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Intermediate Accounting 13th Edition Donald E. Kieso, Jerry J. Weygandt, And Terry D. Warfield - Solutions
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 project are $8 million. Hawkins Construction Co. appropriately uses the percentage-of completion
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 of progress.
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. Mojave appropriately uses the installment-sales method. Prepare a schedule to determine the gross
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) Merchandise shipped on consignment?(d) Profit on incomplete construction contracts?(e) Subscriptions to
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 the first year and $30 million in both the second and third year. The costs cannot be reliably
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 it is likely that the option will be exercised?(b) Allows the franchisee to purchase equipment 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 return rate is 15%. Prepare Aamodt’s entries to record(a) The $78,000 of returns(b) Estimated
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 $960,000. At December 31, 2010, the estimated future costs to complete the project total $3,300,000.
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 were: construction in process $2,450,000; accounts receivable $240,000; and billings on construction
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 construction in process $1,715,000; accounts receivable $240,000; and billings on construction in
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 December 31, 2010, the estimated future costs to complete the project total $162,000. Make Archer’s
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 of $102,000. Prepare the company’s entries to record installment sales, cash collected, cost of
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 gross profit rate of 40%. At the time of repossession, the uncollected balance is $520, and the fair
At December 31, 2010, Grinkov Corporation had the following account balances.Installment Accounts Receivable, 2009........................$ 65,000Installment Accounts Receivable, 2010.........................110,000Deferred Gross Profit,
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 2012. If Schuss uses the cost-recovery method, what amount of gross profit will be recognized in each
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 collected in 4 equal annual installments of $12,500 each. These installments have a present value of
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 Jansen. By year-end, 60% of the merchandise had been sold for $21,500. Gooch notified Jansen, retained a
Revenue Recognition—Alternative Methods Peterson Industries has three operating divisions—Farber Mining, Glesen Paperbacks, and Enyart Protection Devices. Each division maintains its own accounting system and method of revenue recognition. Farber Mining Farber Mining specializes in the
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.(a) Why is the point of sale usually used as the basis 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 approximately as it is earned in the economic sense. In other situations, however, accountants have
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, customers can earn additional credits based on the dollars they spend with a merchant (e.g., airlines
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 to obtain a bank loan in order to update the magazine’s facilities. They are producing close to
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 in its second year. The latest estimates of total contract costs indicate that the contract will be
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 100 buyers of lake-view lots, the developer is offering 3 years of free financing on 10-year, 12%
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 must reserve racquetball court time and pay a separate fee before using the court. As an incentive
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 customers, MHC advertised that any customers not satisfied for any reason could receive a refund of the
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 provisions.1. The franchisee is charged an initial fee of $120,000. Of this amount, $20,000 is payable when
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 f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum
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 n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon
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, 2011. Slips for the next season may be reserved if paid for by December 31, 2010. Under a new policy, if
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 available.(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of
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 the percentage-of-completion method for financial accounting purposes. The income to be recognized
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, Dougherty estimated that it would take 2 years to complete the project at a cost of $2,000,000. The
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 billings for this contract is shown below. (a) Assuming that the percentage-of-completion method is
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, which provided for a contract price of $2,200,000. Other details follow:(a) What portion of the total
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 with Lundquist Corp. to construct a manufacturing facility. At that time, Yanmei estimated that it
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 remaining at December 31, 2010, is expected to be completed in 2011. Instructions Prepare a
Installment-Sales Method Calculations, Entries Coffin Corporation appropriately uses the installment-sales method of accounting to recognize income in its financial statements. The following information is available for 2010 and 2011.(a) Compute the amount of realized gross profit recognized in
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 the adjusting entry or entries required on December 31, 2012 to recognize 2012 realized gross
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 were obtained for the years 2010 and 2011. (a) Compute the balance in the deferred gross profit
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 8-year period. Equal annual payments under the installment sale are $100,000 and are due on July 1. The
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 sales method of profit recognition in accounting for all its sales. The following data were taken from
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 in 2012. The property had cost Wetzel $150,000 when it was purchased in 2008.(a) Compute the amount
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 a 30% markup on selling price. McClary made a down payment of 20%, four of the remaining 16 equal
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 receivable from Jan Noble with a balance of $1,800. During 2010, $500 was collected from Noble. When
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 are required. The credit rating of the franchisee is such that it would have to pay interest at 10%
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 was paid when the agreement was signed, and the balance is payable in five annual payments of $8,000
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 Company. On December 30, 2010, a report was received from the consignee, indicating that 40 freezers had
Comprehensive Three-Part Revenue Recognition Van Hatten Industries has three operating divisions—Depp Construction Division, Dement Publishing Division, and Ankiel Securities Division. Each division maintains its own accounting system and method of revenue recognition. Depp Construction Division
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 will cost $600,000 and will take 3 years to construct. The complex will be billed to the purchasing
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 and will take 3 years to complete. The contract price was $3,000,000. The following information
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 be built at a total cost of $5,400,000 and was scheduled for completion by September 1, 2012. One
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 contract with specific buyers. In the 1990s, Conway's two sons joined the company and expanded RCB's
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 $8,400,000. The building was completed by October 31, 2012. The annual contract costs incurred, estimated
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, Torvill estimated that it would take between 2 and 3 years to complete the building. On December
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 each of the years 2010, 2011, and 2012. (b) Prepare in journal form all entries required in 2012,
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, which cover the 3 years since Chantal Stores commenced operations, determine the net income for each
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 has prepared the following analysis of cash receipts for the year. Cash sales (including repossessed
Installment-Sales Entries the following summarized information relates to the installment sales activity of Phillips Stores, Inc. for the year 2010.Installment sales during 2010....................................$500,000Cost of goods sold on installment basis.....................350,000Collections
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 year. Repossessions of merchandise (sold in 2010) were made in 2011 and were recorded correctly as
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 payment of $300 and agrees to pay $30 on the first of each month for 20 months thereafter.2. Matre
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 an installment plan with collections over approximately 30 months with no carrying charge. For
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 estimated that it would take between 2 and 3 years to complete the project. The total contract
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. Sue built an apartment building at a price of $1,100,000. The costs and billings for this contract
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 business on January 1, 2010. Construction activities for the first year of operations are shown
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 improvements were rapidly making those machines obsolete, and a depreciation fund big enough to cover
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% declining-balance method. What is the amount of accumulated Depreciation at the end of December 31, 2011?
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, and working hours of 42,000. During 2010 the company uses the machinery for 14,300 hours, and the
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 for $14,000?
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