Acct3221 Ch6 Template Feb 8

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School

Miami Regional University Florida *

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Course

3221

Subject

Accounting

Date

Apr 3, 2024

Type

xlsx

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Uploaded by MateFrog4194

Page 1 of 19 Acct 3221 Chapter 6 Template E6-21 Page 6-74 a Identify Contract Both parties are committed Nothing indicates that they aren't committed Met Quantity, price and payment terms have Terms are 1 mower for $900 with dates set been agreed to by both parties. for payment and delivery Met There is commercial substance as cash flows Richardson will receive $900 cash Met will be different for the parties after this contract It is probable that customer will pay Kickapoo already paid on May 15 Met Conclusion: There is a contract Identify the separate performance obligations (distinct and separately identifiable) Physical Goods Only 1 item, a mower Determine the transaction price $900 Allocate the transaction price to the separate performance obligations N/A only 1 item being provided Recognize Revenue as performance is satisfied At a point in time: Goods - when it is transferred to the Mower is delivered to Kickapoo on May 31 Kickapoo obtains control May 31 customer (e.g. when customer controls the asset) OVERALL CONCLUSION: 1-May Contract is signed but nothing has happened so no entry is required 15-May Cash 900 Unearned Revenue 900 31-May Unearned Revenue 900 Sales 900 ASPE would recognize the sale when the risks and rewards of the asset have transferred to Kickapoo which would also be May 31 So entries would be the same under IFRS/ASPE

Page 2 of 19 Acct 3221 Chapter 6 Template E6-20 Page 6-74 Separately Identifiable Components a Identify Contract Both parties are committed Appears both are committed Met Quantity, price and payment terms have A price of $3,000 has been set with delivery Met been agreed to by both parties. dates so terms are agreed to There is commercial substance as cash flows Gordon will have $3,000 more in cash will be different for the parties after this contract so there is commercial subtance Met It is probable that customer will pay Nothing indicates the customer won't pay Met Conclusion: There is a contract Identify the separate performance obligations (distinct and separately identifiable) Goods The shelving unit and wiring base can be sold We have separately 2 items Shelf and base Determine the transaction price The price is $3,000 Allocate the transaction price to the separate performance obligations Allocated Price Wiring Base 1,200 Shelving Unit 1,800 3,000 Recognize Revenue as performance is satisfied At a point in time: Goods - when it is transferred to the Control will pass when delivered customer (e.g. when customer controls the asset) OVERALL CONCLUSION: recognize base on Feb 5 when delivered and shelving unit on Feb 25 when delivered

Page 3 of 19 Acct 3221 Chapter 6 Template 1-Jan No Entry 5-Feb Contract Asset 1,200 A contract asset is used instead of accounts receivable Sales 1,200 when performance is complete (e.g. delivered the base) but payment is conditional on other obligations. In this case, won't get paid for the base until shelving unit is delivered COGS 700 Inventory 700 25-Feb Cash 3,000 Sales 1,800 Contract Asset 1,200 COGS 320 Inventory 320

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Page 4 of 19 Acct 3221 Chapter 6 Template E6-6 Page 6-70 Warranties a Identify Contract Both parties are committed Appears both are committed Met Quantity, price and payment terms have Terms are a price of$3,600 with 90 warranty and 3 Met been agreed to by both parties. year extemed There is commercial substance as cash flows Celic will receive $3600 Met will be different for the parties after this contract It is probable that customer will pay Will probably be paid when purchased Met Conclusion: There is Contract Identify the separate performance obligations (distinct and separately identifiable) Physical Goods Computer is separate however the normal (Assurance) warranty wouldn't be provided without the computer. Therefore it is combined with the computer The extended warranty can be sold separately therefore it is distinct Determine the transaction price Price is $3,600 Allocate the transaction price to the separate performance obligations Computer and assurance warranty price is 3200 Extended Warranty 400 Recognize Revenue as performance is satisfied At a point in time: Goods - when it is transferred to the Recognized computer/Assurance warranty when delivered customer (e.g. when customer controls the asset) Over time if meets one of the following: Customer receives and consumes benefit over time Extended warranty provides 3 years of coverage so consumer over time Customer has control over the asset The asset doesn't have any alternative use and the amount is collectible Conclusion:

Page 5 of 19 Acct 3221 Chapter 6 Template OVERALL CONCLUSION: RECOGNIZE THE COMPUTER SALE WHEN CUSTOMER TAKES POSSESSION AND THE EXTENDED WARRANTY OVER TIME

Page 6 of 19 Acct 3221 Chapter 6 Template b 1-Oct Cash 3,600 Sales 3,200 For the computer/assurance warranty Unearned Revenue 400 For extended warranty COGS 1,440 Inventory 1,440 31-Dec Warranty expense 200 Warranty Liability 200 Is for the regular (assurance warranty) c recognize the 400 evenly over the 3 years once the 90 days regular warranty is over Warranty expense Cash/etc Assuming that there is no expected cost of the extended warranty

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Page 7 of 19 Acct 3221 Chapter 6 Template E6-8 Page 6-71 Most Likely Value a Identify Contract Both parties are committed Quantity, price and payment terms have been agreed to by both parties. There is commercial substance as cash flows will be different for the parties after this contract It is probable that customer will pay Conclusion: Identify the separate performance obligations (distinct and separately identifiable) There is only 1 items, licensing agreement Determine the transaction price There are only 2 option: receive approval or doesn't receive approval Given there are only 2 options, go with the one more likely 90% chance of approval Therefore we will use 10,000 Allocate the transaction price to the separate performance obligations N/A Recognize Revenue as performance is satisfied At a point in time: Goods - when it is transferred to the Intellectual property based on right to use customer (e.g. when customer controls the asset) OVERALL CONCLUSION: THE SALE OF THE LICENSING AGREEMENT WILL BE RECOGNIZED WHEN APPROVAL IS OBTAINED 20-Dec 15-Jan

Page 8 of 19 Acct 3221 Chapter 6 Template E6-11 Page 6-71 Returns a Identify Contract Both parties are committed Quantity, price and payment terms have Price of 1.5 million has been set with return been agreed to by both parties. policy There is commercial substance as cash flows will be different for the parties after this contract It is probable that customer will pay 5 largest customers probably will pay Conclusion: There is a contract Identify the separate performance obligations (distinct and separately identifiable) Physical Goods Agriculture seeds Determine the transaction price a Company has a history with seeds so the 20% return is reasonable and can be used Price 1,500,000 Returns 20% (300,000) Sales Revenue 1,200,000 c If can't estimate returns then we can't record revenue until the 4 months return period has passed on August 2. Allocate the transaction price to the separate performance obligations N/A - Only 1 obligation Recognize Revenue as performance is satisfied At a point in time: Goods - when it is transferred to the Seeds were sold on April 2 so that is when customer received control customer (e.g. when customer controls the asset) OVERALL CONCLUSION: We can record revenues on April 2 since we know the amount of returns (e.g. 20%) - If returns aren't known, wait until August 2

Page 9 of 19 Acct 3221 Chapter 6 Template a IFRS 2-Apr Accounts receivable 1,500,000 Sales 1,200,000 Refund Liability 300,000 COGS 640,000 Estimated Inventory Returns 160,000 20% Inventory 800,000 b 1-Jul Refund Liability 100,000 Accounts Payable 100,000 e.g. Accounts receivable would be in a credit position because the customer has already paid the invoice. So technically instead of showing a negative A/R we should use A/P Inventory (returned Inventory) 53,333 Estimated Inventory Returns 53,333 800,000 x 100,000 = 53,333 1,500,000 c d ASPE 2-Apr Accounts receivable 1,500,000 Sales 1,500,000 Sales R&A (Contra Sales) 300,000 AR Sales R&A (Contra A/R) 300,000 COGS 640,000 Estimated Inventory Returns 160,000 20% Inventory 800,000 b 1-Jul AR Sales R&A (Contra A/R) 100,000 Accounts Payable 100,000 Inventory (returned Inventory) 53,333 Estimated Inventory Returns 53,333

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Page 10 of 19 Acct 3221 Chapter 6 Template E6-16 Page 6-73 Analyze Contract a Identify Contract Both parties are committed Nothing to indicate Otherwise Met Quantity, price and payment terms have Price of $400,000 with delivery and installation been agreed to by both parties. dates set Met There is commercial substance as cash flows Shaw will receive $400,000 cash so commercial will be different for the parties after this contract substance Met It is probable that customer will pay Ricard paid on delivery Met Conclusion: There is a contract Identify the separate performance obligations (distinct and separately identifiable) Installation can be purchased separately so there are 2 distinct performance obligations: Goods Installation Service Determine the transaction price Price is $400,000 Allocate the transaction price to the separate performance obligations Selling Price Price Allocated Price Goods 370,000 90.2% 400,000 360,976 Installation 40,000 9.8% 400,000 39,024 410,000 400,000 Recognize Revenue as performance is satisfied At a point in time: Goods - when it is transferred to the Good were delivered on March 1 customer (e.g. when customer controls the asset) Services - when it is completed since benefit is not Installation happened on June 18 received over time OVERALL CONCLUSION: RECOGNIZE THE GOODS SALE WHEN CUSTOMER TAKES POSSESSION AND THE SERVICES WHEN INSTALLED

Page 11 of 19 Acct 3221 Chapter 6 Template b 2-Jan 1-Mar 18-Jun E6-25 Page 6-75 Sale with Repurchase Recognize Revenue as performance is satisfied When the customer obtains control: e.g. physical possession, legal title, risks and rewards have transferred, right to payment Cramer retains control because it gets asset back in a year so there is no sale 1-Jul Cash 40,000 Contract Liability 40,000 31-Dec Interest Expense 1,200 Contract Liability 1,200 40,000 6% 0.5 = 1,200 30-Jun-24 Contract Liability 41,200 Interest expense 1,200 Cash 42,400

Page 12 of 19 Acct 3221 Chapter 6 Template E6-27 Page 6-75 Bill and Hold Recognize Revenue as performance is satisfied When the customer obtains control: e.g. physical possession, legal title, risks and rewards have transferred, right to payment Bill and Hold Criteria Must be a substantive reason for Stadium has not been completed enough to allow installation Met holding inventory instead of delivering it of the counters even though they are ready Product must be separately identifiable There are 35 counters for the stadium at the plant Met Product is ready for immediate transfer Counters are finished and ready to be shipped Met Stadium asked Wood Mode to hold the counters so they must be ready Seller can't use product or redirect it Stadium has already acknowledge ownership so Wood cannot use Met to another customer or redirect these counters CONCLUSION: All conditions have been met so this is a Bill and Hold contract so Sale can be recognized immediately even though counters have not been delivered Cash 300,000 Accounts Receivable 1,700,000 Sale 2,000,000 BE6-30 Page 6-67 Accounts Payable 70,000 Commission revenue 4,200 Cash 65,800

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Page 13 of 19 Acct 3221 Chapter 6 Template E6-30 Page 6-76 Recognize Revenue as performance is satisfied When the customer obtains control: e.g. physical possession, legal title, risks and rewards have transferred, right to payment Wang retains control so there is no sale to Ren. Recognize sales when Ren sells it to customers Wang Ren 1-Jun Inventory on Consignment 455,000 No Entry Inventory 455,000 5-Jun Inventory on Consignment 5,000 No Entry Cash 5,000 30-Jun No Entry Cash 600,000 Accounts Payable 600,000 30-Jun Cash 474,000 Accounts Payable 600,000 Notified Commission Expense 90,000 Commission Revenue 90,000 Advertising Expense 36,000 Advertising Expense 36,000 Sales 600,000 Cash 474,000 Ren is not in the business of advertising. Instead they have paid COGS 230,000 for Wang's Advertising expense so Ren's Advertising Expense is too high Inventory on Consignment 230,000 So we credit Advertising Expense to lower it 455,000 5,000 = 460,000 50%

Page 14 of 19 Acct 3221 Chapter 6 Template E6-33 Page 6-76 a Identify Contract Both parties are committed Quantity, price and payment terms have Long term contract for 1,600,000 been agreed to by both parties. There is commercial substance as cash flows will be different for the parties after this contract It is probable that customer will pay Conclusion: there is a contract Identify the separate performance obligations (distinct and separately identifiable) Appears they are only building 1 thing (e.g. Telus Skyscraper) or a warehouse or a runway or Stony trail Determine the transaction price Price is 1,600,000 Allocate the transaction price to the separate performance obligations N/A only 1 item Recognize Revenue as performance is satisfied Over time if meets one of the following: Customer receives and consumes benefit over time No can't use until finished Not Met Customer has control over the asset Long term construction jobs are generally Met as it is being created for something owned by customer The asset doesn't have any alternative use and the Building doesn't have another use Met amount is collectible for the vendor and collection is probablye OVERALL CONCLUSION: REVENUE WILL BE RECOGNIZED OVER TIME USING PERCENTAGE OF COMPLETION METHOD UNLESS YOU CAN'T ESTIMATE COSTS TO COMPLETE IN THAT CASE, IFRS WOULD USE ZERO PROFIT METH

Page 15 of 19 Acct 3221 Chapter 6 Template PERCENTAGE OF COMPLETION USING COSTS SPENT AS MEASUREMENT OF COMPLETION ASPE WOULD USE COMPLETED CONTRACT METHOD 2023 2024 2025 Contract Price 1,600,000 1,600,000 1,600,000 Costs To Date 400,000 825,000 1,070,000 Estimated to Complete 600,000 275,000 - Total Costs 1,000,000 1,100,000 1,070,000 Estimated Profit 600,000 500,000 530,000 Percentage Completed to Date 40% 75% 100% Gross Profit to Recognize 240,000 375,000 530,000 Less recognized in previous years - (240,000) (375,000) Current Year Gross Profit 240,000 135,000 155,000 Record Costs Spent this Period Construction in Progress (Contract Asset/Liability) 400,000 425,000 245,000 this entry happens various accounts (e.g. Cash, Raw Materials, Supplies, 400,000 425,000 245,000 throughout the year Record Current Year Revenue Construction in Progress (Contract Asset/Liability) 640,000 560,000 400,000 this entry happens at ye Long Term Contract Revenues 640,000 560,000 400,000 to record revenue for th Estimated Total Revenues 1,600,000 1,600,000 1,600,000 Percentage Completed to Date 40% 75% 100% Revenues to Date 640,000 1,200,000 1,600,000 Less Revenues Already Recognized - (640,000) (1,200,000) Current Revenues 640,000 560,000 400,000 Record Current Year Construction Expense (same amount as used in Entry 1) Construction Expenses 400,000 425,000 245,000 this entry happens at ye Construction in Progress (Contract Asset/Liability) 400,000 425,000 245,000 to record expenses for t Note that this entry basically expenses all the costs spent in the year so all that is left at this point is the amount related to revenues (e.g. how much we think we earned) Record Billings on Construction Accounts receivable 300,000 600,000 700,000 Construction in Progress (Contract Asset/Liability) 300,000 600,000 700,000 Record Payment of Billings Cash 300,000 600,000 700,000 Accounts Receivable 300,000 600,000 700,000 ZERO PROFIT METHOD - IFRS ASPE WOULD USE COMPLETED CONTRACT METHOD

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Page 16 of 19 Acct 3221 Chapter 6 Template 2023 2024 2025 Revenue 400,000 425,000 775,000 Costs (spent to date) 400,000 425,000 245,000 Current Year Gross Profit - - 530,000

Page 17 of 19 Acct 3221 Chapter 6 Template COMPLETED CONTRACT ASPE 2023 2024 2025 Contract Price 1,600,000 Construction Expense 1,070,000 Gross Profit 530,000 Record Costs Spent this Period Construction in Progress (Contract Asset/Liability) 400,000 425,000 245,000 Various (Cash, Materials, etc) 400,000 425,000 245,000 Record Revenue When Complete Construction in Progress (Contract Asset/Liability) 1,600,000 Long Term Contract Revenues 1,600,000 Record Construction Expenses Construction Expenses 1,070,000 Construction in Progress (Contract Asset/Liability) 1,070,000 Record Billings on Construction Accounts Receivable 300,000 600,000 300,000 Construction in Progress (Contract Asset/Liability) 300,000 600,000 300,000 Record Payment of Billings Cash 300,000 600,000 300,000 Accounts Receivable 300,000 600,000 300,000 E6-14 Gift Cards Dec-23 Cash 20,000 Redemption rate 20,000 8% = 1,600 Contract Liability 20,000 Expected Redemption 20,000 (1,600) = 18,400 Jan-24 Contract Liability 2,174 Sales 2,174 2,000 x 20,000 = 2,174 18,400

Page 18 of 19 E AND TOTAL REVENUES HOD (COST RECOVERY METHOD)

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