The following are the operating activities of three different companies. Company X: Engages in long-term service contracts involving a specific number of defined but not similar service acts. Uses proportional performance method to recognize revenues. Sells two-year service contracts for $600 in advance. Each service contract requires Company X to perform service act 1 a total of 30 times and service act 2 a total of 50 times during the two-year period. At the beginning of 2007, 200 service contracts were sold. The following is a summary of the related cost information for the 200 service contracts:
Initial direct costs .....................$ 8,500
Annual indirect costs ...................9,300
Estimated (and actual) total direct costs (for two-year period) ...20,000
Direct cost per service act
Service act 1 ......................$ 1.60
Service act 2 .......................1.04
During 2007, service act 1 was performed 5,000 times and service act 2 was performed 4,000 times. During 2008, service acts 1 and 2 were performed 1,000 and 6,000 times, respectively. Company Y: Sells goods on the installment basis. Uses the installment method (because these are exceptional cases) to recognize gross profits. The following is a summary of the installment sales, gross profit, operating expenses, and collections for 2007 and 2008:

Company Z: Engages in long-term construction contracts. Uses the percentage-of-completion method to recognize gross profits. Started contract 1 in 2006, contract 2 in 2007, and contract 3 in 2008. The total gross profit (estimated and actual) and the percentage complete for each contract at the end of 2007 through 2009 are:

1. Prepare 2007 and 2008 condensed income statements for Company X.
2. Prepare 2007 and 2008 condensed income statements for Company Y.
3. Prepare a schedule that shows Company Z’s gross profit for 2007, 2008, and2009.

  • CreatedMarch 10, 2012
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