Gross Profit or (Loss) Recognition: $ 666,667 with a tolerance of ± 0.02% $( 766,667 with a tolerance of ± 0.02%) $( 200,000)
       
2.   2009 2010
  Construction in Progress 2,000,000 2,500,000
         Various Accounts 2,000,000 2,500,000
  To record construction costs.
   
  Accounts Receivable 2,500,000 2,750,000
         Billings on Construction Contract 2,500,000 2,750,000
  To record progress billings.
   
  Cash 2,250,000 2,475,000
         Accounts Receivable 2,250,000 2,475,000
  To record cash collections.
   
Construction in Progress 666,667 with a tolerance of ± 0.02%
  Cost of Construction 2,000,000 with a tolerance of ± 0.02%
         Revenue from Long-Term Contracts 2,666,667 with a tolerance of ± 0.02%
  To record gross profit.
   
  Cost of Construction 2,544,000 with a tolerance of ± 0.05%
         Revenue from Long-Term Contracts   1,777,333 with a tolerance of ± 0.1%
         Construction in Progress(loss) 766,667 with a tolerance of ± 0.02%
  To record expected loss.        
       
3. Balance Sheet 2009 2010
  Current Assets:    
        Accounts Receivable $ 250,000 $ 525,000
        Costs and Profit in Excess of Billings 166,667  
       
  Current Liabilities:    
        Billings in Excess of Costs less Loss   $ 850,000
       

Total grade: 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 + 0.0×1/37 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

Requirement 1:


 

2009

2010

2011

Contract price

$

8,000,000

$

8,000,000

$

8,000,000

Actual costs to date

 

2,000,000

 

4,500,000

 

8,300,000

Estimated costs to complete

 

4,000,000

 

3,600,000

 

0

Total estimated costs

 

6,000,000

 

8,100,000

 

8,300,000

Estimated gross profit (loss) (actual in 2011)

$

2,000,000

$

(100,000)

$

(300,000)


Gross profit (loss) recognition:

2010: $(100,000) – 666,667 = $(766,667)

2011: $(300,000) – (100,000) = $(200,000)

Requirement 2:

To record gross profit:

Revenue from long-term contracts (33.3333% × $8,000,000) = 2,666,667

To record expected loss:

Cost of construction (2) = 2,544,000

Revenue from long-term contracts (1) = 1,777,333

(1) and (2):

Percent complete = $4,500,000 ÷ $8,100,000 = 55.55%

Revenue recognized to date:

 

 

 

55.55% × $8,000,000 =

$

4,444,000

 

Less: Revenue recognized in 2009 (above)

 

(2,666,667)

 

Revenue recognized in 2010

 

1,777,333

(1)

Plus: Loss recognized in 2010 (above)

 

766,667

 

Cost of construction, 2010

$

2,544,000

(2)


Requirement 3:

Current assets:

Costs and profit ($2,666,667*) in excess of billings ($2,500,000) = $166,667

Current liabilities:

Billings ($5,250,000) in excess of costs less loss ($4,400,000**) = $850,000

* Costs ($2,000,000) + profit ($666,667)

** Costs ($2,000,000 + $2,500,000) – loss ($100,000 = $766,667 – $666,667)


Question 3: Score 0/1
Your responseCorrect response

Exercise 5-7 Installment sales; default and repossession LO2

Sanchez Development Company uses the installment sales method to account for some of its installment sales. On October 1, 2009, Sanchez sold a parcel of land to the Kreuze Corporation for $4 million. This amount was not considered significant relative to Sanchez's other sales during 2009. The land had cost Sanchez $1.8 million to acquire and develop. Terms of the sale required a down payment of $800,000 and four annual payments of $800,000 plus interest at an appropriate interest rate, with payments due on each October 1 beginning in 2010.

Kreuze paid the down payment, but on October 1, 2010, defaulted on the remainder of the contract. Sanchez repossessed the land. On the date of repossession the land had a fair value of $1.3 million.


Required:

Prepare the necessary entries for Sanchez to record the sale, receipt of the down payment, and the default and repossession applying the installment sales method. Ignore interest charges. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Oct.1.2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)

 

  (Click for List)   (0%)

 

     (0%)

 

 

 

 

Oct.1.2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)

 

 

 

 

Oct.1.2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)

 

 

 

 

Oct.1.2010

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)


Exercise 5-7 Installment sales; default and repossession LO2

Sanchez Development Company uses the installment sales method to account for some of its installment sales. On October 1, 2009, Sanchez sold a parcel of land to the Kreuze Corporation for $4 million. This amount was not considered significant relative to Sanchez's other sales during 2009. The land had cost Sanchez $1.8 million to acquire and develop. Terms of the sale required a down payment of $800,000 and four annual payments of $800,000 plus interest at an appropriate interest rate, with payments due on each October 1 beginning in 2010.

Kreuze paid the down payment, but on October 1, 2010, defaulted on the remainder of the contract. Sanchez repossessed the land. On the date of repossession the land had a fair value of $1.3 million.


Required:

Prepare the necessary entries for Sanchez to record the sale, receipt of the down payment, and the default and repossession applying the installment sales method. Ignore interest charges. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Oct.1.2009

Installment receivable

4,000,000

 

 

Inventory

 

1,800,000

 

Deferred gross profit

 

2,200,000

 

 

 

 

Oct.1.2009

Cash

800,000

 

 

Installment receivable

 

800,000

 

 

 

 

Oct.1.2009

Deferred gross profit

440,000

 

 

Realized gross profit

 

440,000

 

 

 

 

Oct.1.2010

Repossessed inventory

1,300,000

 

 

Deferred gross profit

1,760,000

 

 

Loss on repossession

140,000

 

 

Installment receivable

 

3,200,000


Total grade: 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 + 0.0×1/22 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

*$2,200,000 ÷ $4,000,000 = 55% gross profit percentage

October 1.2009: ($800,000 × 55%*) =440,000 Deferred gross profit


Question 4: Score 0/1
Your responseCorrect response

Exercise 5-18 Concepts; terminology LO2 through LO6

Listed below are several terms and phrases associated with revenue recognition and profitability analysis. Pair each item from List A(by letter) with the item from List B that is most appropriately associated with it.

 
List A   List B
     (0%) 1. Inventory turnover a. Net income divided by net sales.
     (0%) 2. Return on assets b. Defers recognition until cash collected equals cost.
     (0%) 3. Return on shareholders’ equity c. Defers recognition until project is complete.
     (0%) 4. Profit margin on sales d. Net income divided by assets.
     (0%) 5. Cost recovery method e. Risks and rewards of ownership retained by seller.
     (0%) 6. Percentage-of-completion method f. Contra account to construction in progress.
     (0%) 7. Completed contract method g. Net income divided by shareholders’ equity.
     (0%) 8. Asset turnover h. Cost of goods sold divided by inventory.
     (0%) 9. Receivables turnover i. Recognition is in proportion to work completed.
     (0%) 10. Right of return j. Recognition is in proportion to cash received.
     (0%) 11. Billings on construction contract k. Net sales divided by assets.
     (0%) 12. Installment sales method l. Net sales divided by accounts receivable.
     (0%) 13. Consignment sales m. Could cause the deferral of revenue recognition beyond delivery point.

Exercise 5-18 Concepts; terminology LO2 through LO6

Listed below are several terms and phrases associated with revenue recognition and profitability analysis. Pair each item from List A(by letter) with the item from List B that is most appropriately associated with it.

 
List A   List B
h 1. Inventory turnover a. Net income divided by net sales.
d 2. Return on assets b. Defers recognition until cash collected equals cost.
g 3. Return on shareholders’ equity c. Defers recognition until project is complete.
a 4. Profit margin on sales d. Net income divided by assets.
b 5. Cost recovery method e. Risks and rewards of ownership retained by seller.
i 6. Percentage-of-completion method f. Contra account to construction in progress.
c 7. Completed contract method g. Net income divided by shareholders’ equity.
k 8. Asset turnover h. Cost of goods sold divided by inventory.
l 9. Receivables turnover i. Recognition is in proportion to work completed.
m 10. Right of return j. Recognition is in proportion to cash received.
f 11. Billings on construction contract k. Net sales divided by assets.
j 12. Installment sales method l. Net sales divided by accounts receivable.
e 13. Consignment sales m. Could cause the deferral of revenue recognition beyond delivery point.

Total grade: 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 + 0.0×1/13 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%


Question 5: Score 0/1
Your responseCorrect response

Exercise 5-14 Percentage-of-completion method; solve for unknowns LO4

In 2009, Long Construction Corporation began construction work under a three-year contract. The contract price is $1,600,000. Long uses the percentage-of-completion method for financial reporting purposes. The financial statement presentation relating to this contract at December 31, 2009, is as follows:

 
Balance Sheet
Accounts Receivable (from construction progress billings)   $30,000
      Construction in Progress $100,000  
      Less: Billings on Construction Contract (94,000)  
Cost of uncompleted contracts in excess of billings   6,000
     
Income statement
Income (before tax) on the contract recognized in 2009   $20,000
     

Required:

  1. What was the cost of construction actually incurred in 2009?
  2. How much cash was collected in 2009 on this contract?
  3. What was the estimated cost to complete as of the end of 2009?
  4. What was the estimated percentage of completion used to calculate income in 2009?

Round percentage of completion to 2 decimal places, all other answers to nearest whole number. Omit the "$" and "%" sign in your response.

1. Actual costs incurred in 2009 = $      (0%)
   
2. Cash collections in 2009 = $      (0%)
   
3. Estimated cost to complete = $      (0%)
   
4. Estimated percentage of completion used to calculate income =      (0%)%
     

Exercise 5-14 Percentage-of-completion method; solve for unknowns LO4

In 2009, Long Construction Corporation began construction work under a three-year contract. The contract price is $1,600,000. Long uses the percentage-of-completion method for financial reporting purposes. The financial statement presentation relating to this contract at December 31, 2009, is as follows:

 
Balance Sheet
Accounts Receivable (from construction progress billings)   $30,000
      Construction in Progress $100,000  
      Less: Billings on Construction Contract (94,000)  
Cost of uncompleted contracts in excess of billings   6,000
     
Income statement
Income (before tax) on the contract recognized in 2009   $20,000
     

Required:

  1. What was the cost of construction actually incurred in 2009?
  2. How much cash was collected in 2009 on this contract?
  3. What was the estimated cost to complete as of the end of 2009?
  4. What was the estimated percentage of completion used to calculate income in 2009?

Round percentage of completion to 2 decimal places, all other answers to nearest whole number. Omit the "$" and "%" sign in your response.

1. Actual costs incurred in 2009 = $ 80,000
   
2. Cash collections in 2009 = $ 64,000
   
3. Estimated cost to complete = $ 1,200,000
   
4. Estimated percentage of completion used to calculate income = 6.25%
     

Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:

Requirement 1:

Construction in progress = Costs incurred + Profit recognized

$100,000 = ? + $20,000

Actual costs incurred in 2009 = $80,000

 

Requirement 2:

Billings = Cash collections + Accounts Receivable

$94,000 = ? + $30,000

Cash collections in 2009 = $64,000

 

Requirement 3:

Let A = Actual cost incurred + Estimated cost to complete

$128,000,000,000 – 80,000A = $20,000A

$100,000A = $128,000,000,000

A = $1,280,000

Estimated cost to complete = $1,280,000 – 80,000 = $1,200,000

 

Requirement 4:

= 6.25%


Question 6: Score 0/1
Your responseCorrect response

Exercise 5-25 Interim financial statements; reporting expenses [Based on Appendix 5] LO1

Shields Company is preparing its interim report for the second quarter ending June 30. The following payments were made during the first two quarters:

 
Expenditure Date Amount
Annual advertising January $800,000
Property tax for the fiscal year February 350,000
Annual equipment repairs March 260,000
Extraordinary casualty loss April 185,000
Research and development May 96,000
 
Required:

For each expenditure indicate the amount that would be reported in the quarterly income statements for the periods ending March 31, June 30, September 30, and December 31. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.

  1st 2nd 3rd 4th
Advertising $      (0%) $      (0%) $      (0%) $      (0%)
Property Tax      (0%)      (0%)      (0%)      (0%)
Equipment Repairs      (0%)      (0%)      (0%)      (0%)
Extraordinary Casualty Loss      (0%)      (0%)      (0%)      (0%)
Research and Development      (0%)      (0%)      (0%)      (0%)

Exercise 5-25 Interim financial statements; reporting expenses [Based on Appendix 5] LO1

Shields Company is preparing its interim report for the second quarter ending June 30. The following payments were made during the first two quarters:

 
Expenditure Date Amount
Annual advertising January $800,000
Property tax for the fiscal year February 350,000
Annual equipment repairs March 260,000
Extraordinary casualty loss April 185,000
Research and development May 96,000
 
Required:

For each expenditure indicate the amount that would be reported in the quarterly income statements for the periods ending March 31, June 30, September 30, and December 31. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.

  1st 2nd 3rd 4th
Advertising $ 200,000 $ 200,000 $ 200,000 $ 200,000
Property Tax 87,500 87,500 87,500 87,500
Equipment Repairs 65,000 65,000 65,000 65,000
Extraordinary Casualty Loss 0 185,000 0 0
Research and Development 0 32,000 32,000 32,000

Total grade: 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%


Question 7: Score 0/1
Your responseCorrect response

Exercise 5-19 Inventory turnover; calculation and evaluation LO6

The following is a portion of the condensed income statement for Rowan, Inc., a manufacturer of plastic containers:

 
Net sales   $2,460,000
Less: Cost of goods sold:    
       Inventory, January 1 $ 630,000  
       Net purchases 1,900,000  
       Inventory, December 31 (690,000) 1,840,000
 

Gross profit   $ 620,000
   
 

Required:

Determine Rowan’s inventory turnover.

Round your answer to two decimal places.
Inventory Turnover Ratio =      (0%) times

Exercise 5-19 Inventory turnover; calculation and evaluation LO6

The following is a portion of the condensed income statement for Rowan, Inc., a manufacturer of plastic containers:

 
Net sales   $2,460,000
Less: Cost of goods sold:    
       Inventory, January 1 $ 630,000  
       Net purchases 1,900,000  
       Inventory, December 31 (690,000) 1,840,000
 

Gross profit   $ 620,000
   
 

Required:

Determine Rowan’s inventory turnover.

Round your answer to two decimal places.
Inventory Turnover Ratio = 2.79 times

Total grade: 0.0×1/1 = 0%


Question 8: Score 0/1
Your responseCorrect response

Exercise 5-13 Income (loss) recognition; percentage-of-completion and completed contract methods compared LO4

Brady Construction Company contracted to build an apartment complex for a price of $5,000,000. Construction began in 2009 and was completed in 2011. The following are a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars.

 
  Estimated Costs to Complete
  Costs Incurred During Year (As of the End of the Year)
Situation 2009  2010  2011    2009  2010  2011 
1 1,500 2,100 900   3,000 900
2 1,500 900 2,400   3,000 2,400
3 1,500 2,100 1,600   3,000 1,500
4 500 3,000 1,000   3,500 875
5 500 3,000 1,300   3,500 1,500
6 500 3,000 1,800   4,600 1,700
               
Required:
Complete the following table.
Round all answers to the nearest whole dollar. Amounts in parentheses do not require a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.
Gross Profit (Loss) Recognized
  Percentage-of-Completion Completed Contract
Situation 2009 2010 2011   2009 2010 2011
1 $      (0%) $      (0%) $      (0%)   $      (0%) $      (0%) $      (0%)
2      (0%) (      (0%))      (0%)        (0%)      (0%)      (0%)
3      (0%) (      (0%)) (      (0%))        (0%) (      (0%)) (      (0%))
4      (0%)      (0%)      (0%)        (0%)      (0%)      (0%)
5      (0%) (      (0%))      (0%)        (0%)      (0%)      (0%)
6 (      (0%)) (      (0%)) (      (0%))   (      (0%)) (      (0%)) (      (0%))

Exercise 5-13 Income (loss) recognition; percentage-of-completion and completed contract methods compared LO4

Brady Construction Company contracted to build an apartment complex for a price of $5,000,000. Construction began in 2009 and was completed in 2011. The following are a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars.

 
  Estimated Costs to Complete
  Costs Incurred During Year (As of the End of the Year)
Situation 2009  2010  2011    2009  2010  2011 
1 1,500 2,100 900   3,000 900
2 1,500 900 2,400   3,000 2,400
3 1,500 2,100 1,600   3,000 1,500
4 500 3,000 1,000   3,500 875
5 500 3,000 1,300   3,500 1,500
6 500 3,000 1,800   4,600 1,700
               
Required:
Complete the following table.
Round all answers to the nearest whole dollar. Amounts in parentheses do not require a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.
Gross Profit (Loss) Recognized
  Percentage-of-Completion Completed Contract
Situation 2009 2010 2011   2009 2010 2011
1 $ 166,667 $ 233,333 with a tolerance of ±1 $ 100,000   $ 0 $ 0 $ 500,000
2 166,667 ( 66,667 with a tolerance of ±1) 100,000   0 0 200,000
3 166,667 ( 266,667 with a tolerance of ±1) ( 100,000)   0 ( 100,000) ( 100,000)
4 125,000 375,000 0   0 0 500,000
5 125,000 ( 125,000) 200,000   0 0 200,000
6 ( 100,000) ( 100,000) ( 100,000)   ( 100,000) ( 100,000) ( 100,000)

Total grade: 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

Situation 1 - Percentage-of-Completion

 

2009

2010

2011

Contract price

$

5,000,000

$

5,000,000

$

5,000,000

Actual costs to date

 

1,500,000

 

3,600,000

 

4,500,000

Estimated costs to complete

 

3,000,000

 

900,000

 

0

Total estimated costs

 

4,500,000

 

4,500,000

 

4,500,000

Estimated gross profit (actual in 2011)

$

500,000

$

500,000

$

500,000


Gross profit (loss) recognized:

2011: $500,000 – 400,000 = $100,000


Situation 2 - Percentage-of-Completion

 

2009

2010

2011

Contract price

$

5,000,000

$

5,000,000

$

5,000,000

Actual costs to date

 

1,500,000

 

2,400,000

 

4,800,000

Estimated costs to complete

 

3,000,000

 

2,400,000

 

0

Total estimated costs

 

4,500,000

 

4,800,000

 

4,800,000

Estimated gross profit (actual in 2011)

$

500,000

$

200,000

$

200,000


Gross profit (loss) recognized:

2011: $200,000 – 100,000 = $100,000


Situation 3 - Percentage-of-Completion

 

2009

2010

2011

Contract price

$

5,000,000

$

5,000,000

$

5,000,000

Actual costs to date

 

1,500,000

 

3,600,000

 

5,200,000

Estimated costs to complete

 

3,000,000

 

1,500,000

 

0

Total estimated costs

 

4,500,000

 

5,100,000

 

5,200,000

Estimated gross profit (actual in 2011)

$

500,000

$

(100,000)

$

(200,000)


Gross profit (loss) recognized:

2010: $(100,000) – 166,667 = $(266,667)

2011: $(200,000) – (100,000) = $(100,000)


Situation 4 - Percentage-of-Completion

 

2009

2010

2011

Contract price

$

5,000,000

$

5,000,000

$

5,000,000

Actual costs to date

 

500,000

 

3,500,000

 

4,500,000

Estimated costs to complete

 

3,500,000

 

875,000

 

0

Total estimated costs

 

4,000,000

 

4,375,000

 

4,500,000

Estimated gross profit (actual in 2011)

$

1,000,000

$

625,000

$

500,000


Gross profit (loss) recognized:

2011: $500,000 – 500,000 = $-0-


Situation 5 - Percentage-of-Completion

 

2009

2010

2011

Contract price

$

5,000,000

$

5,000,000

$

5,000,000

Actual costs to date

 

500,000

 

3,500,000

 

4,800,000

Estimated costs to complete

 

3,500,000

 

1,500,000

 

0

Total estimated costs

 

4,000,000

 

5,000,000

 

4,800,000

Estimated gross profit (actual in 2011)

$

1,000,000

$

0

$

200,000


Gross profit (loss) recognized:

2010: $0 – 125,000 = $(125,000)

2011: $200,000 – 0 = $200,000


Situation 6 - Percentage-of-Completion

 

2009

2010

2011

Contract price

$

5,000,000

$

5,000,000

$

5,000,000

Actual costs to date

 

500,000

 

3,500,000

 

5,300,000

Estimated costs to complete

 

4,600,000

 

1,700,000

 

0

Total estimated costs

 

5,100,000

 

5,200,000

 

5,300,000

Estimated gross profit (actual in 2011)

$

(100,000)

$

(200,000)

$

(300,000)


Gross profit (loss) recognized:

2009: $(100,000)

2010: $(200,000) – (100,000) = $(100,000)

2011: $(300,000) – (200,000) = $(100,000)


Question 9: Score 0/1
Your responseCorrect response

Exercise 5-5 Journal entries; point of delivery, installment sales, and cost recovery methods LO1 LO2

On July 1, 2009, the Foster Company sold inventory to the Slate Corporation for $300,000. Terms of the sale called for a down payment of $75,000 and three annual installments of $75,000 due on each July 1, beginning July 1, 2010. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $120,000. The company uses the perpetual inventory system.

 

Required:

  1. Prepare the necessary journal entries for 2009 and 2010 using point of delivery revenue recognition. Ignore interest charges.

  2. Repeat requirement 1 applying the installment sales method.
  3. Repeat requirement 1 applying the cost recovery method.
Omit the "$" sign in your response.
1  
  July 1, 2009          To record installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
 
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
                               To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
  July 1, 2010         To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
2.
  July 1, 2009         To record installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
                               To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
                               To recognize gross profit from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
  July 1, 2010         To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
                               To recognize gross profit from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
3.
  July 1, 2009         To record installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
                               To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
  July 1, 2010         To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
                               To recognize gross profit from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)

Exercise 5-5 Journal entries; point of delivery, installment sales, and cost recovery methods LO1 LO2

On July 1, 2009, the Foster Company sold inventory to the Slate Corporation for $300,000. Terms of the sale called for a down payment of $75,000 and three annual installments of $75,000 due on each July 1, beginning July 1, 2010. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $120,000. The company uses the perpetual inventory system.

 

Required:

  1. Prepare the necessary journal entries for 2009 and 2010 using point of delivery revenue recognition. Ignore interest charges.

  2. Repeat requirement 1 applying the installment sales method.
  3. Repeat requirement 1 applying the cost recovery method.
Omit the "$" sign in your response.
1  
  July 1, 2009          To record installment sale
  Installment Receivables 300,000
         Sales Revenue 300,000
 
  Cost of Goods Sold 120,000
         Inventory 120,000
   
                               To record cash collection from installment sale
  Cash 75,000
         Installment Receivables 75,000
   
  July 1, 2010         To record cash collection from installment sale
  Cash 75,000
         Installment Receivables 75,000
   
2.
  July 1, 2009         To record installment sale
  Installment Receivables 300,000
         Inventory 120,000
         Deferred Gross Profit 180,000
   
                               To record cash collection from installment sale
  Cash 75,000
         Installment Receivables 75,000
   
                               To recognize gross profit from installment sale
  Deferred Gross Profit 45,000
         Realized Gross Profit 45,000
   
  July 1, 2010         To record cash collection from installment sale
  Cash 75,000
         Installment Receivables 75,000
   
                               To recognize gross profit from installment sale
  Deferred Gross Profit 45,000
         Realized Gross Profit 45,000
   
3.
  July 1, 2009         To record installment sale
  Installment Receivables 300,000
         Inventory 120,000
         Deferred Gross Profit 180,000
   
                               To record cash collection from installment sale
  Cash 75,000
         Installment Receivables 75,000
   
  July 1, 2010         To record cash collection from installment sale
  Cash 75,000
         Installment Receivables 75,000
   
                               To recognize gross profit from installment sale
  Deferred Gross Profit 30,000
         Realized Gross Profit 30,000

Total grade: 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 + 0.0×1/56 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%


Question 10: Score 0/1
Your responseCorrect response

Exercise 5-20 Evaluating efficiency of asset management LO6

The 2009 income statement of Anderson Medical Supply Company reported net sales of $8 million, cost of goods sold of $4.8 million, and net income of $800,000. The following table shows the company's comparative balance sheets for 2009 and 2008:

 
  ($ in 000s)
  2009 2008
Assets    
Cash $ 300 $ 380
Accounts Receivable 700 500
Inventory 900 700
Property, Plant, and Equipment (net) 2,400 2,120
 

      Total Assets $4,300 $3,700
 



     
Liabilities and Shareholders’ Equity    
Current Liabilities $ 960 $ 830
Bonds Payable 1,200 1,200
Paid-In Capital 1,000 1,000
Retained Earnings 1,140 670
 

      Total Liabilities and Shareholder's Equity $4,300 $3,700
 



Some industry averages for Anderson’s line of business are
Inventory Turnover 5 times
Average Collection Period 25 days
Asset Turnover 1.8 times
 
Required:
Calculate Anderson's Inventory turnover ratio, Receivables turnover ratio, Average collection period and Asset turnover ratio.
 Round Inventory turnover ratio and Asset turnover ratio to nearest whole number, round Receivables turnover ratio to 2 decimal places and Average collection period to 1 decimal place.
Turnover ratios for Anderson Medical Supply Company for 2009:
     
Inventory Turnover Ratio =      (0%) times
   
Receivables Turnover Ratio =      (0%) times
   
Average Collection Period =      (0%) days
   
Asset Turnover Ratio =      (0%) times

Exercise 5-20 Evaluating efficiency of asset management LO6

The 2009 income statement of Anderson Medical Supply Company reported net sales of $8 million, cost of goods sold of $4.8 million, and net income of $800,000. The following table shows the company's comparative balance sheets for 2009 and 2008:

 
  ($ in 000s)
  2009 2008
Assets    
Cash $ 300 $ 380
Accounts Receivable 700 500
Inventory 900 700
Property, Plant, and Equipment (net) 2,400 2,120
 

      Total Assets $4,300 $3,700
 



     
Liabilities and Shareholders’ Equity    
Current Liabilities $ 960 $ 830
Bonds Payable 1,200 1,200
Paid-In Capital 1,000 1,000
Retained Earnings 1,140 670
 

      Total Liabilities and Shareholder's Equity $4,300 $3,700
 



Some industry averages for Anderson’s line of business are
Inventory Turnover 5 times
Average Collection Period 25 days
Asset Turnover 1.8 times
 
Required:
Calculate Anderson's Inventory turnover ratio, Receivables turnover ratio, Average collection period and Asset turnover ratio.
 Round Inventory turnover ratio and Asset turnover ratio to nearest whole number, round Receivables turnover ratio to 2 decimal places and Average collection period to 1 decimal place.
Turnover ratios for Anderson Medical Supply Company for 2009:
     
Inventory Turnover Ratio = 6 times
   
Receivables Turnover Ratio = 13.33 times
   
Average Collection Period = 27.4 days
   
Asset Turnover Ratio = 2 times

Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:

Turnover ratios for Anderson Medical Supply Company for 2009:

Inventory turnover ratio == 6 times

Receivables turnover ratio == 13.33 times

Average collection period == 27.4 days

Asset turnover ratio == 2 times


Question 11: Score 0/1
Your responseCorrect response

Exercise 5-24 Interim reporting; recognizing expenses [Based on Appendix 5] LO1

Security-Rand Corporation determines executive incentive compensation at the end of its fiscal year. At the end of the first quarter, management estimated that the amount will be $300 million. Depreciation expense for the year is expected to be $60 million. Also during the quarter, the company realized a gain of $23 million from selling two of its manufacturing plants.

 
Required:
What amounts for these items should be reported in the first quarter’s income statement?

Omit the "$" sign in your response.

 
Incentive compensation $      (0%) million
Depreciation expense      (0%) million
Gain on sale      (0%) million

Exercise 5-24 Interim reporting; recognizing expenses [Based on Appendix 5] LO1

Security-Rand Corporation determines executive incentive compensation at the end of its fiscal year. At the end of the first quarter, management estimated that the amount will be $300 million. Depreciation expense for the year is expected to be $60 million. Also during the quarter, the company realized a gain of $23 million from selling two of its manufacturing plants.

 
Required:
What amounts for these items should be reported in the first quarter’s income statement?

Omit the "$" sign in your response.

 
Incentive compensation $ 75 million
Depreciation expense 15 million
Gain on sale 23 million

Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%


Question 12: Score 0/1
Your responseCorrect response

Exercise 5-6 Installment sales and cost recovery methods; solve for unknowns LO2

Wolf Computer Company began operations in 2009. The company allows customers to pay in installments for many of its products. Installment sales for 2009 were $1,000,000. If revenue is recognized at the point of delivery, $600,000 in gross profit would be recognized in 2009. If the company instead uses the cost recovery method, $100,000 in gross profit would be recognized in 2009.

 

Required:

  1. What was the amount of cash collected on installment sales in 2009?
  2. What amount of gross profit would be recognized if the company uses the installment sales method?
Omit the "$" sign in your response.
     
1. Cost of goods sold $      (0%)
  Add: Gross profit if use cost recovery method      (0%)
   
  Cash collected $      (0%)
   

     
2. Gross Profit = $      (0%)

Exercise 5-6 Installment sales and cost recovery methods; solve for unknowns LO2

Wolf Computer Company began operations in 2009. The company allows customers to pay in installments for many of its products. Installment sales for 2009 were $1,000,000. If revenue is recognized at the point of delivery, $600,000 in gross profit would be recognized in 2009. If the company instead uses the cost recovery method, $100,000 in gross profit would be recognized in 2009.

 

Required:

  1. What was the amount of cash collected on installment sales in 2009?
  2. What amount of gross profit would be recognized if the company uses the installment sales method?
Omit the "$" sign in your response.
     
1. Cost of goods sold $ 400,000
  Add: Gross profit if use cost recovery method 100,000
   
  Cash collected $ 500,000
   

     
2. Gross Profit = $ 300,000

Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:

1.

Cost of goods sold ($1,000,000 – 600,000) = $400,000

 

 

2.

 

Cash collected × Gross profit percentage = Gross profit recognized

 

$500,000 × 60% = $300,000 gross profit


Question 13: Score 0/1
Your responseCorrect response

Exercise 5-23 Interim financial statements; income tax expense [Based on Appendix 5] LO1

Joplin Laminating Corporation reported income before income taxes during the first three quarters and management’s estimates of the annual effective tax rate at the end of each quarter as shown below:

 
  Quarter
  First Second Third
Income before income taxes $50,000 $40,000 $100,000
Estimated annual effective tax rate 34% 30% 36%
 
Required:
Determine the income tax expense to be reported in the income statement in each of the three quarterly reports. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and "%" sign in your response.
  Quarter
  First Second Third
Cumulative income before taxes $      (0%)   $      (0%)   $      (0%)  
Estimated annual effective tax rate      (0%) %      (0%) %      (0%) %
 
 
 
 
       (0%)        (0%)        (0%)  
Less: Income tax reported earlier      (0%)        (0%)        (0%)  
 
 
 
 
Tax expense to be reported $      (0%)   $      (0%)   $      (0%)  
 

 

 

 

Exercise 5-23 Interim financial statements; income tax expense [Based on Appendix 5] LO1

Joplin Laminating Corporation reported income before income taxes during the first three quarters and management’s estimates of the annual effective tax rate at the end of each quarter as shown below:

 
  Quarter
  First Second Third
Income before income taxes $50,000 $40,000 $100,000
Estimated annual effective tax rate 34% 30% 36%
 
Required:
Determine the income tax expense to be reported in the income statement in each of the three quarterly reports. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and "%" sign in your response.
  Quarter
  First Second Third
Cumulative income before taxes $ 50,000   $ 90,000   $ 190,000  
Estimated annual effective tax rate 34 % 30 % 36 %
 
 
 
 
  17,000   27,000   68,400  
Less: Income tax reported earlier 0   17,000   27,000  
 
 
 
 
Tax expense to be reported $ 17,000   $ 10,000   $ 41,400  
 

 

 

 

Total grade: 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%


Question 14: Score 0/1
Your responseCorrect response

Exercise 5-9 Long-term contract; percentage-of-completion and completed contract methods LO4

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2009 and was completed in 2010. Data relating to the contract are summarized below:

 
  2009 2010
Costs incurred during the year $ 300,000 $1,575,000
Estimated costs to complete as of 12/31 1,200,000 –0–
Billings during the year 380,000 1,620,000
Cash collections during the year 250,000 1,750,000
     

Required:

  1. Compute the amount of gross profit or loss to be recognized in 2009 and 2010 using the percentage-of-completion method.

  2. Compute the amount of gross profit or loss to be recognized in 2009 and 2010 using the completed contract method.

  3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2009 using the percentage-of-completion method.

  4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2009 using the completed contract method.

(Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
1. Gross Profit Recognition: 2009 2010
  2009: $      (0%)  
       
  2010:   $      (0%)
       
2. Gross Profit Recognition:            
  2009 $      (0%)          
  2010 $      (0%)          
               
3. Balance Sheet  
  At December 31, 2009  
  Current Assets:    
        Accounts Receivable $      (0%)  
        Costs and Profit in Excess of Billings      (0%)  
       
4. Balance Sheet
  At December 31, 2009
  Current Assets:  
        Accounts Receivable $      (0%)
     
  Current Liabilities:  
        Billings in Excess of Costs $      (0%)

Exercise 5-9 Long-term contract; percentage-of-completion and completed contract methods LO4

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2009 and was completed in 2010. Data relating to the contract are summarized below:

 
  2009 2010
Costs incurred during the year $ 300,000 $1,575,000
Estimated costs to complete as of 12/31 1,200,000 –0–
Billings during the year 380,000 1,620,000
Cash collections during the year 250,000 1,750,000
     

Required:

  1. Compute the amount of gross profit or loss to be recognized in 2009 and 2010 using the percentage-of-completion method.

  2. Compute the amount of gross profit or loss to be recognized in 2009 and 2010 using the completed contract method.

  3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2009 using the percentage-of-completion method.

  4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2009 using the completed contract method.

(Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
1. Gross Profit Recognition: 2009 2010
  2009: $ 100,000  
       
  2010:   $ 25,000
       
2. Gross Profit Recognition:            
  2009 $ 0          
  2010 $ 125,000          
               
3. Balance Sheet  
  At December 31, 2009  
  Current Assets:    
        Accounts Receivable $ 130,000  
        Costs and Profit in Excess of Billings 20,000  
       
4. Balance Sheet
  At December 31, 2009
  Current Assets:  
        Accounts Receivable $ 130,000
     
  Current Liabilities:  
        Billings in Excess of Costs $ 80,000

Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

Requirement 1:

 

 

2009

2010

Contract price

$

2,000,000

$

2,000,000

Actual costs to date

 

300,000

 

1,875,000

Estimated costs to complete

 

1,200,000

 

0

Total estimated costs

 

1,500,000

 

1,875,000

Gross profit (estimated in 2009)

$

500,000

$

125,000


Gross profit recognition:

Requirement 3:

Costs and profit ($400,000*) in excess of billings ($380,000) = $20,000

* Costs ($300,000) + profit ($100,000)

Requirement 4:

Billings ($380,000) in excess of costs ($300,000) = $80,000


Question 15: Score 0/1
Your responseCorrect response

Exercise 5-12 Completed contract method; loss projected on entire project LO4

      On February 1, 2009, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2009, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent and cash collected was $2,250,000.

      In 2010, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2010 billings were $2,750,000 and $2,475,000 cash was collected. The project was completed in 2011 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow uses the completed contract method.

 

Required:

  1. Calculate the amount of gross profit or loss to be recognized in each of the three years.
  2. Prepare journal entries for 2009 and 2010 to record the transactions described (credit various accounts for construction costs incurred).

  3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2009 and 2010.

Amounts in parentheses do not require a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.

1.    
  Year Gross profit (loss) recognized
  2009 $      (0%)
  2010 (      (0%))
  2011 (      (0%))
   
  Total Project Loss $(      (0%))
   

2.   2009 2010
    (Click for List)   (0%)      (0%)      (0%)
        Various Accounts      (0%)      (0%)
  To record construction costs.
   
    (Click for List)   (0%)      (0%)      (0%)
           (Click for List)   (0%)      (0%)      (0%)
  To record progress billings.
   
    (Click for List)   (0%)      (0%)      (0%)
           (Click for List)   (0%)      (0%)      (0%)
  To record cash collections.
   
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
  To record an expected loss.        
3. Balance Sheet 2009 2010
  Current Assets:    
        Accounts Receivable $      (0%) $      (0%)
       
  Current Liabilities:    
        Billings in Excess of Costs $      (0%)  
       
        Billings in Excess of Costs Less Loss   $      (0%)

Exercise 5-12 Completed contract method; loss projected on entire project LO4

      On February 1, 2009, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2009, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent and cash collected was $2,250,000.

      In 2010, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2010 billings were $2,750,000 and $2,475,000 cash was collected. The project was completed in 2011 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow uses the completed contract method.

 

Required:

  1. Calculate the amount of gross profit or loss to be recognized in each of the three years.
  2. Prepare journal entries for 2009 and 2010 to record the transactions described (credit various accounts for construction costs incurred).

  3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2009 and 2010.

Amounts in parentheses do not require a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.

1.    
  Year Gross profit (loss) recognized
  2009 $ 0
  2010 ( 100,000)
  2011 ( 200,000)
   
  Total Project Loss $( 300,000)
   

2.   2009 2010
  Construction in Progress 2,000,000 2,500,000
        Various Accounts 2,000,000 2,500,000
  To record construction costs.
   
  Accounts Receivable 2,500,000 2,750,000
         Billings on Construction Contract 2,500,000 2,750,000
  To record progress billings.
   
  Cash 2,250,000 2,475,000
         Accounts Receivable 2,250,000 2,475,000
  To record cash collections.
   
  Loss on Long-Term Contract 100,000
         Construction in Progress 100,000
  To record an expected loss.        
3. Balance Sheet 2009 2010
  Current Assets:    
        Accounts Receivable $ 250,000 $ 525,000
       
  Current Liabilities:    
        Billings in Excess of Costs $ 500,000  
       
        Billings in Excess of Costs Less Loss   $ 850,000

Total grade: 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 + 0.0×1/29 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

Requirement 3:

Balance Sheet

2009

2010

Current liabilities:

 

 

 

 

Billings ($2,500,000) in excess of costs ($2,000,000)

$

500,000

 

 

Billings ($5,250,000) in excess of costs less loss ($4,400,000*)

 

 

$

850,000


* Costs ($2,000,000 + $2,500,000) – loss ($100,000)


Question 16: Score 0/1
Your responseCorrect response

Exercise 5-2 Installment sales method LO2

Charter Corporation, which began business in 2009, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2009 and 2010:

 
  2009 2010
Installment sales $360,000 $350,000
Cost of installment sales 234,000 245,000
Cash collections on installment sales during:    
      2009 150,000 100,000
      2010 120,000
 
Required:
  1. How much gross profit should Charter recognize in 2009 and 2010 from installment sales?
  2. What should be the balance in the deferred gross profit account at the end of 2009 and 2010?
Amounts in parentheses do not require a minus sign. Omit the "$" and "%" sign in your response.
1. 2009 gross profit:
  Cash collection from 2009 sales of $      (0%)×      (0%)% = $      (0%)
     
  2010 gross profit:    
  Cash collection from 2009 sales of $      (0%)×      (0%)% = $      (0%)
  Cash collection from 2010 sales of $      (0%)×      (0%)% =      (0%)
   
          Total 2010 gross profit   $      (0%)
   

         
2. 2009 deferred gross profit balance:    
  2009 initial gross profit $      (0%)
  Less: Gross profit recognized in 2009   (      (0%))
   
  Balance in deferred gross profit account   $      (0%)
   

  2010 deferred gross profit balance:    
  2009 initial gross profit $      (0%)
  Less: Gross profit recognized in 2009   (      (0%))
           Gross profit recognized in 2010 (      (0%))
       
  2010 initial gross profit      (0%)
  Less: Gross profit recognized in 2010   (      (0%))
   
  Balance in deferred gross profit account   $      (0%)
   

Exercise 5-2 Installment sales method LO2

Charter Corporation, which began business in 2009, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2009 and 2010:

 
  2009 2010
Installment sales $360,000 $350,000
Cost of installment sales 234,000 245,000
Cash collections on installment sales during:    
      2009 150,000 100,000
      2010 120,000
 
Required:
  1. How much gross profit should Charter recognize in 2009 and 2010 from installment sales?
  2. What should be the balance in the deferred gross profit account at the end of 2009 and 2010?
Amounts in parentheses do not require a minus sign. Omit the "$" and "%" sign in your response.
1. 2009 gross profit:
  Cash collection from 2009 sales of $ 150,000× 35% = $ 52,500
     
  2010 gross profit:    
  Cash collection from 2009 sales of $ 100,000× 35% = $ 35,000
  Cash collection from 2010 sales of $ 120,000× 30% = 36,000
   
          Total 2010 gross profit   $ 71,000
   

         
2. 2009 deferred gross profit balance:    
  2009 initial gross profit $ 126,000
  Less: Gross profit recognized in 2009   ( 52,500)
   
  Balance in deferred gross profit account   $ 73,500
   

  2010 deferred gross profit balance:    
  2009 initial gross profit $ 126,000
  Less: Gross profit recognized in 2009   ( 52,500)
           Gross profit recognized in 2010 ( 35,000)
       
  2010 initial gross profit 105,000
  Less: Gross profit recognized in 2010   ( 36,000)
   
  Balance in deferred gross profit account   $ 107,500
   

Total grade: 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

1.

2009 Cost recovery %:

 

 

2010 Cost recovery %:

 

2.

2009 deferred gross profit balance:

 

2009 initial gross profit ($360,000 – 234,000) = $126,000

 

2010 deferred gross profit balance:

 

2010 initial gross profit ($350,000 – 245,000) = $105,000


Question 17: Score 0/1
Your responseCorrect response

Exercise 5-16 Multiple deliverable arrangements LO5

Richardson Systems sells integrated bottling manufacturing systems that involve a conveyer, a labeler, a filler, and a capper. All of this equipment is sold separately by other vendors, and the fair values of the separate equipment are as follows:

 

Conveyer

$

20,000

Labeler

 

10,000

Filler

 

15,000

Capper

 

5,000

Total

$

50,000


Richardson sells the integrated system for $45,000. Each of the components are shipped separately to the customer for the customer to install


Requirement 1:

Assume that each of the components can be used independently, even though Richardson sells them as an integrated system. How much revenue should be allocated to each component? (Omit the "$" sign in your response.)

 

Conveyer

$

     (0%)

Labeler

 

     (0%)

Filler

 

     (0%)

Capper

 

     (0%)

Total

$

     (0%)


Exercise 5-16 Multiple deliverable arrangements LO5

Richardson Systems sells integrated bottling manufacturing systems that involve a conveyer, a labeler, a filler, and a capper. All of this equipment is sold separately by other vendors, and the fair values of the separate equipment are as follows:

 

Conveyer

$

20,000

Labeler

 

10,000

Filler

 

15,000

Capper

 

5,000

Total

$

50,000


Richardson sells the integrated system for $45,000. Each of the components are shipped separately to the customer for the customer to install


Requirement 1:

Assume that each of the components can be used independently, even though Richardson sells them as an integrated system. How much revenue should be allocated to each component? (Omit the "$" sign in your response.)

 

Conveyer

$

18,000

Labeler

 

9,000

Filler

 

13,500

Capper

 

4,500

Total

$

45,000


Total grade: 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 0.0×1/5 = 0% + 0% + 0% + 0% + 0%

Feedback:

 

Conveyer

($20,000/$50,000) × $45,000 =

$

18,000

Labeler

($10,000/$50,000) × $45,000 =

 

9,000

Filler

($15,000/$50,000) × $45,000 =

 

13,500

Capper

($5,000/$50,000) × $45,000 =

 

4,500

Total

 

$

45,000


Your responseCorrect response

Requirement 2:

Now assume that the labeler, filler, and capper can't be used in production without the conveyer, and that the conveyer is the last component installed. How much revenue should be recognized at the time the conveyer is installed? (Omit the "$" sign in your response.)

Revenue

$

     (0%)

Requirement 2:

Now assume that the labeler, filler, and capper can't be used in production without the conveyer, and that the conveyer is the last component installed. How much revenue should be recognized at the time the conveyer is installed? (Omit the "$" sign in your response.)

Revenue

$

45,000

Total grade: 0.0×1/1 = 0%

Feedback:

All $45,000 of revenue is delayed until installation of the the conveyer, because the usefulness of the other elements of the multi-part arrangement is contingent on its delivery.


Question 18: Score 0/1
Your responseCorrect response

Exercise 5-17 Revenue recognition; franchise sales LO5

On October 1, 2009, the Submarine Sandwich Company entered into a franchise agreement with an individual. In exchange for an initial franchise fee of $300,000, Submarine will provide initial services to the franchisee to include assistance in design and construction of the building, help in training employees, help in obtaining financing.

10% of the initial franchise fee is payable on October 1, 2009, with the remaining management $270,000 payable in nine equal annual installments beginning on October 1, 2010. These installments will include interest at an appropriate rate. The franchise opened for business on January 15, 2010.

Required:

Assume that the initial services to be performed by Submarine Sandwich subsequent to October 1, 2009, are substantial and that collectibility of the installment receivable is reasonably certain. Substantial performance of the initial services is deemed to have occurred when the franchise opened. Prepare the necessary journal entries for the following dates (ignoring interest charges):

  1. October 1, 2009
  2. January 15, 2010
Omit the "$" sign in your response.
October 1, 2009           To record franchise agreement and down payment
  (Click for List)   (0%)      (0%)
  (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)
     
January 15, 2010           To recognize franchise fee revenue
  (Click for List)   (0%)      (0%)
         (Click for List)   (0%)      (0%)

Exercise 5-17 Revenue recognition; franchise sales LO5

On October 1, 2009, the Submarine Sandwich Company entered into a franchise agreement with an individual. In exchange for an initial franchise fee of $300,000, Submarine will provide initial services to the franchisee to include assistance in design and construction of the building, help in training employees, help in obtaining financing.

10% of the initial franchise fee is payable on October 1, 2009, with the remaining management $270,000 payable in nine equal annual installments beginning on October 1, 2010. These installments will include interest at an appropriate rate. The franchise opened for business on January 15, 2010.

Required:

Assume that the initial services to be performed by Submarine Sandwich subsequent to October 1, 2009, are substantial and that collectibility of the installment receivable is reasonably certain. Substantial performance of the initial services is deemed to have occurred when the franchise opened. Prepare the necessary journal entries for the following dates (ignoring interest charges):

  1. October 1, 2009
  2. January 15, 2010
Omit the "$" sign in your response.
October 1, 2009           To record franchise agreement and down payment
Cash 30,000
Note Receivable 270,000
       Unearned Franchise Fee Revenue 300,000
     
January 15, 2010           To recognize franchise fee revenue
Unearned Franchise Fee Revenue 300,000
       Franchise Fee Revenue 300,000

Total grade: 0.0×1/10 + 0.0×1/10 + 0.0×1/10 + 0.0×1/10 + 0.0×1/10 + 0.0×1/10 + 0.0×1/10 + 0.0×1/10 + 0.0×1/10 + 0.0×1/10 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%


Question 19: Score 0/1
Your responseCorrect response

Exercise 5-4 Installment sales; alternative recognition methods LO2

On July 1, 2009, the Foster Company sold inventory to the Slate Corporation for $300,000. Terms of the sale called for a down payment of $75,000 and three annual installments of $75,000 due on each July 1, beginning July 1, 2010. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $120,000. The company uses the perpetual inventory system.
 

Required:

  1. Compute the amount of gross profit to be recognized from the installment sale in 2009, 2010, 2011, and 2012 using point of delivery revenue recognition. Ignore interest charges.
  2. Repeat requirement 1 applying the installment sales method.
  3. Repeat requirement 1 applying the cost recovery method.

(Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

1.    
  Year Income recognized
  2009 $      (0%)
  2010      (0%)
  2011      (0%)
  2012      (0%)
   
        Total $      (0%)
   

2.        
  Year Cash Collected Cost Recovery Gross Profit
  2009 $      (0%) $      (0%) $      (0%)
  2010      (0%)      (0%)      (0%)
  2011      (0%)      (0%)      (0%)
  2012      (0%)      (0%)      (0%)
   


  Totals $      (0%) $      (0%) $      (0%)
   





3.        
  Year Cash Collected Cost Recovery Gross Profit
  2009 $      (0%) $      (0%) $      (0%)
  2010      (0%)      (0%)      (0%)
  2011      (0%)      (0%)      (0%)
  2012      (0%)      (0%)      (0%)
   


  Totals $      (0%) $      (0%) $      (0%)
   





Exercise 5-4 Installment sales; alternative recognition methods LO2

On July 1, 2009, the Foster Company sold inventory to the Slate Corporation for $300,000. Terms of the sale called for a down payment of $75,000 and three annual installments of $75,000 due on each July 1, beginning July 1, 2010. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $120,000. The company uses the perpetual inventory system.
 

Required:

  1. Compute the amount of gross profit to be recognized from the installment sale in 2009, 2010, 2011, and 2012 using point of delivery revenue recognition. Ignore interest charges.
  2. Repeat requirement 1 applying the installment sales method.
  3. Repeat requirement 1 applying the cost recovery method.

(Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

1.    
  Year Income recognized
  2009 $ 180,000
  2010 0
  2011 0
  2012 0
   
        Total $ 180,000
   

2.        
  Year Cash Collected Cost Recovery Gross Profit
  2009 $ 75,000 $ 30,000 $ 45,000
  2010 75,000 30,000 45,000
  2011 75,000 30,000 45,000
  2012 75,000 30,000 45,000
   


  Totals $ 300,000 $ 120,000 $ 180,000
   





3.        
  Year Cash Collected Cost Recovery Gross Profit
  2009 $ 75,000 $ 75,000 $ 0
  2010 75,000 45,000 30,000
  2011 75,000 0 75,000
  2012 75,000 0 75,000
   


  Totals $ 300,000 $ 120,000 $ 180,000
   





Total grade: 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 + 0.0×1/35 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

1.

Year      Income recognized

 

2009     $180,000 ($300,000 – 120,000)

2.

Cost recovery %:

 


Question 20: Score 0/1

Exercise 5-1 Service revenue LO1

Alpine West, Inc., operates a downhill ski area near Lake Tahoe, California. An all-day, adult ticket can be purchased for $55. Adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically runs from December 1 through April 30. The season pass is nontransferable, and the $450 price is nonrefundable. Alpine expects its season pass holders to use their passes equally throughout the season. The company's fiscal year ends on December 31.

On November 6, 2009, Jake Lawson purchased a season ticket.


Requirement 1:

Alpine West should recognize revenue over the ski season on an anticipated usage basis and the fact that the $450 price is nonrefundable is not relevant to the revenue recognition decision.

Your Answer:
ChoiceSelectedCorrect
True 
False  
Feedback:

Alpine West should recognize revenue over the ski season on an anticipated usage basis, in this case equally throughout the season. The fact that the $450 price is nonrefundable is not relevant to the revenue recognition decision. Revenue should be recognized as it is earned, in this case as the services are provided during the ski season.

Your responseCorrect response

Requirement 2:

Prepare the appropriate journal entries that Alpine would record on November 6 and December 31, 2009. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Nov.6, 2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)

 

 

 

 

Dec.31, 2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)


Requirement 2:

Prepare the appropriate journal entries that Alpine would record on November 6 and December 31, 2009. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Nov.6, 2009

Cash

450

 

 

Unearned revenue

 

450

 

 

 

 

Dec.31, 2009

Unearned revenue

90

 

 

Revenue

 

90


Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

Unearned revenue:($450 × 1/5)=90

Your responseCorrect response

Requirement 3:

What will be included in the 2009 income statement and 2009 balance sheet related to the sale of the season pass to Jake Lawson? (Omit the "$" sign in your response.)

 

 

 

Income statement

$

     (0%)

Balance sheet

$

     (0%)


Requirement 3:

What will be included in the 2009 income statement and 2009 balance sheet related to the sale of the season pass to Jake Lawson? (Omit the "$" sign in your response.)

 

 

 

Income statement

$

90

Balance sheet

$

360


Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

$90 is included in revenue in the 2009 income statement. The $360 remaining balance in unearned revenue is included in the current liability section of the 2009 balance sheet.


Question 21: Score 0/1
Your responseCorrect response

Exercise 5-21 Profitability ratios LO6

The following condensed information was reported by Peabody Toys, Inc., for 2009 and 2008:
 
  ($ in 000s)
  2009 2008
Income statement information    
Net sales $5,200 $4,200
Net income 180 124
Balance sheet information    
Current assets $ 800 $ 750
Property, plant, and equipment (net) 1,100 950
 

      Total assets $1,900 $1,700
 



Current liabilities $ 600 $ 450
Long-term liabilities 750 750
Paid-in capital 400 400
Retained earnings 150 100
 

      Liabilities and shareholders’ equity $1,900 $1,700
 



 

Required:

  1. Determine the following ratios for 2009:
    1. Profit margin on sales, round to 1 decimal place.
    2. Return on assets, round to nearest whole percent.
    3. Return on shareholders' equity, round to 1 decimal place.
  2. Determine the amount of dividends paid to shareholders during 2009.
Omit the "%" and "$" sign in your response.
1. a. Profit margin on sales =      (0%)%
  b. Return on assets =      (0%)%
  c. Return on shareholders' equity =      (0%)%
       
2. Dividends paid $      (0%)

Exercise 5-21 Profitability ratios LO6

The following condensed information was reported by Peabody Toys, Inc., for 2009 and 2008:
 
  ($ in 000s)
  2009 2008
Income statement information    
Net sales $5,200 $4,200
Net income 180 124
Balance sheet information    
Current assets $ 800 $ 750
Property, plant, and equipment (net) 1,100 950
 

      Total assets $1,900 $1,700
 



Current liabilities $ 600 $ 450
Long-term liabilities 750 750
Paid-in capital 400 400
Retained earnings 150 100
 

      Liabilities and shareholders’ equity $1,900 $1,700
 



 

Required:

  1. Determine the following ratios for 2009:
    1. Profit margin on sales, round to 1 decimal place.
    2. Return on assets, round to nearest whole percent.
    3. Return on shareholders' equity, round to 1 decimal place.
  2. Determine the amount of dividends paid to shareholders during 2009.
Omit the "%" and "$" sign in your response.
1. a. Profit margin on sales = 3.5%
  b. Return on assets = 10%
  c. Return on shareholders' equity = 34.3%
       
2. Dividends paid $ 130,000

Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:

Requirement 1:

a. Profit margin on sales $180 ÷ $5,200 = 3.5%

b. Return on assets $180 ÷ [($1,900 + 1,700) ÷ 2] = 10%

c. Return on shareholders' equity $180 ÷ [($550 + 500) ÷ 2] = 34.3%

Requirement 2:

 

 

 

Retained earnings beginning of period

$

100,000

Add: Net income

 

180,000

 

 

280,000

Less: Retained earnings end of period

 

150,000

Dividends paid

$

130,000



Question 22: Score 0/1
Your responseCorrect response

Exercise 5-22 DuPont analysis LO6

The following condensed information was reported by Peabody Toys, Inc., for 2009 and 2008:

 

($ in 000s)

 

2009

2008

Income statement information

 

 

 

 

Net sales

$

5,200

$

4,200

Net income

 

180

 

124

Balance sheet information

 

 

 

 

Current assets

$

800

$

750

Property, plant, and equipment (net)

 

1,100

 

950

Total assets

$

1,900

$

1,700

Current liabilities

$

600

$

450

Long-term liabilities

 

750

 

750

Paid-in capital

 

400

 

400

Retained earnings

 

150

 

100

Liabilities and shareholders’ equity

$

1,900

$

1,700



Required:

Determine the following components of the DuPont framework for 2009: (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

 

 

 

 

a.

Profit margin on sales

     (0%)

%

b.

Asset turnover

     (0%)

 

c.

Equity multiplier

     (0%)

 

d.

Return on shareholders’ equity

     (0%)

%


Exercise 5-22 DuPont analysis LO6

The following condensed information was reported by Peabody Toys, Inc., for 2009 and 2008:

 

($ in 000s)

 

2009

2008

Income statement information

 

 

 

 

Net sales

$

5,200

$

4,200

Net income

 

180

 

124

Balance sheet information

 

 

 

 

Current assets

$

800

$

750

Property, plant, and equipment (net)

 

1,100

 

950

Total assets

$

1,900

$

1,700

Current liabilities

$

600

$

450

Long-term liabilities

 

750

 

750

Paid-in capital

 

400

 

400

Retained earnings

 

150

 

100

Liabilities and shareholders’ equity

$

1,900

$

1,700



Required:

Determine the following components of the DuPont framework for 2009: (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

 

 

 

 

a.

Profit margin on sales

3.46

%

b.

Asset turnover

2.89

 

c.

Equity multiplier

3.43

 

d.

Return on shareholders’ equity

34.29

%


Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:

a.

Profit margin on sales

$180 ÷ $5,200 = 3.5%

b.

Asset turnover

$5,200 ÷ [($1,900 + 1,700) ÷ 2] = 2.89

c.

Equity multiplier

[($1,900 + 1,700) ÷ 2] ÷ [($550 + 500) ÷ 2] = 3.43

d.

Return on shareholders’ equity

$180 ÷ [($550 + 500) ÷ 2] = 34.3%


Question 23: Score 0/1
Your responseCorrect response

Exercise 5-15 Revenue recognition; software LO5

Easywrite Software Company shipped software to a customer on July 1, 2009. The arrangement with the customer also requires the company to provide technical support over the next 12 months and to ship an expected software upgrade on January 1, 2010. The total contract price is $243,000, and Easywrite estimates that the individual fair values of the components of the arrangement if sold separately would be:

 
Software $210,000
Technical support 30,000
Upgrade 30,000

Required:

  1. Determine the timing of revenue recognition for the $243,000.
  2. Assume that the $243,000 contract price was paid in advance on July 1, 2009. Prepare a journal entry to record the cash receipt. Do not worry about the cost of the items sold.

Omit the "$" sign in your response.
1. Revenue should be recognized as follows:
  Software   (Click for List)   (0%)   $      (0%)
  Technical support   (Click for List)   (0%)   $      (0%)
  Upgrade   (Click for List)   (0%)   $      (0%)
       
2. July 1, 2009          To record sale of software
    (Click for List)   (0%)        (0%)
           (Click for List)   (0%)       (0%)
           (Click for List)   (0%)       (0%)

Exercise 5-15 Revenue recognition; software LO5

Easywrite Software Company shipped software to a customer on July 1, 2009. The arrangement with the customer also requires the company to provide technical support over the next 12 months and to ship an expected software upgrade on January 1, 2010. The total contract price is $243,000, and Easywrite estimates that the individual fair values of the components of the arrangement if sold separately would be:

 
Software $210,000
Technical support 30,000
Upgrade 30,000

Required:

  1. Determine the timing of revenue recognition for the $243,000.
  2. Assume that the $243,000 contract price was paid in advance on July 1, 2009. Prepare a journal entry to record the cash receipt. Do not worry about the cost of the items sold.

Omit the "$" sign in your response.
1. Revenue should be recognized as follows:
  Software July 1, 2009   $ 189,000
  Technical support evenly over 12 months of the agreement   $ 27,000
  Upgrade January 1, 2010   $ 27,000
       
2. July 1, 2009          To record sale of software
  Cash   243,000
         Revenue  189,000
         Unearned revenue  54,000

Total grade: 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 + 0.0×1/12 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

Requirement 1:

Revenue should be recognized as follows:

Software - date of shipment, July 1, 2009

Technical support - evenly over the 12 months of the agreement

Upgrade - date of shipment, January 1, 2010

The amounts are determined by an allocation of total contract price in proportion to the individual fair values of the components if sold separately:

 

 

 

Software - $210,000 ÷ $270,000 × $243,000

$

189,000

Technical support - $30,000 ÷ $270,000 × $243,000

 

27,000

Upgrade - $30,000 ÷ $270,000 × $243,000

 

27,000

Total

$

243,000


Requirement 2:

July 1, 2009 To record sale of software

Unearned revenue ($27,000 + 27,000) = 54,000


Question 24: Score 0/1
Your responseCorrect response

Exercise 5-8 Real estate sales; gain recognition LO1 LO2

On April 1, 2009, the Apex Corporation sold a parcel of underdeveloped land to the Applegate Construction Company for $2,400,000. The book value of the land on Apex’s books was $480,000. Terms of the sale required a down payment of $120,000 and 19 annual payments of $120,000 plus interest at an appropriate interest rate due on each April 1 beginning in 2010. Apex has no significant obligations to perform services after the sale.

 

Required:

  1. Prepare the necessary entries for Apex to record the sale, receipt of the down payment, and receipt of the first installment assuming that Apex is able to make a reliable estimate of possible uncollectible amounts (that is, point of delivery profit recognition is used). Ignore interest charges.

  2. Repeat requirement 1 assuming that Apex cannot make a reliable estimate of possible uncollectible amounts and decides to use the installment sales method for profit recognition.

Omit the "$" sign in your response.
1.      
  April 1, 2009           To record installment sale    
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)       (0%)
           (Click for List)   (0%)      (0%)
  April 1, 2009           To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
  April 1, 2010           To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
2.  
  April 1, 2009           To record installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)       (0%)
           (Click for List)   (0%)      (0%)
  April 1, 2009           To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
                                  To recognize profit from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
  April 1, 2010           To record cash collection from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)      (0%)
   
                                  To recognize profit from installment sale
    (Click for List)   (0%)      (0%)
           (Click for List)   (0%)       (0%)

Exercise 5-8 Real estate sales; gain recognition LO1 LO2

On April 1, 2009, the Apex Corporation sold a parcel of underdeveloped land to the Applegate Construction Company for $2,400,000. The book value of the land on Apex’s books was $480,000. Terms of the sale required a down payment of $120,000 and 19 annual payments of $120,000 plus interest at an appropriate interest rate due on each April 1 beginning in 2010. Apex has no significant obligations to perform services after the sale.

 

Required:

  1. Prepare the necessary entries for Apex to record the sale, receipt of the down payment, and receipt of the first installment assuming that Apex is able to make a reliable estimate of possible uncollectible amounts (that is, point of delivery profit recognition is used). Ignore interest charges.

  2. Repeat requirement 1 assuming that Apex cannot make a reliable estimate of possible uncollectible amounts and decides to use the installment sales method for profit recognition.

Omit the "$" sign in your response.
1.      
  April 1, 2009           To record installment sale    
  Installment Receivables 2,400,000
         Land  480,000
         Gain on Sale of Land 1,920,000
  April 1, 2009           To record cash collection from installment sale
  Cash 120,000
         Installment Receivables 120,000
   
  April 1, 2010           To record cash collection from installment sale
  Cash 120,000
         Installment Receivables 120,000
   
2.  
  April 1, 2009           To record installment sale
  Installment Receivables 2,400,000
         Land  480,000
         Deferred Gain 1,920,000
  April 1, 2009           To record cash collection from installment sale
  Cash 120,000
         Installment Receivables 120,000
   
                                  To recognize profit from installment sale
  Deferred Gain 96,000
         Gain on Sale of Land 96,000
   
  April 1, 2010           To record cash collection from installment sale
  Cash 120,000
         Installment Receivables 120,000
   
                                  To recognize profit from installment sale
  Deferred Gain 96,000
         Gain on Sale of Land  96,000

Total grade: 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 + 0.0×1/36 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

2.

When payments are received, gain on sale of land is recognized, calculated by applying the gross profit percentage ($1,920,000 ÷ $2,400,000 = 80%) to the cash collected (80% × $120,000).

 

Gain on sale of land (80% × $120,000) = 96,000


Question 25: Score 0/1
Your responseCorrect response

Exercise 5-10 Long-term contract; percentage of completion and completed contract methods LO4

On June 15, 2009, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington D.C. for $220 million. The expected completion date is April 1 of 2011, just in time for the 2011 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

 
  2009 2010 2011
Costs incurred during the year $ 40 $80 $50
Estimated costs to complete as of 12/31 120 60
       

Required:

  1. Determine the amount of gross profit or loss to be recognized in each of the three years using the percentage-of-completion method.

  2. How much revenue will Sanderson report in its 2009, 2010 and 2011 income statements related to this contract using the percentage-of-completion method?

  3. Determine the amount of gross profit or loss to be recognized in each of the three years using the completed contract method.

  4. Determine the amount of revenue, cost, and gross profit or loss to be recognized in each of the three years using the cost recovery method that is required by IFRS.

  5. Suppose the estimated costs to complete at the end of 2010 are $80 million instead of $60 million. Determine the amount of gross profit or loss to be recognized in 2010 using the percentage-of-completion method.

All numbers are stated in millions of dollars. Round final answers to 2 decimal places. Do not round interim calculations (percentages). Amounts in parentheses do not require a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.

1. ($ in millions) 2009 2010 2011
  Gross profit (loss) recognition: $      (0%) $      (0%) $      (0%)
         
2. Revenue:  $      (0%) $      (0%) $      (0%)
3. Year Gross Profit (Loss) Recognized
  2009      (0%)
  2010      (0%)
  2011      (0%)
   
  Total Project Income $      (0%)
   

     
4. 2009:
  Revenue: $      (0%)
  Cost:      (0%)
   
  Gross profit: $      (0%)
   

     
   2010:  
  Revenue: $      (0%)
  Cost:      (0%)
   
  Gross profit: $      (0%)
   

     
   2011:  
  Revenue: $      (0%)
  Cost:      (0%)
   
  Gross profit: $      (0%)
   

5.   2010: $(      (0%)) loss

Exercise 5-10 Long-term contract; percentage of completion and completed contract methods LO4

On June 15, 2009, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington D.C. for $220 million. The expected completion date is April 1 of 2011, just in time for the 2011 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

 
  2009 2010 2011
Costs incurred during the year $ 40 $80 $50
Estimated costs to complete as of 12/31 120 60
       

Required:

  1. Determine the amount of gross profit or loss to be recognized in each of the three years using the percentage-of-completion method.

  2. How much revenue will Sanderson report in its 2009, 2010 and 2011 income statements related to this contract using the percentage-of-completion method?

  3. Determine the amount of gross profit or loss to be recognized in each of the three years using the completed contract method.

  4. Determine the amount of revenue, cost, and gross profit or loss to be recognized in each of the three years using the cost recovery method that is required by IFRS.

  5. Suppose the estimated costs to complete at the end of 2010 are $80 million instead of $60 million. Determine the amount of gross profit or loss to be recognized in 2010 using the percentage-of-completion method.

All numbers are stated in millions of dollars. Round final answers to 2 decimal places. Do not round interim calculations (percentages). Amounts in parentheses do not require a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.

1. ($ in millions) 2009 2010 2011
  Gross profit (loss) recognition: $ 15 $ 11.67 $ 23.33
         
2. Revenue:  $ 55 $ 91.67 $ 73.33
3. Year Gross Profit (Loss) Recognized
  2009 0
  2010 0
  2011 50
   
  Total Project Income $ 50
   

     
4. 2009:
  Revenue: $ 40
  Cost: 40
   
  Gross profit: $ 0
   

     
   2010:  
  Revenue: $ 80
  Cost: 80
   
  Gross profit: $ 0
   

     
   2011:  
  Revenue: $ 100
  Cost: 50
   
  Gross profit: $ 50
   

5.   2010: $( 3) loss

Total grade: 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

Requirement 1:


($ in millions)

2009

2010

2011

Contract price

$

220

$

220

$

220

Actual costs to date

 

40

 

120

 

170

Estimated costs to complete

 

120

 

60

 

0

Total estimated costs

 

160

 

180

 

170

Estimated gross profit (actual in 2011)

$

60

$

40

$

50


Gross profit (loss) recognition:

Requirement 2:

2009: $220 × 25% = $55

2010: $220 × 66.67% = $146.67 – 55 = $91.67

2011: $220 – 146.67 = $73.33

Requirement 4:

2011:

Revenue: $100 ($220 contract price – $40 – $80)

Requirement 5:

*$220 – ($40 + 80 + 80) = $20


Question 26: Score 0/1
Your responseCorrect response

Exercise 5-16 Multiple deliverable arrangements LO5

Richardson Systems sells integrated bottling manufacturing systems that involve a conveyer, a labeler, a filler, and a capper. All of this equipment is sold separately by other vendors, and the fair values of the separate equipment are as follows:

 

Conveyer

$

20,475

Labeler

 

12,285

Filler

 

16,965

Capper

 

8,775

Total

$

58,500


Richardson sells the integrated system for $53,000. Each of the components are shipped separately to the customer for the customer to install


Requirement 1:

Assume that each of the components can be used independently, even though Richardson sells them as an integrated system. How much revenue should be allocated to each component? (Omit the "$" sign in your response.)

 

Conveyer

$

     (0%)

Labeler

 

     (0%)

Filler

 

     (0%)

Capper

 

     (0%)

Total

$

     (0%)


Exercise 5-16 Multiple deliverable arrangements LO5

Richardson Systems sells integrated bottling manufacturing systems that involve a conveyer, a labeler, a filler, and a capper. All of this equipment is sold separately by other vendors, and the fair values of the separate equipment are as follows:

 

Conveyer

$

20,475

Labeler

 

12,285

Filler

 

16,965

Capper

 

8,775

Total

$

58,500


Richardson sells the integrated system for $53,000. Each of the components are shipped separately to the customer for the customer to install


Requirement 1:

Assume that each of the components can be used independently, even though Richardson sells them as an integrated system. How much revenue should be allocated to each component? (Omit the "$" sign in your response.)

 

Conveyer

$

18,550

Labeler

 

11,130

Filler

 

15,370

Capper

 

7,950

Total

$

53,000


Total grade: 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 0.0×1/5 + 0.0×1/5 = 0% + 0% + 0% + 0% + 0%

Feedback:

 

Conveyer

($20,475/$58,500) × $53,000 =

$

18,550

Labeler

($12,285/$58,500) × $53,000 =

 

11,130

Filler

($16,965/$58,500) × $53,000 =

 

15,370

Capper

($8,775/$58,500) × $53,000 =

 

7,950

Total

 

$

53,000


Your responseCorrect response

Requirement 2:

Now assume that the labeler, filler, and capper can't be used in production without the conveyer, and that the conveyer is the last component installed. How much revenue should be recognized at the time the conveyer is installed? (Omit the "$" sign in your response.)

Revenue

$

     (0%)

Requirement 2:

Now assume that the labeler, filler, and capper can't be used in production without the conveyer, and that the conveyer is the last component installed. How much revenue should be recognized at the time the conveyer is installed? (Omit the "$" sign in your response.)

Revenue

$

53,000

Total grade: 0.0×1/1 = 0%

Feedback:

All $53,000 of revenue is delayed until installation of the the conveyer, because the usefulness of the other elements of the multi-part arrangement is contingent on its delivery.


Question 27: Score 0/1
Your responseCorrect response

Exercise 5-23 Interim financial statements; income tax expense [Based on Appendix 5] LO1

Joplin Laminating Corporation reported income before income taxes during the first three quarters and management’s estimates of the annual effective tax rate at the end of each quarter as shown below:

 
  Quarter
  First Second Third
Income before income taxes $55,000 $44,000 $97,000
Estimated annual effective tax rate 34% 32% 36%
 
Required:

Determine the income tax expense to be reported in the income statement in each of the three quarterly reports. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and "%" sign in your response.

  Quarter
  First Second Third
Cumulative income before taxes $      (0%)   $      (0%)   $      (0%)  
Estimated annual effective tax rate      (0%) %      (0%) %      (0%) %
 
 
 
 
       (0%)        (0%)        (0%)  
Less: Income tax reported earlier      (0%)        (0%)        (0%)  
 
 
 
 
Tax expense to be reported $      (0%)   $      (0%)   $      (0%)  
 

 

 

 

Exercise 5-23 Interim financial statements; income tax expense [Based on Appendix 5] LO1

Joplin Laminating Corporation reported income before income taxes during the first three quarters and management’s estimates of the annual effective tax rate at the end of each quarter as shown below:

 
  Quarter
  First Second Third
Income before income taxes $55,000 $44,000 $97,000
Estimated annual effective tax rate 34% 32% 36%
 
Required:

Determine the income tax expense to be reported in the income statement in each of the three quarterly reports. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" and "%" sign in your response.

  Quarter
  First Second Third
Cumulative income before taxes $ 55,000   $ 99,000   $ 196,000  
Estimated annual effective tax rate 34 % 32 % 36 %
 
 
 
 
  18,700   31,680   70,560  
Less: Income tax reported earlier 0   18,700   31,680  
 
 
 
 
Tax expense to be reported $ 18,700   $ 12,980   $ 38,880  
 

 

 

 

Total grade: 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 + 0.0×1/15 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%


Question 28: Score 0/1
Your responseCorrect response

Exercise 5-2 Installment sales method LO2

Charter Corporation, which began business in 2009, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2009 and 2010:

 
  2009 2010
Installment sales $357,000 $353,000
Cost of installment sales 232,000 246,000
Cash collections on installment sales during:    
      2009 148,000 105,000
      2010 122,000
 
Required:
  1. How much gross profit should Charter recognize in 2009 and 2010 from installment sales?
  2. What should be the balance in the deferred gross profit account at the end of 2009 and 2010?
Round answers to nearest whole number, use the rounded percent to calculate gross profit. Amounts in parentheses do not require a minus sign. Omit the "$" and "%" sign in your response.
1. 2009 gross profit:
  Cash collection from 2009 sales of $      (0%)×      (0%)% = $      (0%)
     
  2010 gross profit:    
  Cash collection from 2009 sales of $      (0%)×      (0%)% = $      (0%)
  Cash collection from 2010 sales of $      (0%)×      (0%)% =      (0%)
   
          Total 2010 gross profit   $      (0%)
   

         
2. 2009 deferred gross profit balance:    
  2009 initial gross profit $      (0%)
  Less: Gross profit recognized in 2009   (      (0%))
   
  Balance in deferred gross profit account   $      (0%)
   

  2010 deferred gross profit balance:    
  2009 initial gross profit $      (0%)
  Less: Gross profit recognized in 2009   (      (0%))
           Gross profit recognized in 2010 (      (0%))
       
  2010 initial gross profit      (0%)
  Less: Gross profit recognized in 2010   (      (0%))
   
  Balance in deferred gross profit account   $      (0%)
   

Exercise 5-2 Installment sales method LO2

Charter Corporation, which began business in 2009, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2009 and 2010:

 
  2009 2010
Installment sales $357,000 $353,000
Cost of installment sales 232,000 246,000
Cash collections on installment sales during:    
      2009 148,000 105,000
      2010 122,000
 
Required:
  1. How much gross profit should Charter recognize in 2009 and 2010 from installment sales?
  2. What should be the balance in the deferred gross profit account at the end of 2009 and 2010?
Round answers to nearest whole number, use the rounded percent to calculate gross profit. Amounts in parentheses do not require a minus sign. Omit the "$" and "%" sign in your response.
1. 2009 gross profit:
  Cash collection from 2009 sales of $ 148,000× 35% = $ 51,800 with a tolerance of ± 2.0%
     
  2010 gross profit:    
  Cash collection from 2009 sales of $ 105,000× 35% = $ 36,750 with a tolerance of ± 2.0%
  Cash collection from 2010 sales of $ 122,000× 30% = 36,600 with a tolerance of ± 2.0%
   
          Total 2010 gross profit   $ 73,350 with a tolerance of ± 2.0%
   

         
2. 2009 deferred gross profit balance:    
  2009 initial gross profit $ 125,000
  Less: Gross profit recognized in 2009   ( 51,800 with a tolerance of ± 2.0%)
   
  Balance in deferred gross profit account   $ 73,200 with a tolerance of ± 2.0%
   

  2010 deferred gross profit balance:    
  2009 initial gross profit $ 125,000
  Less: Gross profit recognized in 2009   ( 51,800 with a tolerance of ± 2.0%)
           Gross profit recognized in 2010 ( 36,750 with a tolerance of ± 2.0%)
       
  2010 initial gross profit 107,000
  Less: Gross profit recognized in 2010   ( 36,600 with a tolerance of ± 2.0%)
   
  Balance in deferred gross profit account   $ 106,850 with a tolerance of ± 2.0%
   

Total grade: 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 + 0.0×1/19 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

1.

2009 Cost recovery %:

 

 

2010 Cost recovery %:

 

2.

2009 deferred gross profit balance:

 

2009 initial gross profit ($357,000 – 232,000) = $125,000

 

2010 deferred gross profit balance:

 

2010 initial gross profit ($353,000 – 246,000) = $107,000


Question 29: Score 0/1

Exercise 5-1 Service revenue LO1

Alpine West, Inc., operates a downhill ski area near Lake Tahoe, California. An all-day, adult ticket can be purchased for $61. Adult customers also can purchase a season pass that entitles the pass holder to ski any day during the season, which typically runs from December 1 through April 30. The season pass is nontransferable, and the $450 price is nonrefundable. Alpine expects its season pass holders to use their passes equally throughout the season. The company's fiscal year ends on December 31.

On November 6, 2009, Jake Lawson purchased a season ticket.


Requirement 1:

Alpine West should recognize revenue over the ski season on an anticipated usage basis and the fact that the $450 price is nonrefundable is not relevant to the revenue recognition decision.

Your Answer:
ChoiceSelectedCorrect
True 
False  
Feedback:

Alpine West should recognize revenue over the ski season on an anticipated usage basis, in this case equally throughout the season. The fact that the $450 price is nonrefundable is not relevant to the revenue recognition decision. Revenue should be recognized as it is earned, in this case as the services are provided during the ski season.

Your responseCorrect response

Requirement 2:

Prepare the appropriate journal entries that Alpine would record on November 6 and December 31, 2009. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Nov.6, 2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)

 

 

 

 

Dec.31, 2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)


Requirement 2:

Prepare the appropriate journal entries that Alpine would record on November 6 and December 31, 2009. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Nov.6, 2009

Cash

450

 

 

Unearned revenue

 

450

 

 

 

 

Dec.31, 2009

Unearned revenue

90

 

 

Revenue

 

90


Total grade: 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 + 0.0×1/8 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

Unearned revenue:($450 × 1/5)=90

Your responseCorrect response

Requirement 3:

What will be included in the 2009 income statement and 2009 balance sheet related to the sale of the season pass to Jake Lawson? (Omit the "$" sign in your response.)

 

 

 

Income statement

$

     (0%)

Balance sheet

$

     (0%)


Requirement 3:

What will be included in the 2009 income statement and 2009 balance sheet related to the sale of the season pass to Jake Lawson? (Omit the "$" sign in your response.)

 

 

 

Income statement

$

90

Balance sheet

$

360


Total grade: 0.0×1/2 + 0.0×1/2 = 0% + 0%

Feedback:

$90 is included in revenue in the 2009 income statement. The $360 remaining balance in unearned revenue is included in the current liability section of the 2009 balance sheet.


Question 30: Score 0/1
Your responseCorrect response

Exercise 5-24 Interim reporting; recognizing expenses [Based on Appendix 5] LO1

Security-Rand Corporation determines executive incentive compensation at the end of its fiscal year. At the end of the first quarter, management estimated that the amount will be $360 million. Depreciation expense for the year is expected to be $60 million. Also during the quarter, the company realized a gain of $23 million from selling two of its manufacturing plants.

 
Required:
What amounts for these items should be reported in the first quarter’s income statement? Round your answers for Incentive compensation and Depreciation expense to one decimal place. Omit the "$" sign in your response.
Incentive compensation $      (0%) million
Depreciation expense      (0%) million
Gain on sale      (0%) million

Exercise 5-24 Interim reporting; recognizing expenses [Based on Appendix 5] LO1

Security-Rand Corporation determines executive incentive compensation at the end of its fiscal year. At the end of the first quarter, management estimated that the amount will be $360 million. Depreciation expense for the year is expected to be $60 million. Also during the quarter, the company realized a gain of $23 million from selling two of its manufacturing plants.

 
Required:
What amounts for these items should be reported in the first quarter’s income statement? Round your answers for Incentive compensation and Depreciation expense to one decimal place. Omit the "$" sign in your response.
Incentive compensation $ 90 million
Depreciation expense 15 million
Gain on sale 23 million

Total grade: 0.0×1/3 + 0.0×1/3 + 0.0×1/3 = 0% + 0% + 0%


Question 31: Score 0/1
Your responseCorrect response

Exercise 5-10 Long-term contract; percentage of completion and completed contract methods LO4

On June 15, 2009, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington D.C. for $219 million. The expected completion date is April 1 of 2011, just in time for the 2011 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

 
  2009 2010 2011
Costs incurred during the year $40 $80 $50
Estimated costs to complete as of 12/31 120 60
       

Required:

  1. Determine the amount of gross profit or loss to be recognized in each of the three years using the percentage-of-completion method.

  2. How much revenue will Sanderson report in its 2009, 2010 and 2011 income statements related to this contract using the percentage-of-completion method?

  3. Determine the amount of gross profit or loss to be recognized in each of the three years using the completed contract method.

  4. Determine the amount of revenue, cost, and gross profit or loss to be recognized in each of the three years using the cost recovery method that is required by IFRS.

  5. Suppose the estimated costs to complete at the end of 2010 are $80 million instead of $60 million. Determine the amount of gross profit or loss to be recognized in 2010 using the percentage-of-completion method.

All numbers are stated in millions of dollars. Round final answers to 2 decimal places. Do not round interim calculations (percentages). Amounts in parentheses do not require a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.

1. ($ in millions) 2009 2010 2011
  Gross profit (loss) recognition: $      (0%) $      (0%) $      (0%)
         
2. Revenue: $      (0%) $      (0%) $      (0%)
3. Year Gross Profit (Loss) Recognized
  2009      (0%)
  2010      (0%)
  2011      (0%)
   
  Total Project Income $      (0%)
   

4. 2009:
  Revenue: $      (0%)
  Cost:      (0%)
   
  Gross profit: $      (0%)
   

     
   2010:  
  Revenue: $      (0%)
  Cost:      (0%)
   
  Gross profit: $      (0%)
   

     
   2011:  
  Revenue: $      (0%)
  Cost:      (0%)
   
  Gross profit: $      (0%)
   

5.   2010: $(      (0%)) loss

Exercise 5-10 Long-term contract; percentage of completion and completed contract methods LO4

On June 15, 2009, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington D.C. for $219 million. The expected completion date is April 1 of 2011, just in time for the 2011 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

 
  2009 2010 2011
Costs incurred during the year $40 $80 $50
Estimated costs to complete as of 12/31 120 60
       

Required:

  1. Determine the amount of gross profit or loss to be recognized in each of the three years using the percentage-of-completion method.

  2. How much revenue will Sanderson report in its 2009, 2010 and 2011 income statements related to this contract using the percentage-of-completion method?

  3. Determine the amount of gross profit or loss to be recognized in each of the three years using the completed contract method.

  4. Determine the amount of revenue, cost, and gross profit or loss to be recognized in each of the three years using the cost recovery method that is required by IFRS.

  5. Suppose the estimated costs to complete at the end of 2010 are $80 million instead of $60 million. Determine the amount of gross profit or loss to be recognized in 2010 using the percentage-of-completion method.

All numbers are stated in millions of dollars. Round final answers to 2 decimal places. Do not round interim calculations (percentages). Amounts in parentheses do not require a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.

1. ($ in millions) 2009 2010 2011
  Gross profit (loss) recognition: $ 14.75 with a tolerance of ±0.05 $ 11.25 with a tolerance of ±0.05 $ 23 with a tolerance of ±0.05
         
2. Revenue: $ 54.75 with a tolerance of ±0.05 $ 91.25 with a tolerance of ±0.05 $ 73 with a tolerance of ±0.05
3. Year Gross Profit (Loss) Recognized
  2009 0
  2010 0
  2011 49
   
  Total Project Income $ 49
   

4. 2009:
  Revenue: $ 40
  Cost: 40
   
  Gross profit: $ 0
   

     
   2010:  
  Revenue: $ 80
  Cost: 80
   
  Gross profit: $ 0
   

     
   2011:  
  Revenue: $ 99
  Cost: 50
   
  Gross profit: $ 49
   

5.   2010: $( 3.35 with a tolerance of ±0.05) loss

Total grade: 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 + 0.0×1/20 = 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0% + 0%

Feedback:

Requirement 1:


($ in millions)

2009

2010

2011

Contract price

$

219

$

219

$

219

Actual costs to date

 

40

 

120

 

170

Estimated costs to complete

 

120

 

60

 

0

Total estimated costs

 

160

 

180

 

170

Estimated gross profit (actual in 2011)

$

59

$

39

$

49


Gross profit (loss) recognition:

Requirement 2:

2009: $219 × 25% = $54.75

2010: $219 × 66.67% = $146 – 54.75 = $91.25

2011: $219 – 146 = $73

Requirement 4:

2011:

Revenue: $99 ($219 contract price – $40 – $80)

Requirement 5:

*$219 – ($40 + 80 + 80) = $19


Question 32: Score 0/1
Your responseCorrect response

Exercise 5-20 Evaluating efficiency of asset management LO6

The 2009 income statement of Anderson Medical Supply Company reported net sales of $5 million, cost of goods sold of $4.7 million, and net income of $814,000. The following table shows the company’s comparative balance sheets for 2009 and 2008:

 
  ($ in 000s)
  2009 2008
Assets    
Cash $ 319 $ 380
Accounts Receivable 718 519
Inventory 901 703
Property, Plant, and Equipment (net) 2,442 2,105
 

      Total Assets $4,380 $3,707
 



     
Liabilities and Shareholders’ Equity    
Current Liabilities $996 $847
Bonds Payable 1,231 1,220
Paid-In Capital 1,034 1,025
Retained Earnings 1,119 615
 

      Total Liabilities and Shareholder's Equity $4,380 $3,707
 



Some industry averages for Anderson’s line of business are
Inventory Turnover 5 times
Average Collection Period 29 days
Asset Turnover 1.8 times
 
Required:
Calculate Anderson's Inventory turnover ratio, Receivables turnover ratio, Average collection period and Asset turnover ratio.
Round Inventory turnover ratio, Receivables turnover ratio and Asset turnover ratio to 2 decimal places, round the answer for Average collection period to 1 decimal place.
Turnover ratios for Anderson Medical Supply Company for 2009:
     
Inventory Turnover Ratio =      (0%) times
   
Receivables Turnover Ratio =      (0%) times
   
Average Collection Period =      (0%) days
   
Asset Turnover Ratio =      (0%) times
 
     

Exercise 5-20 Evaluating efficiency of asset management LO6

The 2009 income statement of Anderson Medical Supply Company reported net sales of $5 million, cost of goods sold of $4.7 million, and net income of $814,000. The following table shows the company’s comparative balance sheets for 2009 and 2008:

 
  ($ in 000s)
  2009 2008
Assets    
Cash $ 319 $ 380
Accounts Receivable 718 519
Inventory 901 703
Property, Plant, and Equipment (net) 2,442 2,105
 

      Total Assets $4,380 $3,707
 



     
Liabilities and Shareholders’ Equity    
Current Liabilities $996 $847
Bonds Payable 1,231 1,220
Paid-In Capital 1,034 1,025
Retained Earnings 1,119 615
 

      Total Liabilities and Shareholder's Equity $4,380 $3,707
 



Some industry averages for Anderson’s line of business are
Inventory Turnover 5 times
Average Collection Period 29 days
Asset Turnover 1.8 times
 
Required:
Calculate Anderson's Inventory turnover ratio, Receivables turnover ratio, Average collection period and Asset turnover ratio.
Round Inventory turnover ratio, Receivables turnover ratio and Asset turnover ratio to 2 decimal places, round the answer for Average collection period to 1 decimal place.
Turnover ratios for Anderson Medical Supply Company for 2009:
     
Inventory Turnover Ratio = 5.86 times
   
Receivables Turnover Ratio = 8.08 times
   
Average Collection Period = 45.2 days
   
Asset Turnover Ratio = 1.24 times
 
     

Total grade: 0.0×1/4 + 0.0×1/4 + 0.0×1/4 + 0.0×1/4 = 0% + 0% + 0% + 0%

Feedback:

Turnover ratios for Anderson Medical Supply Company for 2009:

Inventory turnover ratio == 5.86 times

Receivables turnover ratio == 8.08 times

Average collection period == 45.2 days

Asset turnover ratio == 1.24 times


Question 33: Score 0/1
Your responseCorrect response

Exercise 5-7 Installment sales; default and repossession LO2

Sanchez Development Company uses the installment sales method to account for some of its installment sales. On October 1, 2009, Sanchez sold a parcel of land to the Kreuze Corporation for $4.4 million. This amount was not considered significant relative to Sanchez's other sales during 2009. The land had cost Sanchez $2.244 million to acquire and develop. Terms of the sale required a down payment of $880,000 and four annual payments of $880,000 plus interest at an appropriate interest rate, with payments due on each October 1 beginning in 2010.

Kreuze paid the down payment, but on October 1, 2010, defaulted on the remainder of the contract. Sanchez repossessed the land. On the date of repossession the land had a fair value of $1.744 million.


Required:

Prepare the necessary entries for Sanchez to record the sale, receipt of the down payment, and the default and repossession applying the installment sales method. Ignore interest charges. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Oct.1.2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)

 

  (Click for List)   (0%)

 

     (0%)

 

 

 

 

Oct.1.2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)

 

 

 

 

Oct.1.2009

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)

 

 

 

 

Oct.1.2010

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

     (0%)

 

 

  (Click for List)   (0%)

 

     (0%)


Exercise 5-7 Installment sales; default and repossession LO2

Sanchez Development Company uses the installment sales method to account for some of its installment sales. On October 1, 2009, Sanchez sold a parcel of land to the Kreuze Corporation for $4.4 million. This amount was not considered significant relative to Sanchez's other sales during 2009. The land had cost Sanchez $2.244 million to acquire and develop. Terms of the sale required a down payment of $880,000 and four annual payments of $880,000 plus interest at an appropriate interest rate, with payments due on each October 1 beginning in 2010.

Kreuze paid the down payment, but on October 1, 2010, defaulted on the remainder of the contract. Sanchez repossessed the land. On the date of repossession the land had a fair value of $1.744 million.


Required:

Prepare the necessary entries for Sanchez to record the sale, receipt of the down payment, and the default and repossession applying the installment sales method. Ignore interest charges. (Omit the "$" sign in your response.)

Date

General Journal

Debit

Credit

Oct.1.2009

Installment receivable

4,400,000

 

 

Inventory

 

2,244,000

 

Deferred gross profit

 

2,156,000

 

 

 

 

Oct.1.2009

Cash

880,000

 

 

Installment receivable

 

880,000

 

 

 

 

Oct.1.2009

Deferred gross profit

431,200

 

 

Realized gross profit

 

431,200

 

 

 

 

Oct.1.2010

Repossessed inventory

1,744,000

 

 

Deferred gross profit

1,724,800

 

 

Loss on repossession

51,200

 

 

Installment receivable

 

3,520,000