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Questions and Answers of Accounting

What are the three alternative accounting methods available to a seller that is exposed to continued risks of ownership through return of the product?
Under what conditions may a seller who is exposed to continued risks of a high rate of return of the product sold recognize sales transactions as current revenue?
What are the two basic methods of accounting for long-term construction contracts? Indicate the circumstances that determine when one or the other of these methods should be used.
Hawkins Construction Co. has a $60 million contract to construct a highway overpass and cloverleaf. The total estimated cost for the project is $50 million. Costs incurred in the first year of the
For what reasons should the percentage-of-completion method be used over the completed-contract method whenever possible?
What methods are used in practice to determine the extent of progress toward completion? Identify some “input measures” and some “output measures” that might be used to determine the extent
What are the two types of losses that can become evident in accounting for long-term contracts? What is the nature of each type of loss? How is each type accounted for?
Under the percentage-of-completion method, how are the Construction in Process and the Billings on Construction in Process accounts reported in the balance sheet?
Explain the differences between the installment-sales method and the cost-recovery method.
Identify and briefly describe the two methods generally employed to account for the cash received in situations where the collection of the sales price is not reasonably assured.
What is the deposit method and when might it be applied?
What is the nature of an installment sale? How do installment sales differ from ordinary credit sales?
Describe the installment-sales method of accounting.
How are operating expenses (not included in cost of goods sold) handled under the installment-sales method of accounting? What is the justification for such treatment?
Mojave sold her condominium for $500,000 on September 14, 2010; she had paid $330,000 for it in 2002. Mojave collected the selling price as follows: 2010, $80,000; 2011, $320,000; and 2012, $100,000.
When interest is involved in installment-sales transactions, how should it be treated for accounting purposes?
How should the results of installment sales be reported on the income statement?
At what time is it proper to recognize income in the following cases?(a) Installment sales with no reasonable basis for estimating the degree of Collectibility?(b) Sales for future delivery?(c)
When is revenue recognized under the cost-recovery method?
When is revenue recognized under the deposit method? How does the deposit method differ from the installment sales and cost-recovery methods?
What is a major difference between iGAAP and U.S. GAAP as regards revenue recognition practices?
iGAAP prohibits the use of the completed-contract method in accounting for long-term contracts. If revenues and costs are difficult to estimate, how must companies account for long-term contracts?
Livesey Company has signed a long-term contract to build a new basketball arena. The total revenue related to the contract is $120 million. Estimated costs for building the arena are $40 million in
Why in franchise arrangements may it not be proper to recognize the entire franchise fee as revenue at the date of sale?
How does the concept of “substantial performance” apply to accounting for franchise sales?
How should a franchisor account for continuing franchise fees and routine sales of equipment and supplies to franchisees?
What changes are made in the franchisor’s recording of the initial franchise fee when the franchise agreement:(a) Contains an option allowing the franchisor to purchase the franchised outlet, and
What is the nature of a sale on consignment? When is revenue recognized from a consignment sale?
Aamodt Music sold CDs to retailers and recorded sales revenue of $700,000. During 2010, retailers returned CDs to Aamodt and were granted credit of $78,000. Past experience indicates that the normal
Turner, Inc. began work on a $7,000,000 contract in 2010 to construct an office building. During 2010, Turner, Inc. incurred costs of $1,700,000, billed their customers for $1,200,000, and collected
O’Neil, Inc. began work on a $7,000,000 contract in 2010 to construct an office building. O’Neil uses the percentage-of-completion method. At December 31, 2010, the balances in certain accounts
Use the information from BE18-2, but assume Turner uses the completed-contract method. Prepare the company’s 2010 journal entries.
Guillen, Inc. began work on a $7,000,000 contract in 2010 to construct an office building. Guillen uses the completed-contract method. At December 31, 2010, the balances in certain accounts were
Archer Construction Company began work on a $420,000 construction contract in 2010. During 2010, Archer incurred costs of $278,000, billed its customer for $215,000, and collected $175,000. At
Gordeeva Corporation began selling goods on the installment basis on January 1, 2010. During 2010, Gordeeva had installment sales of $150,000; cash collections of $54,000; cost of installment sales
Lazaro Inc. sells goods on the installment basis and uses the installment-sales method. Due to a customer default, Lazaro repossessed merchandise that was originally sold for $800, resulting in a
At December 31, 2010, Grinkov Corporation had the following account balances.Installment Accounts Receivable, 2009........................$ 65,000Installment Accounts Receivable,
Schuss Corporation sold equipment to Potsdam Company for $20,000. The equipment is on Schuss’s books at a net amount of $13,000. Schuss collected $10,000 in 2010, $5,000 in 2011, and $5,000 in
Frozen Delight, Inc. charges an initial franchise fee of $75,000 for the right to operate as a franchisee of Frozen Delight. Of this amount, $25,000 is collected immediately. The remainder is
Jansen Corporation shipped $20,000 of merchandise on consignment to Gooch Company. Jansen paid freight costs of $2,000. Gooch Company paid $500 for local advertising which is reimbursable from
Revenue Recognition—Alternative Methods Peterson Industries has three operating divisions—Farber Mining, Glesen Paperbacks, and Enyart Protection Devices. Each division maintains its own
Recognition of Revenue—Theory Revenue is usually recognized at the point of sale. Under special circumstances, however, bases other than the point of sale are used for the timing of revenue
Recognition of Revenue—Theory the earning of revenue by a business enterprise is recognized for accounting purposes when the transaction is recorded. In some situations, revenue is recognized
Recognition of Revenue'Bonus Dollars Griseta & Dubel Inc. was formed early this year to sell merchandise credits to merchants who distribute the credits free to their customers. For example,
Recognition of Revenue from Subscriptions Cutting Edge is a monthly magazine that has been on the market for 18 months. It currently has a circulation of 1.4 million copies. Negotiations are underway
Long-Term Contract—Percentage-of-Completion Widjaja Company is accounting for a long-term construction contract using the percentage-of-completion method. It is a 4-year contract that is currently
Revenue Recognition—Real Estate Development Lillehammer Lakes is a new recreational real estate development which consists of 500 lake-front and lake-view lots. As a special incentive to the first
Revenue Recognition Nimble Health and Racquet Club (NHRC), which operates eight clubs in the Chicago metropolitan area, offers one-year memberships the members may use any of the eight facilities but
Revenue Recognition—Membership Fees Midwest Health Club offers one-year memberships. Membership fees are due in full at the beginning of the individual membership period. As an incentive to new
Franchise Revenue Amigos Burrito Inc. sells franchises to independent operators throughout the northwestern part of the United States. The contract with the franchisee includes the following
Revenue Recognition on Book Sales with High Returns) Uddin Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms
Sales Recorded Both Gross and Net On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms
Revenue Recognition on Marina Sales with Discounts Taylor Marina has 300 available slips that rent for $800 per season. Payments must be made in full at the start of the boating season, April 1,
Recognition of Profit on Long-Term Contracts During 2010 Nilsen Company started a construction job with a contract price of $1,600,000. The job was completed in 2012. The following information is
Analysis of Percentage-of-Completion Financial Statements In 2010, Stein otter Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Stein otter uses
Gross Profit on Uncompleted Contract On April 1, 2010, Dougherty Inc. entered into a cost-plus- fixed-fee contract to construct an electric generator for Altom Corporation. At the contract date,
Recognition of Profit, Percentage-of-Completion In 2010 Gurney Construction Company agreed to construct an apartment building at a price of $1,200,000. The information relating to the costs and
Recognition of Revenue on Long-Term Contract and Entries Hamilton Construction Company uses the percentage-of-completion method of accounting. In 2010, Hamilton began work under contract #E2-D2,
Recognition of Profit and Balance Sheet Amounts for Long-Term Contracts Yanmei Construction Company began operations January 1, 2010. During the year, Yanmei Construction entered into a contract
Long-Term Contract Reporting) Berstler Construction Company began operations in 2010. Construction activity for the first year is shown below. All contracts are with different customers, and any work
Installment-Sales Method Calculations, Entries Coffin Corporation appropriately uses the installment-sales method of accounting to recognize income in its financial statements. The following
Analysis of Installment-Sales Accounts Samuels Co. appropriately uses the installment-sales method of accounting. On December 31, 2012, the books show balances as follows. Instructions (a) Prepare
Gross Profit Calculations and Repossessed Merchandise Basler Corporation, which began business on January 1, 2010, appropriately uses the installment-sales method of accounting. The following data
Interest Revenue from Installment Sale Becker Corporation sells farm machinery on the installment plan. On July 1, 2010, Becker entered into an installment-sale contract with Valente Inc. for a
Installment-Sales Method and Cost-Recovery Method) Swift Corp., a capital goods manufacturing business that started on January 4, 2010, and operates on a calendar-year basis, uses the installment
Installment-Sales Method and Cost-Recovery Method on January 1, 2010, Wetzel Company sold property for $250,000. The note will be collected as follows: $120,000 in 2010, $90,000 in 2011, and $40,000
Installment Sales—Default and Repossession Crawford Imports Inc. was involved in two default and repossession cases during the year:1. A refrigerator was sold to Cindy McClary for $1,800, including
Installment Sales—Default and Repossession Seaver Company uses the installment-sales method in accounting for its installment sales. On January 1, 2010, Seaver Company had an installment account
Franchise Entries Pacific Cross burgers Inc. charges an initial franchise fee of $70,000. Upon the signing of the agreement, a payment of $28,000 is due. Thereafter, three annual payments of $14,000
Franchise Fee, Initial Down Payment On January 1, 2010, Lesley Benjamin signed an agreement to operate as a franchisee of Campbell Inc. for an initial franchise fee of $50,000. The amount of $10,000
Consignment Computations On May 3, 2010, Eisler Company consigned 80 freezers, costing $500 each, to Remmers Company. The cost of shipping the freezers amounted to $840 and was paid by Eisler
Comprehensive Three-Part Revenue Recognition Van Hatten Industries has three operating divisions—Depp Construction Division, Dement Publishing Division, and Ankiel Securities Division. Each
Recognition of Profit on Long-Term Contract Shanahan Construction Company has entered into a contract beginning January 1, 2010, to build a parking complex. It has been estimated that the complex
Recognition of Profit and Entries on Long-Term Contract On March 1, 2010, Chance Company entered into a contract to build an apartment building. It is estimated that the building will cost $2,000,000
Recognition of Profit and Balance Sheet Presentation, Percentage-of-Completion On February 1, 2010, Hewitt Construction Company obtained a contract to build an athletic stadium. The stadium was to
Completed Contract and Percentage of Completion with Interim Loss Reynolds Custom Builders (RCB) was established in 1985 by Avery Conway and initially built high-quality customized homes under
Long-Term Contract with Interim Loss On March 1, 2010, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of
Long-Term Contract with an Overall Loss On July 1, 2010, Torvill Construction Company Inc. contracted to build an office building for Gumbel Corp. for a total contract price of $1,900,000. On July 1,
Installment-Sales Computations and Entries Presented below is summarized information for Johnston Co., which sells merchandise on the installment basis. (a) Compute the realized gross profit for
Installment-Sales Income Statements Chantal Stores sells merchandise on open account as well as on installment terms. Below are the data pertaining to the construction period? From the data above,
Installment-Sales Computations and Entries Paul Dobson Stores sell appliances for cash and also on the installment plan. Entries to record cost of sales are made monthly. The accounting department
Installment-Sales Entries the following summarized information relates to the installment sales activity of Phillips Stores, Inc. for the year 2010.Installment sales during
Installment-Sales Computation and Entries'Periodic Inventory Mantle Inc. sells merchandise for cash and also on the installment plan. Entries to record cost of goods sold are made at the end of each
Installment Repossession Entries selected transactions of TV Land Company are presented below.1. A television set costing $540 is sold to Jack Matre on November 1, 2010, for $900. Matre makes a down
Installment-Sales Computations and Schedules Saprano Company, on January 2, 2010, entered into a contract with a manufacturing company to purchase room-size air conditioners and to sell the units on
Completed-Contract Method) Monat Construction Company, Inc., entered into a firm fixed price contract with Hyatt Clinic on July 1, 2010, to construct a four-story office building. At that time, Monat
Revenue Recognition Methods "Comparison Sue's Construction is in its fourth year of business. Sue performs long-term construction projects and accounts for them using the completed-contract method.
Comprehensive Problem "Long-Term Contracts you have been engaged by Buhl Construction Company to advise it concerning the proper accounting for a series of long-term contracts. Buhl commenced doing
Distinguish among depreciation, depletion, and amortization.
Identify the factors that are relevant in determining the annual depreciation charge, and explain whether these factors are determined objectively or whether they are based on judgment.
Some believe that accounting depreciation measures the decline in the value of fixed assets. Do you agree? Explain.
Explain how estimation of service lives can result in unrealistically high valuations of fixed assets.
The plant manager of a manufacturing firm suggested in a conference of the company’s executives that accountants should speed up depreciation on the machinery in the finishing department because
For what reasons are plant assets retired? Define inadequacy, supersession, and obsolescence.
What basic questions must be answered before the amount of the depreciation charge can be computed?
Workman Company purchased a machine on January 2, 2010, for $800,000. The machine has an estimated useful life of 5 years and a salvage value of $100,000. Depreciation was computed by the 150%
Silverman Company purchased machinery for $162,000 on January 1, 2010. It is estimated that the machinery will have a useful life of 20 years, salvage value of $15,000, production of 84,000 units,
What are the major factors considered in determining what depreciation method to use?
Under what conditions is it appropriate for a business to use the composite method of depreciation for its plant assets? What are the advantages and disadvantages of this method?
If Remmers, Inc. uses the composite method and its composite rate is 7.5% per year, what entry should it make when plant assets that originally cost $50,000 and have been used for 10 years are sold

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