Part One: Multiple Choices: Select the best answer to each question. (4 points) Question #1: The first step in the process for revenue recognition is to A determine the transaction price. B. identify the contract with customers. C. allocate transaction price to the separate performance obligations D. identify the separate performance obligations in the contract Question #2 The fourth step in the process for revenue recognition is to A recognize revenue when each performance obligation is satisfied. B. identify the separate performance obligations in the contract C. allocate transaction price to the separate performance obligations. D. determine the transaction price Part Two: Problem - Revenue Recognition (26 points) Ocean Pool Company sells prefabricated pools. On March 1, 2020, Ocean Pool Company enters into a non-cancelable contract with International Hotel to sell a prefabricated pool for $138,000 The sales price includes installation and a monthly maintenance for the first year. The prefabricated pool cost $80,000 and has a standalone selling price of $120,000. The installation service is valued at $24,000 and is expected to take 3 months to complete. The maintenance service is usually sold at $6,000 per year ($500.00 per month). Ocean Pool Company sells the pool, the installation and the maintenance service separately. The installation and maintenance Services could be performed by other entities. The contract requires International Hotel to pay $100,000 when the prefabricated pool is delivered and the balance must be paid when the installation is completed. The prefabricated pool was delivered on April 15, 2020 and the installation was completed on July 15, 2020. The maintenance service started on August 1, 2020. International Hotel made the payments according to the contract Required: (show all your calculations) A. Answer each of the following questions. Show and label all calculations. Questions Calculations and answers 1. How many performance obligations are in the contract of Ocean Pool Company with International Hotel? 2. What are the performance obligations in the contract of Ocean Pool Company with International Hotel? 3. What is the transaction price? 4. Calculate how the transaction price should be allocated to the performance obligations according to the market assessment approach. Show all calculations. B. Fill the following table for each performance obligation identified. List each performance Specify whether Specify the date or Specify the amount obligation each performance dates in 2020 when of revenue obligation is each performance recognized when satisfied at a point obligation is each performance in time or over a satisfied obligation is period of time satisfied C. Prepare all the journal entries that Ocean Pool Company should make during 2020 to account for this contract. Specify the date of each journal entry. Date Accounts Title and Explanation Ref. Debit Credit -0- Part Three: Problem - Long-term contracts (20 points) During 2020, Nilsen Company started a construction job with a contract price of $1,600,000. The job was completed in 2022. The following information is available. 2020 2021 2022 Costs incurred to date $400,000 $825,000 $1,070,000 Estimated costs to complete 600,000 275,000 Billings to date 300,000 900,000 1,600,000 Collections to date 270,000 810,000 1.425,000 Required: (show all your calculations) a. Compute the amount of gross profit to be recognized each year, assuming the percentage- of-completion method is used. b. Prepare all necessary journal entries for 2021. C. Compute the amount of gross profit to be recognized each year, assuming the completed- contract method is used. Bonus: Problem - Sales revenue, sales returns and allowances (10 points) On March 10, 2020, Steele Company sold to Barr Hardware 200 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2020, Barr returned six tool sets and received a credit to its account Required: (show all your calculations) a. Prepare journal entries for Steele to record (1) the sale on March 10, 2020, (2) the return on March 25, 2020, and (c) any adjusting entries required on March 31, 2020 (when Steele prepares financial statements). Steele believes the original estimate of returns is correct. b. Indicate the income statement and balance sheet reporting by Steele at March 31, 2020, of the information related to the Barr sales transaction