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Homework Manager - Intermediate Accounting I Section 51A http://mh2.brownstone.net/modules/unproctoredTest.Print

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Online Homework SystemAssignment Worksheet

8/7/09 - 5:42 PM

Name: ____________________________ Class: Intermediate Accounting I Section 51A

Class #: ____________________________ Section #: ____________________________Instructor: Jose Nava Assignment: Ch 5 Master File (Sp5e)

Question 1: (1 point)

Exercise 5-3 Installment sales method; journal entries LO2

Charter Corporation, which began business in 2009, appropriately uses the installment sales method of accountingfor its installment sales. The following data were obtained for sales during 2009 and 2010:

2009 2010Installment sales $360,000 $350,000Cost of installment sales 234,000 245,000Cash collections on installment sales during: 2009 150,000 100,000 2010 — 120,000

Required:

Prepare summary journal entries for 2009 and 2010 to account for the installment sales and cash collections. Thecompany uses the perpetual inventory system.Omit the "$" sign in your response.2009 To record installment sales__________ ____________ __________ ____________ __________ ____________ 2009 To record cash collections from installment sales__________ ____________ __________ ____________ 2009 To recognize gross profit from installment sales__________ ____________ __________ ____________ 2010 To record installment sales


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Question 3: (1 point)Exercise 5-7 Installment sales; default and repossession LO2

Sanchez Development Company uses the installment sales method to account for some of its installment sales.On October 1, 2009, Sanchez sold a parcel of land to the Kreuze Corporation for $4 million. This amount was notconsidered significant relative to Sanchez's other sales during 2009. The land had cost Sanchez $1.8 million toacquire and develop. Terms of the sale required a down payment of $800,000 and four annual payments of$800,000 plus interest at an appropriate interest rate, with payments due on each October 1 beginning in 2010.

Kreuze paid the down payment, but on October 1, 2010, defaulted on the remainder of the contract. Sanchezrepossessed the land. On the date of repossession the land had a fair value of $1.3 million.

Required:

Prepare the necessary entries for Sanchez to record the sale, receipt of the down payment, and the default andrepossession applying the installment sales method. Ignore interest charges. (Omit the "$" sign in yourresponse.)

Date General Journal Debit Credit

Oct.1.2009 __________ ____________

__________ ____________

__________ ____________

Oct.1.2009 __________ ____________

__________ ____________

Oct.1.2009 __________ ____________

__________ ____________


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Oct.1.2010 __________ ____________

__________ ____________

__________ ____________

__________ ____________


Exercise 5-18 Concepts; terminology LO2 through LO6

Listed below are several terms and phrases associated with revenue recognition and profitability analysis. Pair eachitem from List A(by letter) with the item from List B that is most appropriately associated with it.

List A List B

__________ 1. Inventory turnover a. Net income divided by net sales.__________ 2. Return on assets b. Defers recognition until cash collected equals cost.__________ 3. Return on shareholders’ equity c. Defers recognition until project is complete.__________ 4. Profit margin on sales d. Net income divided by assets.__________ 5. Cost recovery method e. Risks and rewards of ownership retained by seller.__________ 6. Percentage-of-completion method f. Contra account to construction in progress.__________ 7. Completed contract method g. Net income divided by shareholders’ equity.__________ 8. Asset turnover h. Cost of goods sold divided by inventory.__________ 9. Receivables turnover i. Recognition is in proportion to work completed.__________ 10. Right of return j. Recognition is in proportion to cash received.__________ 11. Billings on construction contract k. Net sales divided by assets.__________ 12. Installment sales method l. Net sales divided by accounts receivable.


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__________ 13. Consignment sales m. Could cause the deferral of revenue recognitionbeyond delivery point.


Exercise 5-14 Percentage-of-completion method; solve for unknowns LO4

In 2009, Long Construction Corporation began construction work under a three-year contract. The contract price is$1,600,000. Long uses the percentage-of-completion method for financial reporting purposes. The financialstatement presentation relating to this contract at December 31, 2009, is as follows:

Balance Sheet

Accounts Receivable (from construction progress billings) $30,000 Construction in Progress $100,000 Less: Billings on Construction Contract (94,000) Cost of uncompleted contracts in excess of billings 6,000

Income statementIncome (before tax) on the contract recognized in 2009 $20,000

Required:

What was the cost of construction actually incurred in 2009?1.How much cash was collected in 2009 on this contract?2.What was the estimated cost to complete as of the end of 2009?3.What was the estimated percentage of completion used to calculate income in 2009?4.

Round percentage of completion to 2 decimal places, all other answers to nearest whole number. Omit the"$" and "%" sign in your response.

1. Actual costs incurred in 2009 = $ ____________


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2. Cash collections in 2009 = $ ____________ 3. Estimated cost to complete = $ ____________ 4. Estimated percentage of completion used to calculate income = ____________%


Exercise 5-25 Interim financial statements; reporting expenses [Based on Appendix 5] LO1

Shields Company is preparing its interim report for the second quarter ending June 30. The following paymentswere made during the first two quarters:

Expenditure Date AmountAnnual advertising January $800,000Property tax for the fiscal year February 350,000Annual equipment repairs March 260,000Extraordinary casualty loss April 185,000Research and development May 96,000

Required:

For each expenditure indicate the amount that would be reported in the quarterly income statements for the periodsending March 31, June 30, September 30, and December 31. Leave no cells blank - be certain to enter "0"wherever required. Omit the "$" sign in your response.

1st 2nd 3rd 4thAdvertising $ ____________ $ ____________ $ ____________ $ ____________Property Tax ____________ ____________ ____________ ____________


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Exercise 5-13 Income (loss) recognition; percentage-of-completion and completed contract methodscompared LO4

Brady Construction Company contracted to build an apartment complex for a price of $5,000,000. Constructionbegan in 2009 and was completed in 2011. The following are a series of independent situations, numbered 1through 6, involving differing costs for the project. All costs are stated in thousands of dollars.

Estimated Costs to Complete Costs Incurred During Year (As of the End of the Year)

Situation 2009 2010 2011 2009 2010 2011 1 1,500 2,100 900 3,000 900 —2 1,500 900 2,400 3,000 2,400 —3 1,500 2,100 1,600 3,000 1,500 —4 500 3,000 1,000 3,500 875 —5 500 3,000 1,300 3,500 1,500 —6 500 3,000 1,800 4,600 1,700 —

Required:Complete the following table.Round all answers to the nearest whole dollar. Amounts in parentheses do not require a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.

Gross Profit (Loss) Recognized

Percentage-of-Completion Completed Contract

Situation 2009 2010 2011 2009 2010 20111 $ ____________ $ ____________ $ ____________ $ ____________ $ ____________ $ ____________


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2 ____________ ( ____________) ____________ ____________ ____________ ____________3 ____________ ( ____________) ( ____________) ____________ ( ____________) ( ____________)4 ____________ ____________ ____________ ____________ ____________ ____________5 ____________ ( ____________) ____________ ____________ ____________ ____________6 ( ____________) ( ____________) ( ____________) ( ____________) ( ____________) ( ____________)


Exercise 5-5 Journal entries; point of delivery, installment sales, and cost recovery methods LO1 LO2

On July 1, 2009, the Foster Company sold inventory to the Slate Corporation for $300,000. Terms of the sale calledfor a down payment of $75,000 and three annual installments of $75,000 due on each July 1, beginning July 1,2010. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. Theinventory cost Foster $120,000. The company uses the perpetual inventory system.

Required:

Prepare the necessary journal entries for 2009 and 2010 using point of delivery revenue recognition. Ignoreinterest charges.

1.

Repeat requirement 1 applying the installment sales method.2.Repeat requirement 1 applying the cost recovery method.3.

Omit the "$" sign in your response.1 July 1, 2009 To record installment sale __________ ____________ __________ ____________ __________ ____________ __________ ____________


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To record cash collection from installment sale __________ ____________ __________ ____________ July 1, 2010 To record cash collection from installment sale __________ ____________ __________ ____________ 2. July 1, 2009 To record installment sale __________ ____________ __________ ____________ __________ ____________ To record cash collection from installment sale __________ ____________ __________ ____________ To recognize gross profit from installment sale __________ ____________ __________ ____________ July 1, 2010 To record cash collection from installment sale __________ ____________ __________ ____________ To recognize gross profit from installment sale __________ ____________ __________ ____________ 3. July 1, 2009 To record installment sale __________ ____________ __________ ____________ __________ ____________ To record cash collection from installment sale __________ ____________


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__________ ____________ July 1, 2010 To record cash collection from installment sale __________ ____________ __________ ____________ To recognize gross profit from installment sale __________ ____________ __________ ____________


Exercise 5-20 Evaluating efficiency of asset management LO6

The 2009 income statement of Anderson Medical Supply Company reported net sales of $8 million, cost of goodssold of $4.8 million, and net income of $800,000. The following table shows the company's comparative balancesheets for 2009 and 2008:

($ in 000s) 2009 2008Assets Cash $ 300 $ 380Accounts Receivable 700 500Inventory 900 700Property, Plant, and Equipment (net) 2,400 2,120 Total Assets $4,300 $3,700


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Liabilities and Shareholders’ Equity Current Liabilities $ 960 $ 830Bonds Payable 1,200 1,200Paid-In Capital 1,000 1,000Retained Earnings 1,140 670 Total Liabilities and Shareholder's Equity $4,300 $3,700

Some industry averages for Anderson’s line of business are

Inventory Turnover 5 timesAverage Collection Period 25 daysAsset Turnover 1.8 times

Required:Calculate Anderson's Inventory turnover ratio, Receivables turnover ratio, Average collection period and Assetturnover ratio. Round Inventory turnover ratio and Asset turnover ratio to nearest whole number, round Receivablesturnover ratio to 2 decimal places and Average collection period to 1 decimal place.Turnover ratios for Anderson Medical Supply Company for 2009:

Inventory Turnover Ratio = ____________ times Receivables Turnover Ratio = ____________ times Average Collection Period = ____________ days

Asset Turnover Ratio = ____________ times


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Exercise 5-24 Interim reporting; recognizing expenses [Based on Appendix 5] LO1

Security-Rand Corporation determines executive incentive compensation at the end of its fiscal year. At the end ofthe first quarter, management estimated that the amount will be $300 million. Depreciation expense for the year isexpected to be $60 million. Also during the quarter, the company realized a gain of $23 million from selling two of itsmanufacturing plants.

Required:What amounts for these items should be reported in the first quarter’s income statement?Omit the "$" sign in your response.

Incentive compensation $ ____________ millionDepreciation expense ____________ millionGain on sale ____________ million


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Exercise 5-9 Long-term contract; percentage-of-completion and completed contract methods LO4

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The projectbegan in 2009 and was completed in 2010. Data relating to the contract are summarized below:

2009 2010Costs incurred during the year $ 300,000 $1,575,000Estimated costs to complete as of 12/31 1,200,000 –0–Billings during the year 380,000 1,620,000Cash collections during the year 250,000 1,750,000

Required:

Compute the amount of gross profit or loss to be recognized in 2009 and 2010 using thepercentage-of-completion method.

1.

Compute the amount of gross profit or loss to be recognized in 2009 and 2010 using the completed contractmethod.

2.

Prepare a partial balance sheet to show how the information related to this contract would be presented atthe end of 2009 using the percentage-of-completion method.

3.

Prepare a partial balance sheet to show how the information related to this contract would be presented atthe end of 2009 using the completed contract method.

4.

(Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)1. Gross Profit Recognition: 2009 2010 2009: $ ____________ 2010: $ ____________


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Exercise 5-2 Installment sales method LO2

Charter Corporation, which began business in 2009, appropriately uses the installment sales method of accountingfor its installment sales. The following data were obtained for sales made during 2009 and 2010:


Required:

How much gross profit should Charter recognize in 2009 and 2010 from installment sales?1.What should be the balance in the deferred gross profit account at the end of 2009 and 2010?2.

Amounts in parentheses do not require a minus sign. Omit the "$" and "%" sign in your response.1. 2009 gross profit: Cash collection from 2009 sales of $ ____________× ____________% = $ ____________ 2010 gross profit: Cash collection from 2009 sales of $ ____________× ____________% = $ ____________ Cash collection from 2010 sales of $ ____________× ____________% = ____________ Total 2010 gross profit $ ____________


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Exercise 5-4 Installment sales; alternative recognition methods LO2


Required:

Compute the amount of gross profit to be recognized from the installment sale in 2009, 2010, 2011, and2012 using point of delivery revenue recognition. Ignore interest charges.

1.


(Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

1. Year Income recognized 2009 $ ____________ 2010 ____________ 2011 ____________ 2012 ____________ Total $ ____________

2. Year Cash Collected Cost Recovery Gross Profit 2009 $ ____________ $ ____________ $ ____________


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Exercise 5-21 Profitability ratios LO6

The following condensed information was reported by Peabody Toys, Inc., for 2009 and 2008:

($ in 000s) 2009 2008Income statement information Net sales $5,200 $4,200Net income 180 124Balance sheet information Current assets $ 800 $ 750Property, plant, and equipment (net) 1,100 950 Total assets $1,900 $1,700

Current liabilities $ 600 $ 450Long-term liabilities 750 750Paid-in capital 400 400Retained earnings 150 100 Liabilities and shareholders’ equity $1,900 $1,700

Required:

Determine the following ratios for 2009:1.


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Profit margin on sales, round to 1 decimal place.a.Return on assets, round to nearest whole percent.b.Return on shareholders' equity, round to 1 decimal place.c.

Determine the amount of dividends paid to shareholders during 2009.2.

Omit the "%" and "$" sign in your response.1. a. Profit margin on sales = ____________% b. Return on assets = ____________% c. Return on shareholders' equity = ____________% 2. Dividends paid $ ____________


Exercise 5-22 DuPont analysis LO6

The following condensed information was reported by Peabody Toys, Inc., for 2009 and 2008:

($ in 000s)

2009 2008

Income statement information

Net sales $ 5,200 $ 4,200

Net income 180 124

Balance sheet information

Current assets $ 800 $ 750

Property, plant, and equipment (net) 1,100 950


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Exercise 5-8 Real estate sales; gain recognition LO1 LO2

On April 1, 2009, the Apex Corporation sold a parcel of underdeveloped land to the Applegate ConstructionCompany for $2,400,000. The book value of the land on Apex’s books was $480,000. Terms of the sale required adown payment of $120,000 and 19 annual payments of $120,000 plus interest at an appropriate interest rate due oneach April 1 beginning in 2010. Apex has no significant obligations to perform services after the sale.

Required:

Prepare the necessary entries for Apex to record the sale, receipt of the down payment, and receipt of thefirst installment assuming that Apex is able to make a reliable estimate of possible uncollectible amounts(that is, point of delivery profit recognition is used). Ignore interest charges.

1.

Repeat requirement 1 assuming that Apex cannot make a reliable estimate of possible uncollectibleamounts and decides to use the installment sales method for profit recognition.

2.

Omit the "$" sign in your response.1. April 1, 2009 To record installment sale __________ ____________ __________ ____________ __________ ____________ April 1, 2009 To record cash collection from installment sale __________ ____________ __________ ____________ April 1, 2010 To record cash collection from installment sale __________ ____________ __________ ____________


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Exercise 5-16 Multiple deliverable arrangements LO5

Richardson Systems sells integrated bottling manufacturing systems that involve a conveyer, a labeler, a filler,and a capper. All of this equipment is sold separately by other vendors, and the fair values of the separateequipment are as follows:

Conveyer $ 20,475

Labeler 12,285

Filler 16,965

Capper 8,775

Total $ 58,500

Richardson sells the integrated system for $53,000. Each of the components are shipped separately to thecustomer for the customer to install

Requirement 1:

Assume that each of the components can be used independently, even though Richardson sells them as anintegrated system. How much revenue should be allocated to each component? (Omit the "$" sign in yourresponse.)

Conveyer $ ____________

Labeler ____________


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Exercise 5-2 Installment sales method LO2

Charter Corporation, which began business in 2009, appropriately uses the installment sales method of accountingfor its installment sales. The following data were obtained for sales made during 2009 and 2010:


Required:

How much gross profit should Charter recognize in 2009 and 2010 from installment sales?1.What should be the balance in the deferred gross profit account at the end of 2009 and 2010?2.

Round answers to nearest whole number, use the rounded percent to calculate gross profit. Amounts inparentheses do not require a minus sign. Omit the "$" and "%" sign in your response.1. 2009 gross profit: Cash collection from 2009 sales of $ ____________× ____________% = $ ____________ 2010 gross profit: Cash collection from 2009 sales of $ ____________× ____________% = $ ____________ Cash collection from 2010 sales of $ ____________× ____________% = ____________ Total 2010 gross profit $ ____________


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Exercise 5-24 Interim reporting; recognizing expenses [Based on Appendix 5] LO1

Security-Rand Corporation determines executive incentive compensation at the end of its fiscal year. At the end ofthe first quarter, management estimated that the amount will be $360 million. Depreciation expense for the year isexpected to be $60 million. Also during the quarter, the company realized a gain of $23 million from selling two of itsmanufacturing plants.

Required:What amounts for these items should be reported in the first quarter’s income statement? Round your answers for Incentive compensation and Depreciation expense to one decimal place. Omit the "$" sign in your response.Incentive compensation $ ____________ millionDepreciation expense ____________ millionGain on sale ____________ million


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Exercise 5-10 Long-term contract; percentage of completion and completed contract methods LO4

On June 15, 2009, Sanderson Construction entered into a long-term construction contract to build a baseballstadium in Washington D.C. for $219 million. The expected completion date is April 1 of 2011, just in time for the2011 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are asfollows ($ in millions):

2009 2010 2011Costs incurred during the year $40 $80 $50Estimated costs to complete as of 12/31 120 60 —

Required:

Determine the amount of gross profit or loss to be recognized in each of the three years using thepercentage-of-completion method.

1.

How much revenue will Sanderson report in its 2009, 2010 and 2011 income statements related to thiscontract using the percentage-of-completion method?

2.

Determine the amount of gross profit or loss to be recognized in each of the three years using the completedcontract method.

3.

Determine the amount of revenue, cost, and gross profit or loss to be recognized in each of the three yearsusing the cost recovery method that is required by IFRS.

4.

Suppose the estimated costs to complete at the end of 2010 are $80 million instead of $60 million.Determine the amount of gross profit or loss to be recognized in 2010 using the percentage-of-completionmethod.

5.

All numbers are stated in millions of dollars. Round final answers to 2 decimal places. Do not round interimcalculations (percentages). Amounts in parentheses do not require a minus sign. Leave no cells blank - becertain to enter "0" wherever required. Omit the "$" sign in your response.

1. ($ in millions) 2009 2010 2011 Gross profit (loss) recognition: $ ____________ $ ____________ $ ____________ 2. Revenue: $ ____________ $ ____________ $ ____________

3. Year Gross Profit (Loss) Recognized 2009 ____________ 2010 ____________ 2011 ____________ Total Project Income $ ____________

4. 2009:


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Question 33: (1 point)Exercise 5-7 Installment sales; default and repossession LO2

Sanchez Development Company uses the installment sales method to account for some of its installment sales.On October 1, 2009, Sanchez sold a parcel of land to the Kreuze Corporation for $4.4 million. This amount wasnot considered significant relative to Sanchez's other sales during 2009. The land had cost Sanchez $2.244 millionto acquire and develop. Terms of the sale required a down payment of $880,000 and four annual payments of$880,000 plus interest at an appropriate interest rate, with payments due on each October 1 beginning in 2010.

Kreuze paid the down payment, but on October 1, 2010, defaulted on the remainder of the contract. Sanchezrepossessed the land. On the date of repossession the land had a fair value of $1.744 million.

Required:

Prepare the necessary entries for Sanchez to record the sale, receipt of the down payment, and the default andrepossession applying the installment sales method. Ignore interest charges. (Omit the "$" sign in yourresponse.)

Date General Journal Debit Credit

Oct.1.2009 __________ ____________

__________ ____________

__________ ____________

Oct.1.2009 __________ ____________

__________ ____________

Oct.1.2009 __________ ____________

__________ ____________


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Question 36: (1 point)Exercise 5-14 Percentage-of-completion method; solve for unknowns LO4

In 2009, Long Construction Corporation began construction work under a three-year contract. The contract price is$1,620,000. Long uses the percentage-of-completion method for financial reporting purposes. The financialstatement presentation relating to this contract at December 31, 2009, is as follows:

Balance SheetAccounts Receivable (from construction progress billings) $34,000 Construction in Progress $100,000 Less: Billings on Construction Contract (93,000) Cost of Uncompleted Contracts in Excess of Billings 7,000

Income statementIncome (before tax) on the contract recognized in 2009 $23,000

Required:

What was the cost of construction actually incurred in 2009?1.How much cash was collected in 2009 on this contract?2.What was the estimated cost to complete as of the end of 2009?3.What was the estimated percentage of completion used to calculate income in 2009?4.

Round percentage of completion to 2 decimal places, all other answers to nearest whole number. Omit the"$" and "%" sign in your response.

1. Actual costs incurred in 2009 = $ ____________ 2. Cash collections in 2009 = $ ____________


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3. Estimated cost to complete = $ ____________ 4. Estimated percentage of completion used to calculate income = ____________%


Exercise 5-4 Installment sales; alternative recognition methods LO2


Required:

Compute the amount of gross profit to be recognized from the installment sale in 2009, 2010, 2011, and2012 using point of delivery revenue recognition. Ignore interest charges.

1.


Round final answers to nearest whole number, use unrounded numbers for interim calculations. Leave nocells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.1. Year Income recognized 2009 $ ____________ 2010 ____________ 2011 ____________ 2012 ____________ Total $ ____________


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Question 39: (1 point)Problem 5–12 Creating a balance sheet from ratios; Chapters 3 and 5 LO6

Cadux Candy Company's income statement for the year ended December 31, 2009, reported interest expense of $2million and income tax expense of $12 million. Current assets listed in its balance sheet include cash, accountsreceivable, and inventories. Property, plant, and equipment is the company's only noncurrent asset. Financial ratiosfor 2009 are listed below. Profitability and turnover ratios with balance sheet items in the denominator werecalculated using year-end balances rather than averages.

Debt to equity ratio 1.0

Current ratio 2.0

Acid-test ratio 1.0

Times interest earned ratio 17 times

Return on assets 10 %

Return on shareholders' equity 20 %

Profit margin on sales 5 %

Gross profit margin (gross profit divided by net sales) 40 %

Inventory turnover 8 times

Receivables turnover 20 times

Required:


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Prepare a December 31, 2009, balance sheet for the Cadux Candy Company. Round your answers to the nearest whole number ($ in millions). Omit the "$" sign in your response.

CADUX CANDY COMPANYBalance Sheet

At December 31, 2009(All figures in $ in millions)

Assets

Current assets:

Cash $ ____________

Accounts receivable (net) ____________

Inventories ____________

Total current assets ____________

Property, plant, and equipment (net) ____________

Total assets $ ____________

Liabilities and Shareholders' Equity

Current liabilities $ ____________

Long-term liabilities ____________

Shareholders' equity ____________

Total liabilities and shareholders' equity $ ____________


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Question 40: (1 point)Problem 5–6 Completed contract method LO4In 2009, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for$10,000,000. The road was completed in 2011. Information related to the contract is as follows:

2009 2010 2011Cost incurred during the year $ 2,400,000 $ 3,600,000 $ 2,200,000Estimated costs to complete as of year-end 5,600,000 2,000,000 0Billings during the year 2,000,000 4,000,000 4,000,000Cash collections during the year 1,800,000 3,600,000 4,600,000

Westgate uses the completed contract method of accounting for long-term construction contracts.

Required:

Calculate the amount of gross profit to be recognized in each of the three years.1.In the journal below, complete the necessary journal entries for each of the years (credit various accountsfor construction costs incurred).

2.

Complete the information required below to prepare a partial balance sheet for 2009 and 2010 showing anyitems related to the contract.

3.

Calculate the amount of gross profit to be recognized in each of the three years, assuming the followingcosts incurred and costs to complete information.

2009 2010 2011Costs incurred during the year $ 2,400,000 $ 3,800,000 $ 3,200,000Estimated costs to complete as of year-end 5,600,000 3,100,000 0

4.


2009 2010 2011Costs incurred during the year $ 2,400,000 $ 3,800,000 $ 3,900,000Estimated costs to complete as of year-end 5,600,000 4,100,000 0

5.


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Round all answers to the nearest whole number. Leave no cells blank - be certain to enter "0" whereverrequired. Amounts in parentheses do not require a minus sign in front of them. Omit the "$" sign in your response.1. 2009 2010 2011 Gross Profit $ ____________ $ ____________ $ ____________

2. 2009 2010 2011 To record construction costs.

__________ ____________ ____________ ____________

Variousaccounts ____________ ____________ ____________

To record progress billings.

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

To record cash collections.

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

To record gross profit.

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

3. Balance sheet 2009 2010 Current assets: __________ $ ____________ $ ____________ __________ $ ____________ $ ____________ Less: __________ ( ____________) ( ____________)


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__________ ____________ ____________

4. 2009 2010 2011 Gross profit (loss) recognition: $ ____________ $ ____________ $ ____________

5. 2009 2010 2011 Gross profit (loss) recognition: $ ____________ $( ____________) $ ____________


Problem 5-5 Percentage-of-completion method LO4

In 2009, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for$10,000,000. The road was completed in 2011. Information related to the contract is as follows:

2009 2010 2011

Cost incurred during the year $ 2,400,000 $ 3,600,000 $ 2,200,000

Estimated costs to complete as of year-end 5,600,000 2,000,000 0

Billings during the year 2,000,000 4,000,000 4,000,000

Cash collections during the year 1,800,000 3,600,000 4,600,000


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Westgate uses the percentage-of-completion method of accounting for long-term construction contracts.

Required:


2.


3.


2009 2010 2011

Costs incurred during the year $2,400,000 $3,800,000 $3,200,000


4.


2009 2010 2011

Costs incurred during the year $2,400,000 $3,800,000 $3,900,000


5.

Round all answers to the nearest whole dollar. Amounts in parentheses do not require a minus sign in frontof them. Omit the "$" sign in your response.

1. 2009 2010 2011

Gross Profit $ ____________ $ ____________ $ ____________

2.

2009 2010 2011

To record construction costs.

__________ ____________ ____________ ____________

Various accounts ____________ ____________ ____________


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To record progress billings.

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

To record cash collections.

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

To record gross profit.

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

3.

Balance sheet 2009 2010

Current assets:

__________ $ ____________ $ ____________

__________ $ ____________ $ ____________

Less: __________ ( ____________) ( ____________)

__________ ____________ ____________

4.

2009 2010 2011

Gross profit (loss) recognition: $ ____________ $( ____________) $ ____________

5.


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2009 2010 2011

Gross profit (loss) recognition: $ ____________ $( ____________) $ ____________

Question 42: (1 point)Problem 5–13 Compare two companies in the same industry; Chapters 3 and 5 LO6

Presented below are condensed financial statements adapted from those of two actual companies competing as theprimary players in a specialty area of the food manufacturing and distribution industry. ($ in millions, except pershare amounts.)

Balance SheetsAssets Metropolitan RepublicCash $ 179.3 $ 37.1Accounts receivable (net) 422.7 325.0Short-term investments — 4.7Inventories 466.4 635.2Prepaid expenses and other current assets 134.6 476.7 Current assets $1,203.0 $1,478.7Property, plant, and equipment (net) 2,608.2 2,064.6Intangibles and other assets 210.3 464.7 Total assets $4,021.5 $4,008.0

Liabilities and Shareholders’ Equity Accounts payable $ 467.9 $ 691.2


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Short-term notes 227.1 557.4Accruals and other current liabilities 585.2 538.5 Current liabilities $1,280.2 $1,787.1Long-term debt 535.6 542.3Deferred tax liability 384.6 610.7Other long-term liabilities 104.0 95.1 Total liabilities $2,304.4 $3,035.2Common stock (par and additional paid-in capital) 144.9 335.0Retained earnings 2,476.9 1,601.9Less: treasury stock (904.7) (964.1) Total liabilities and shareholders’ equity $4,021.5 $4,008.0

Income StatementsNet sales $5,698.0 $7,768.2Cost of goods sold (2,909.0) (4,481.7) Gross profit $2,789.0 $3,286.5Operating expenses (1,743.7) (2,539.2)Interest expense (56.8) (46.6) Income before taxes $ 988.5 $ 700.7Tax expense (394.7) (276.1) Net income $ 593.8 $ 424.6

Net income per share $ 2.40 $ 6.50

Required:

Evaluate and compare the two companies by responding to the following questions. Note: Because comparativestatements are not provided you should use year-end balances in place of average balances as appropriate.

1. The return on assets indicates a company's overall profitability, ignoring specific sources of financing. In thisregard, __________ earnings relative to resources exceed that of __________.

2. Profitability can be achieved by a high profit margin, high turnover, or a combination of the two.


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Problem 5-4 Installment sales and cost recovery methods LO4

Mulcahey Builders (MB) remodels office buildings in low-income urban areas that are undergoing economicrevitalization. MB typically accepts a 25% down payment when they complete a job and a note which requiresthat the remainder be paid in three equal installments over the next three years, plus interest. Because of theinherent uncertainty associated with receiving these payments, MB has historically used the cost recoverymethod to recognize revenue.

As of January 1, 2009, MB’s outstanding gross installment accounts receivable (not net of deferred grossprofit) consist of the following:

1. $400,000 due from the Bluebird Motel. MB completed the Bluebird job in 2007, and estimated gross profiton that job is 25%.

2. $150,000 due from the PitStop Gas and MiniMart. MB completed the PitStop job in 2006, and estimatedgross profit on that job is 35%.

Dan Mulcahey has been considering switching from the cost recovery method to the installment salesmethod, because he wants to show the highest possible gross profit in 2009 and he understands that theinstallment sales method recognizes gross profit sooner than does the cost recovery method.

Requirement 1:

Calculate how much gross profit is expected to be earned on these jobs in 2009 under the cost recoverymethod. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in yourresponse.)

Bluebird Motel $ ____________


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Question 46: (1 point)Problem 5–14 Interim financial reporting (Based on Appendix 5) LO1

Branson Electronics Company is a small, publicly traded company preparing its first quarter interim report to bemailed to shareholders. The following information for the quarter has been compiled:

Revenues $180,000Cost of goods sold 35,000Operating expenses: Fixed $59,000

Variable 48,000 107,000

Fixed operating expenses include payments of $50,000 to an advertising firm to promote the firm through variousmedia throughout the year. The income tax rate for the firm’s level of operations in the first quarter is 30%, butmanagement estimates the effective rate for the entire year will be 36%. Required:Prepare the income statement to be included in Branson’s first quarter interim report.Amounts in parenthesis do not require a minus sign. Omit the "$" sign in your response.

Branson Electronics Company Income Statement

__________ $ ______________________ (____________)

__________ ______________________ (____________)__________ (____________)


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__________ ______________________ (____________)

__________ $ ____________


Problem 5-8 Long-term contract; percentage-of-completion and completed contract methods LO1 LO4

Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructedunder contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homesand are typically sold during construction or soon after. To secure the home upon completion, buyers mustpay a deposit of 10% of the price of the home with the remaining balance due upon completion of the houseand transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally,homes remain unsold for as long as three months after construction. In these situations, sales price reductionsare used to promote the sale.

During 2009, Citation began construction of an office building for Altamont Corporation. The total contractprice is $20 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections forthe life of the contract are as follows:

2009 2010 2011

Costs incurred during the year $ 4,000,000 $ 9,500,000 $ 4,500,000

Estimated costs to complete as of year-end 12,000,000 4,500,000 —




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Also during 2009, Citation began a development consisting of 12 identical homes. Citation estimated thateach home will sell for $600,000, but individual sales prices are negotiated with buyers. Deposits werereceived for eight of the homes, three of which were completed during 2009 and paid for in full for $600,000each by the buyers. The completed homes cost $450,000 each to construct. The construction costs incurredduring 2009 for the nine uncompleted homes totaled $2,700,000.

Requirement 1:

The percentage-of-completion method of recognizing revenues and costs on long-term construction contractsis equivalent to recognizing revenue at the point of delivery.

(a) True(b) False

Requirement 2:

Answer the following questions assuming that Citation uses the completed contract method for its officebuilding contracts:

(a) What is the estimated gross profit for the year 2009 and 2010? (Omit the "$" sign in your response.)

2009 2010

Estimated gross profit $ ____________ $ ____________

(b) What is the amount of gross profit or loss to be recognized for the Altamont contract during 2009 and2010? (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in yourresponse.)

2009 2010

Gross profit or loss to be recognized $ ____________ $ ____________

(c) How much revenue related to this contract will Citation report in its 2009 and 2010 income statements?(Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in yourresponse.)

2009 2010

Revenue reported $ ____________ $ ____________


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(d) What will Citation report in its 2009 balance sheet related to this contract (ignore cash)? (Omit the "$"sign in your response.)

Balance SheetAt December 31, 2009

Current assets:

Accounts receivable $ ____________

Costs in excess of billings $ ____________

Requirement 3:

Answer the following questions assuming that Citation uses the percentage-of-completion method for its officebuilding contracts:

(a) What is the amount of gross profit or loss to be recognized for the Altamont contract during 2009 and2010? (Omit the "$" sign in your response.)

2009 2010


(b) How much revenue related to this contract will Citation report in its 2009 and 2010 income statements?(Omit the "$" sign in your response.)

2009 2010


(c) What will Citation report in its 2009 balance sheet related to this contract (ignore cash)? (Omit the "$"sign in your response.)


Current assets:


Costs and profit in excess of billings $ ____________


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Requirement 4:

Assume that as of year end 2010 the estimated cost to complete the office building is $9,000,000 and thatCitation uses the percentage-of-completion method.

(a) What is the estimated gross profit for the year 2009 and 2010? (Negative amount should be indicatedby a minus sign. Omit the "$" sign in your response.)

2009 2010


(b) What is the amount of gross profit or loss to be recognized for the Altamont contract during 2010?(Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

2010

Gross profit or loss to be recognized $ ____________

(c) How much revenue related to this contract will Citation report in the 2010 income statement? (Omit the"$" sign in your response.)

2010

Revenue reported $ ____________



Current assets:


Current liabilities:

Billings in excess of costs and profit $ ____________

Requirement 5:


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Problem 5–1 Income statement presentation; installment sales method (Chapters 4 and 5) LO2

Reagan Corporation computed income from continuing operations before income taxes of $4,200,000 for 2009. Thefollowing material items have not yet been considered in the computation of income:

1. The company sold equipment and recognized a gain of $50,000. The equipment had been used in themanufacturing process and was replaced by new equipment.

2. In December, the company received a settlement of $1,000,000 for a lawsuit it had filed based on antitrustviolations of a competitor. The settlement was considered to be an unusual and infrequent event.

3. Inventory costing $400,000 was written off as obsolete. Material losses of this type were incurred twice in the lasteight years.

4. It was discovered that depreciation expense on the office building of $50,000 per year was not recorded in either2008 or 2009.

In addition, you learn that included in revenues is $400,000 from installment sales made during the year. The cost ofthese sales is $240,000. At year-end, $100,000 in cash had been collected on the related installment receivables.Because of considerable uncertainty regarding the collectibility of receivables from these sales, the company'saccountant should have used the installment sales method to recognize revenue and gross profit on these sales.

Also, the company's income tax rate is 40% and there were 1 million shares of common stock outstandingthroughout the year.

Required:

Prepare an income statement for 2009 beginning with income from continuing operations before income taxes bycompleting the information where indicated below. Include appropriate EPS disclosures.Round the EPS answers to two decimal places, round all other answers to nearest whole number. Omit the"$" sign in your response.


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Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventorysystem is used. Information related to installment sales for 2009 and 2010 is as follows:

2009 2010

Sales $ 300,000 $ 400,000

Cost of sales 180,000 280,000

Customer collections on:

2009 sales 120,000 100,000

2010 sales 150,000

Required:

Calculate the amount of gross profit that would be recognized each year from installment sales.1.Prepare all necessary journal entries for each year.2.Repeat requirements 1 and 2 assuming that Ajax uses the cost recovery method to account for itsinstallment sales.

3.

Round all answers to the nearest whole dollar. Leave no cell blank. You must enter a "0" for the answers tograde correctly. Omit the "$" sign in your response.

1. 2009 2010


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Gross Profit $ ____________ $ ____________

2.

To record installment sales in 2009:

General journal Debit Credit

__________ ____________

__________ ____________

__________ ____________

To record cash collections from installment sales in 2009:


__________ ____________

__________ ____________

To recognize gross profit from installment sales in 2009:


__________ ____________

__________ ____________



__________ ____________

__________ ____________

__________ ____________



__________ ____________

__________ ____________




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__________ ____________

__________ ____________

3.

Gross Profit Calculation

Date Cash Collected Cost Recovery Gross Profit

2009

2009 sales $ ____________ $ ____________ $ ____________

2010

2009 sales $ ____________ $ ____________ $ ____________

2010 sales ____________ ____________ ____________

2010 totals $ ____________ $ ____________ $ ____________



__________ ____________

__________ ____________

__________ ____________



__________ ____________

__________ ____________



__________ ____________


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Problem 5-5 Percentage-of-completion method LO4

In 2009, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for$10,000,000. The road was completed in 2011. Information related to the contract is as follows:

2009 2010 2011

Cost incurred during the year $ 2,400,000 $ 3,600,000 $ 2,175,000Estimated costs to complete as of year-end 5,600,000 2,000,000 0Billings during the year 2,000,000 4,000,000 4,000,000Cash collections during the year 1,800,000 3,600,000 4,600,000

Westgate uses the percentage-of-completion method of accounting for long-term construction contracts.Required:


2.


3.

Calculate the amount of gross profit to be recognized in each of the three years, assuming the followingcosts incurred and costs to complete information

2009 2010 2011

Costs incurred during the year $ 2,400,000 $ 3,800,000 $ 3,175,000 Estimated costs to complete as of year-end 5,600,000 3,100,000 0

4.

Calculate the amount of gross profit to be recognized in each of the three years, assuming the followingcosts incurred and costs to complete information

5.


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2009 2010 2011

Costs incurred during the year $ 2,400,000 $ 3,800,000 $ 3,875,000Estimated costs to complete as of year-end 5,600,000 4,100,000 0

Round all answers to the nearest whole dollar. Amounts in parentheses do not require a minus sign in frontof them. Omit the "$" sign in your response.1. 2009 2010 2011

Gross Profit $ ____________ $ ____________ $ ____________

2.

2009 2010 2011

To record construction costs. __________ ____________ ____________ ____________

Variousaccounts ____________ ____________ ____________

To record progress billings. __________ ____________ ____________ ____________

__________ ____________ ____________ ____________ To record cash collections. __________ ____________ ____________ ____________

__________ ____________ ____________ ____________ To record gross profit. __________ ____________ ____________ ____________ __________ ____________ ____________ ____________

__________ ____________ ____________ ____________

3.

Balance sheet 2009 2010

Current assets: __________ $ ____________ $ ____________ __________ $ ____________ $ ____________ Less: __________ ( ____________) ( ____________)


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Problem 5-8 Long-term contract; percentage-of-completion and completed contract methods LO1 LO4

Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructedunder contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homesand are typically sold during construction or soon after. To secure the home upon completion, buyers mustpay a deposit of 11% of the price of the home with the remaining balance due upon completion of the houseand transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally,homes remain unsold for as long as three months after construction. In these situations, sales price reductionsare used to promote the sale.

During 2009, Citation began construction of an office building for Altamont Corporation. The total contractprice is $18 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections forthe life of the contract are as follows:

2009 2010 2011

Costs incurred during the year $ 3,925,600 $ 7,688,000 $ 4,516,400

Estimated costs to complete as of year-end 10,094,400 4,516,400 —



Also during 2009, Citation began a development consisting of 12 identical homes. Citation estimated thateach home will sell for $690,000, but individual sales prices are negotiated with buyers. Deposits werereceived for eight of the homes, three of which were completed during 2009 and paid for in full for $690,000each by the buyers. The completed homes cost $517,500 each to construct. The construction costs incurredduring 2009 for the nine uncompleted homes totaled $2,690,000.


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Requirement 1:

The percentage-of-completion method of recognizing revenues and costs on long-term construction contractsis equivalent to recognizing revenue at the point of delivery.

Requirement 2:

Answer the following questions assuming that Citation uses the completed contract method for its officebuilding contracts:

(a) What is the estimated gross profit for the year 2009 and 2010? (Negative amounts should be indicatedby a minus sign. Omit the "$" sign in your response.)

2009 2010


(b) What is the amount of gross profit or loss to be recognized for the Altamont contract during 2009 and2010? (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in yourresponse.)

2009 2010


(c) How much revenue related to this contract will Citation report in its 2009 and 2010 income statements?(Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in yourresponse.)

2009 2010




Current assets:



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Costs in excess of billings $ ____________

Requirement 3:

Answer the following questions assuming that Citation uses the percentage-of-completion method for its officebuilding contracts:

(a) What is the amount of gross profit or loss to be recognized for the Altamont contract during 2009 and2010? (Negative amounts should be indicated by a minus sign. Omit the "$" sign in your response.)

2009 2010


(b) How much revenue related to this contract will Citation report in its 2009 and 2010 income statements?(Omit the "$" sign in your response.)

2009 2010


(c) What will Citation report in its 2009 balance sheet related to this contract (ignore cash)? (Omit the "$"sign in your response.)


Current assets:


Costs and profit in excess of billings $ ____________

Requirement 4:

Assume that as of year end 2010 the estimated cost to complete the office building is $9,032,800 and thatCitation uses the percentage-of-completion method.

(a) What is the estimated gross profit for the year 2009 and 2010? (Negative amounts should be indicatedby a minus sign. Omit the "$" sign in your response.)

2009 2010


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(b) What is the amount of gross profit or loss to be recognized for the Altamont contract during 2010?(Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

2010

Gross profit or loss to be recognized $ ____________

(c) How much revenue related to this contract will Citation report in the 2010 income statement? (Roundpercentage of completion to 2 decimal places and round your final answer to the nearest dollaramount. Omit the "$" sign in your response.)

2010

Revenue reported $ ____________



Current assets:


Current liabilities:

Billings in excess of costs and profit $ ____________

Requirement 5:

Which method of accounting should Citation Builders, Inc adopt for its single-family houses?

(a) Percentage-of-completion method(b) Completed contract method

Requirement 6:


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Question 57: (1 point)Problem 5-9 Franchise sales; installment sales method LO2 LO5

Olive Branch Restaurant Corporation sells franchises throughout the western states. On January 30, 2009, thecompany entered into the following franchise agreement with Jim and Tammy Masters:

The initial franchise fee is $2,500,000. $200,000 is payable immediately and the remainder is due in 10,$230,000 installments plus 8% interest on the unpaid balance each January 30, beginning January 30,2010. The 8% interest rate is an appropriate market rate.

1.

In addition to allowing the franchisee to use the franchise name for the 10-year term of the agreement, inexchange for the initial fee Olive Branch agrees to assist the franchisee in selecting a location, obtainingfinancing, designing and constructing the restaurant building, and training employees.

2.

All of the initial down payment of $200,000 is to be refunded by Olive Branch and the remaining obligationcanceled if, for any reason, the franchisee fails to open the franchise.

3.

In addition to the initial franchise fee, the franchisee is required to pay a monthly fee of 3% of franchise salesfor advertising, promotion, menu planning, and other continuing services to be provided by Olive Branchover the life of the agreement. This fee is payable on the 10th of the following month.

4.

Substantial performance of the initial services provided by Olive Branch, which are significant, is deemed to haveoccurred when the franchise opened on September 1, 2009. Franchise sales for the month of September 2009 were$40,000.

Required:

Assuming that collectibility of the installment receivable is reasonably certain, prepare the necessary journalentries for Olive Branch on the following dates (ignore interest charges on the installment receivable and thecosts of providing franchise services):

January 30, 2009a.September 1, 2009b.September 30, 2009c.January 30, 2010d.

1.

Assume that significant uncertainty exists as to the collection of the installment receivable and that Olive2.


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Branch elects to recognize initial franchise fee revenue using the installment sales method. Prepare thenecessary journal entries for the dates listed in requirement 1 (ignore interest charges on the installmentreceivable and the costs of providing franchise services).

Round all answers to the nearest whole dollar. Omit the "$" sign in your response.1. General journal Debit Credita. January 30, 2009 __________ ____________ __________ ____________ __________ ____________

b. September 1, 2009 __________ ____________ __________ ____________

c. September 30, 2009 __________ ____________ __________ ____________

d. January 30, 2010 __________ ____________ __________ ____________

2. General journal Debit Credita. January 30, 2009 __________ ____________ __________ ____________

__________ ____________

b. September 1, 2009 __________ ____________ __________ ____________

c. September 30, 2009 __________ ____________ __________ ____________

d. January 30, 2010 __________ ____________ __________ ____________ __________ ____________ __________ ____________


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Question 58: (1 point)Problem 5–3 Installment sales; alternative recognition methods LO2

On August 31, 2009, the Silva Company sold merchandise to the Bendix Corporation for $400,000. Terms of thesale called for a down payment of $80,000 and four annual installments of $80,000 due on each August 31,beginning August 31, 2010. Each installment also will include interest on the unpaid balance applying anappropriate interest rate. The book value of the merchandise on Silva's books on the date of sale was $240,000.The perpetual inventory system is used. The company's fiscal year-end is December 31.

Required:

Complete the table below by entering the amount of gross profit to be recognized in each of the five years ofthe installment sale, applying each of the following methods:

Point of delivery revenue recognition.a.Installment sales method.b.Cost recovery method.c.

1.

Complete the journal entries in the journal below for each of the five years, applying the three revenuerecognition methods listed in requirement 1.

2.

Prepare a partial balance sheet as of the end of 2009 and 2010, listing the items related to the installmentsale applying each of the three methods listed in requirement 1.

3.

Round all answers to the nearest whole dollar. Leave no cells blank - be certain to enter "0" whereverrequired. Amounts in parenthesis do not require a minus sign. Omit the "$" sign in your response.

1. Total gross profit $ ____________

8/31/09 8/31/10 8/31/11 8/31/12 8/31/13

Cash collections $ ____________ $ ____________ $ ____________ $ ____________ $ ____________


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a. Point of delivery method $ ____________ $ ____________ $ ____________ $ ____________ $ ____________

b. Installment sales method $ ____________ $ ____________ $ ____________ $ ____________ $ ____________

c. Cost recovery method $ ____________ $ ____________ $ ____________ $ ____________ $ ____________

2.

Point of Delivery Installment Sales Cost Recovery

To record sale on 8/31/09.

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

To record sale on 8/31/09.

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

Entry made each Aug. 31, 2010 through 2013 to record collection of cash.

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

To record gross profit August 31, 2010

__________ ____________ ____________ ____________

__________ ____________ ____________ ____________



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__________ ____________ ____________ ____________

__________ ____________ ____________ ____________


__________ ____________ ____________ ____________

__________ ____________ ____________ ____________


__________ ____________ ____________ ____________

__________ ____________ ____________ ____________

3.

Point of Delivery Installment Sales Cost Recovery

December 31, 2009

Assets

__________ ____________ ____________ ____________

Less: __________ ( ____________) ( ____________)

Installment receivable, net ____________ ____________

December 31, 2010

Assets

__________ ____________ ____________ ____________

Less: __________ ( ____________) ( ____________)

Installment receivable, net ____________ ____________


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Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventorysystem is used. Information related to installment sales for 2009 and 2010 is as follows:

2009 2010

Sales $ 335,000 $ 435,000

Cost of sales 167,500 304,500

Customer collections on:

2009 sales 120,000 100,000

2010 sales 150,000

Required:

Calculate the amount of gross profit that would be recognized each year from installment sales.1.Prepare all necessary journal entries for each year.2.Repeat requirements 1 and 2 assuming that Ajax uses the cost recovery method to account for itsinstallment sales.

3.

Round all answers to the nearest whole dollar. Leave no cell blank. You must enter a "0" for the answers tograde correctly. Omit the "$" sign in your response.

1. 2009 2010


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Gross Profit $ ____________ $ ____________

2.



__________ ____________

__________ ____________

__________ ____________



__________ ____________

__________ ____________



__________ ____________

__________ ____________



__________ ____________

__________ ____________

__________ ____________



__________ ____________

__________ ____________




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__________ ____________

__________ ____________

3.

Gross Profit Calculation

Date Cash Collected Cost Recovery Gross Profit

2009

2009 sales $ ____________ $ ____________ $ ____________

2010

2009 sales $ ____________ $ ____________ $ ____________

2010 sales ____________ ____________ ____________

2010 totals $ ____________ $ ____________ $ ____________



__________ ____________

__________ ____________

__________ ____________



__________ ____________

__________ ____________



__________ ____________

__________ ____________

__________ ____________



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Mulcahey Builders (MB) remodels office buildings in low-income urban areas that are undergoing economicrevitalization. MB typically accepts a 25% down payment when they complete a job and a note which requiresthat the remainder be paid in three equal installments over the next three years, plus interest. Because of theinherent uncertainty associated with receiving these payments, MB has historically used the cost recoverymethod to recognize revenue.

As of January 1, 2009, MB’s outstanding gross installment accounts receivable (not net of deferred grossprofit) consist of the following:

1. $500,000 due from the Bluebird Motel. MB completed the Bluebird job in 2007, and estimated gross profiton that job is 22%.

2. $110,000 due from the PitStop Gas and MiniMart. MB completed the PitStop job in 2006, and estimatedgross profit on that job is 38%.

Dan Mulcahey has been considering switching from the cost recovery method to the installment salesmethod, because he wants to show the highest possible gross profit in 2009 and he understands that theinstallment sales method recognizes gross profit sooner than does the cost recovery method.

Requirement 1:

Calculate how much gross profit is expected to be earned on these jobs in 2009 under the cost recoverymethod. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in yourresponse.)

Bluebird Motel $ ____________


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Question 67: (1 point)Sahara Desert Homes (SDH) reports under IFRS, and constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:

SDH uses the cost recovery method under IFRS to recognize revenue.

What would be the journal entry SDH would use to record revenue in 2009?

(a)

(b)

(c)


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(d)

Question 68: (1 point)Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2008. Collections on this sale were $20,000 in 2008, $15,000 in 2009, and $20,000 in 2010.

In its 2008 year-end balance sheet, Reliable would report installment receivables (net) of:

(a) $25,909.(b) $10,000.(c) $20,000.(d) $35,000.


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Question 103: (1 point)JRE2 Inc. entered into a contract to install a pipeline for a fixed price of $2,200,000. JRE2 uses the completed contract method of revenue recognition.

In 2008, JRE2 would report (rounded to the nearest thousand) gross profit (loss) of :

(a) $ 73,000.(b) $ 56,000.(c) $0.(d) $(100,000).


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Question 140: (1 point)Arizona Desert Homes (ADH) constructed a new subdivision during 2008 and 2009 under contract with Cactus Development Co. Relevant data are summarized below:

ADH uses the percentage-of-completion method to recognize revenue.

What would be the journal entry to record revenue in 2009?

(a)

(b)

(c)


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Question 188: (1 point)On December 15, 2009, Rigsby Sales Co. sold a tract of land that cost $4,000,000 for $5,000,000. Rigsby appropriately uses the installment sale method of accounting for thistransaction. Terms called for a down payment of $430,000 with the balance in two equal annual installments payable on December 15, 2010, and December 15, 2011. Ignoreinterest charges. Rigsby has a December 31 year-end.

In 2010, Rigsby would recognize realized gross profit of:

(a) $ 0.(b) $457,000.(c) $507,000.(d) $357,000.

assignment worksheet online homework system 8/7/09 - 5:42 pm

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