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Intermediate Accounting
One - correct answer Hillside Company enters into a contract with Sanchez Inc. to provide a software license and 3 years of customer support. The customer-support services require specialized knowledge that only Hillside Company's employees can perform. How many performance obligations are in the contract? Three performance obligations exist in this contract—manufacture of the 3-D printer, installation services and the maintenance services. - correct answer Destin Company signs a contract to manufacture a new 3D printer for $80,000. The contract includes installation which costs $4,000 and a maintenance agreement over the life of the printer at a cost of $10,000. The printer cannot be operated without the installation. Destin Company as well as other companies could provide the installation and maintenance agreement. What are Destin Company's performance obligations in this contract? Ismail accounts for the bundle of goods and services as a single performance obligation because the goods or services in the bundle are highly interrelated. Ismail also provides a significant service by integrating the goods or services into the combined item (that is, the hospital) for which the customer has contracted. In addition, the goods or services are significantly modified and customized to fulfill the contract. In other words, the company's objective is to transfer a combined item. Revenue for the performance obligation would be recognized over time by selecting an appropriate measure of progress toward satisfaction of the performance obligation. - correct answer Ismail Construction enters into a contract to design and build a hospital. Ismail is responsible for the overall management of the project and identifies various goods and services to be provided, including engineering, site clearance, foundation, procurement, construction of the structure, piping and wiring, installation of equipment, and finishing. Does Ismail have a single performance obligation to the customer in this revenue arrangement? Explain. 1,127,500 - correct answer Nair Corp. enters into a contract with a customer to build an apartment building for $1,000,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $150, to be paid if the building is ready for rental beginning August 1, 2018. The bonus is reduced by $50,000 each week that completion is delayed. Nair commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
Completed by Probability August 1, 2018 70 % August 8, 2018 20 August 15, 2018 5 After August 15, 2018 5 Determine the transaction price for this contract. (a) Groupo would recognize revenue of $1,000,000 at delivery. (b) Groupo would recognize revenue of $800,000 at the point of sale. (c) Groupo would recognize revenue of $464,000 at the point of sale and recognize interest revenue over the payment period. - correct answer Presented below are three revenue recognition situations. (a) Groupo sells goods to MTN for $1,000,000, payment due at delivery. (b) Groupo sells goods on account to Grifols for $800,000, payment due in 30 days. (c) Groupo sells goods to Magnus for $500,000, payment due in two installments, the first installment payable in 18 months and the second payment due 6 months later. The present value of the future payments is $464,000. Indicate the transaction price for each of these situations and when revenue will be recognized. A. DR NO ENTRY CR NO ENTRY B. DR CASH 900 CR UNEARNED SALES REVENUE 900 C DR UNEARNED SALES REVENUE 900 DR COST OF GOODS SOLD 575
JAN 28TH
DR CASH 610000
CR NOTES RECEIVABLE 610000 - correct answer Jupiter Company sells goods to Danone Inc. by accepting a note receivable on January 2, 2017. The goods have a sales price of $610,000 (cost of $500,000). The terms are net 30. If Danone pays within 5 days, however, it receives a cash discount of $10,000. Past history indicates that the cash discount will be taken. On January 28, 2017, Danone makes payment to Jupiter for the full sales price. A.) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the net method. B.) Prepare the journal entry(ies) to record the sale and related cost of goods sold for Jupiter Company on January 2, 2017, and the payment on January 28, 2017. Assume that Jupiter Company records the January 2, 2017, transaction using the gross method. JULY 10 DR ACCOUNTS RECEIVABLE 700000 CR SALES REVENUE 700000 DR COST OF GOODS SOLD 560000 CR INVENTORY 560000 OCT 10TH DR SALE RETURNS AND ALLOWANCES 78000 CR ACCOUNTS RECEIVABLE 78000
DR RETURNED INVENTORY 62400
CR COST OF GOODS SOLD 62400
OCT 31ST
DR NO ENTRY
CR NO ENTRY - correct answer On July 10, 2017, Amodt Music sold CDs to retailers on account and recorded sales revenue of $700,000 (cost $560,000). Amodt grants the right to return CDs that do not sell in 3 months following delivery. Past experience indicates that the normal return rate is 15%. By October 11, 2017, retailers returned CDs to Amodt and were granted credit of $78,000. Prepare Amodt's journal entries to record (a) the sale on July 10, 2017, and (b) $78,000 of returns on October 11, 2017, and on October 31, 2017. Assume that Amodt prepares financial statement on October 31, 2017. DR CASH 18850 DR ADVERTISING EXPENSE 500 DR COMMISSION EXPENSE 2150 CR REV FROM CONSIGNMENT SALES 21500 DR COST OF GOODS SOLD 13200 CR INVENTORY ON CONSIGNMENT 13200 - correct answer 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 10% commission, and remitted the cash due to Jansen. Prepare Jansen's journal entry when the cash is received. MAY 1ST DR NO ENTRY
DR CASH 400
DR UNEARNED SERVICE REVENUE 554
CR SERVICE REVENUE 554
CR ACCOUNTS RECEIVABLE - correct answer Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Geraths enters into the following contract on July 1, 2017, with a local homeowner. The customer purchases windows for a price of $2,400 and chooses Geraths to do the installation. Geraths charges the same price for the windows irrespective of whether it does the installation or not. The installation service is estimated to have a standalone selling price of $600. The customer pays Geraths $2,000 (which equals the standalone selling price of the windows, which have a cost of $1,100) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2017, Geraths completes installation on October 15, 2017, and the customer pays the balance due. Prepare the journal entries for Geraths in 2017. A.) DR CASH 200000 CR LIABILITY TO WERNER COMP 200000 B.) DR INTEREST EXPENSE 4000 DR LIABILITY TO WERNER COMPANY 200000 CR CASH 204000 - correct answer Zagat Inc. enters into an agreement on March 1, 2017, to sell Werner Metal Company aluminum ingots. As part of the agreement, Zagat also agrees to repurchase the ingots on May 1, 2017, at the original sales price of $200,000 plus 2%. A.) Prepare the journal entry necessary on March 1, 2017.
B.)
Prepare the journal entry for the repurchase of the ingots on May 1, 2017. DR CASH 300000 DR ACCOUNTS RECEIVABLE 1700000 CR SALES REVENUE 2000000 - correct answer Wood-Mode Company is involved in the design, manufacture, and installation of various types of wood products for large construction projects. Wood-Mode recently completed a large contract for Stadium Inc., which consisted of building 35 different types of concession counters for a new soccer arena under construction. The terms of the contract are that upon completion of the counters, Stadium would pay $2,000,000. Unfortunately, due to the depressed economy, the completion of the new soccer arena is now delayed. Stadium has therefore asked Wood-Mode to hold the counters for 2 months at its manufacturing plant until the arena is completed. Stadium acknowledges in writing that it ordered the counters and that they now have ownership. The time that Wood- Mode Company must hold the counters is totally dependent on when the arena is completed. Because Wood-Mode has not received additional progress payments for the counters due to the delay, Stadium has provided a deposit of $300,000. (c) Prepare the journal entry that Wood-Mode should make, assuming it signed a valid sales contract to sell the counters and received at the time the $300, payment. A.) JAN 2ND DR CASH 50000 CR SALES REVENUE 50000 DURING 2017 DR WARRANTY EXPENSE 900 CR PARTS EXPENSE 900 DEC 31
B.) Repeat the requirements for (a), assuming that in addition to the assurance warranty, Grando sold an extended warranty (service-type warranty) for an additional 2 years (2019-2020) for $800. DR CONSTRUCTION IN PROCESS 1700000 CR MATERIALS, CASH, PAYABLES 170000 DR ACCOUNTS RECEIVABLE 1200000 CR BILLINGS ON CONSTR IN PROC 1200000 DR CASH 960000 CR ACCOUNTS RECEIVABLE 960000 DR CONSTRUCTION IN PROCESS 680000 DR CONSTRUCTION EXPENSES 1700000 CR REV FROM LT CONTRACTS 2380000 - correct answer Brief Exercise 18- Turner, Inc. began work on a $7,000,000 contract in 2017 to construct an office building. During 2017, Turner, Inc. incurred costs of $1,700,000, billed its customers for $1,200,000, and collected $960,000. At December 31, 2017, the estimated additional costs to complete the project total $3,300,000. Prepare Turner's 2017 journal entries using the percentage-of-completion method. Guillen, Inc. Balance Sheet DECEMBER 31, 2017 CURRENT ASSETS:
ACCOUNTS RECEIVABLE 240000
INVENTORIES:
CONSTRUCTION IN PROCESS 1715000
LESS: BILLINGS 1000000
COSTS IN EXCESS OF BILLINGS 715000 - correct answer Guillen, Inc. began work on a $7,000,000 contract in 2017 to construct an office building. Guillen uses the completed-contract method. At December 31, 2017, the balances in certain accounts were Construction in Process $1,715,000, Accounts Receivable $240,000, and Billings on Construction in Process $1,000,000. Indicate how these accounts would be reported in Guillen's December 31, 2017, balance sheet A. DR CONSTRUCTION EXPENSES 285356 CR CONSTRUCTION IN PROCESS 20000 CR REV FROM LT CONTRACTS 265356 B. DR LOSS FROM LT CONTRACTS 20000 CR CONSTRUCTION IN PROCESS 20000 - correct answer Archer Construction Company began work on a $420,000 construction contract in 2017. During 2017, Archer incurred costs of $278,000, billed its customer for $215,000, and collected $175,000. At December 31, 2017, the estimated additional costs to complete the project total $162,000. Prepare Archer's journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method. APR 1
rate for 2017 and years thereafter is 30%. Assume this is the only difference between Oxford's pretax financial income and taxable income. Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable. 42000 - correct answer At December 31, 2017, Suffolk Corporation had an estimated warranty liability of $105,000 for accounting purposes and $0 for tax purposes. (The warranty costs are not deductible until paid.) The effective tax rate is 40%. Compute the amount Suffolk should report as a deferred tax asset at December 31,
Deferred tax asset at December 31, 2017 DR INCOME TAX EXPENSE 60000 CR ALLOWANCE TO REDUCE DEFERRED TAX ASSET TO EXPECTED REALIZABLE VALUE 60000 - correct answer At December 31, 2017, Hillyard Corporation has a deferred tax asset of $200,000. After a careful review of all available evidence, it is determined that it is more likely than not that $60,000 of this deferred tax asset will not be realized. DR INCOME TAX EXPENSE 71100 CR INCOME TAX PAYABLE 66600 CR DEFERRED TAX LIABILITY 4500 - correct answer Shetland Inc. had pretax financial income of $154,000 in 2017. Included in the computation of that amount is insurance expense of $4,000 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000. Prepare Shetland's journal entry to record 2017 taxes, assuming a tax rate of 45%
