Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 17, Problem 10C
1.
To determine
State the time period at which the revenue from contract be accounted for over time versus at a point in time.
2.
To determine
State the facts in the preceding situation that indicate that village must account for this long-term construction contract over time.
3.
To determine
State the manner in which the income recognized in each year of this long-term construction contract is ascertained using the cost-to-cost method of ascertaining progress toward satisfaction of the performance obligation.
4.
To determine
State the effect on income with respect to progress billings and collections on these billings.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A company is accounting for a long-term construction contract where revenue is recognized over time. The project is built to the customer's specifications, and the customer can make changes as construction is ongoing. It is a 3-year, fixed-fee contract that is presently in its first year. The latest reasonable estimates of total contract costs indicate that the contract will be completed at a profit. The company will submit progress billings to the customer and has reasonable assurance that collections on these billings will be received in each year of the contract. The contract can be canceled at any time by the customer who will retain control of any work done to date.
Discuss the following:
a. When should revenue from contracts be accounted for overtime versus at a point in time?
b. How would the income recognized in each year of this long-term construction contract be determined using the cost-to-cost basis of determining progress toward satisfaction of the performance…
Zentric Garage Inc. enters into a contract to provide services totaling $78,000. The contract includes a potential performance bonus
based on when Zentric Garage completes the services. Zentric Garage estimates the following scenarios for completion.
(Click the icon to view the scenarios.)
Determine the bonus using the most-likely-amount approach.
Determine the bonus using the most-likely-amount approach under scenario 1.
The bonus for this contract using the most-likely-amount approach under scenario 1 is $
Determine the bonus using the most-likely-amount approach under scenario 2.
The bonus for this contract using the most-likely-amount approach under scenario 2 is $
Determine the bonus using the most-likely-amount approach under scenario 3.
The bonus for this contract using the most-likely-amount approach under scenario 3 is $
Ente
Scenarios
Complete within
3 days
5 days
8 days
Probability
Bonus Scenario 1 Scenario 2
80%
47%
15%
38%
5%
15%
$ 13,000
$ 8,000
$ 3,500
Print Done…
1. Determine the amount of construction in progress that will be reported.
2. How much revenue is recognized as of the end of the first year?
Chapter 17 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 17 - Prob. 1GICh. 17 - Prob. 2GICh. 17 - When a company recognizes revenue during a period,...Ch. 17 - Prob. 4GICh. 17 - Prob. 5GICh. 17 - What is the proper accounting for a wholly...Ch. 17 - If a seller enters into more than one contract...Ch. 17 - Prob. 8GICh. 17 - Prob. 9GICh. 17 - Prob. 10GI
Ch. 17 - Prob. 11GICh. 17 - Prob. 12GICh. 17 - Prob. 13GICh. 17 - Prob. 14GICh. 17 - Prob. 15GICh. 17 - Prob. 16GICh. 17 - If the standalone selling price of a good or...Ch. 17 - Prob. 18GICh. 17 - Prob. 19GICh. 17 - If the sellers performance creates on asset (e.g.,...Ch. 17 - Describe input and output methods used to measure...Ch. 17 - Prob. 22GICh. 17 - Prob. 23GICh. 17 - Prob. 24GICh. 17 - Prob. 25GICh. 17 - A company should recognize revenue when a. the...Ch. 17 - A contract between one or more parties creates: a....Ch. 17 - Morgan Company and its customer agree to modify...Ch. 17 - Chlorine Corp. has a contract to deliver pool...Ch. 17 - Prob. 5MCCh. 17 - Prob. 6MCCh. 17 - In accounting for a long-term construction...Ch. 17 - Prob. 9MCCh. 17 - Prob. 10MCCh. 17 - CustomTee Inc. contracts with various customers to...Ch. 17 - Yankee Corp. agrees to provide Albany Company 24...Ch. 17 - Prob. 3RECh. 17 - Prob. 4RECh. 17 - LongDrive sells a specialized golf club that has...Ch. 17 - Prob. 6RECh. 17 - VolleyElite runs a volleyball program consisting...Ch. 17 - Enterprise Solutions Inc. licenses its...Ch. 17 - Prob. 9RECh. 17 - Magical Memories sells Florida theme park vacation...Ch. 17 - Prob. 11RECh. 17 - Robotics Inc. contracts with a customer to build a...Ch. 17 - CoolShoes sells its elite tennis shoes to sports...Ch. 17 - Using the information in RE17-13, what journal...Ch. 17 - GameDay sells recreational vehicles along with...Ch. 17 - Prob. 16RECh. 17 - Using the information provided in RE17-16, prepare...Ch. 17 - Prob. 18RECh. 17 - Prob. 19RECh. 17 - Company enters into a contract with Dearborn Inc....Ch. 17 - Consider each of the following scenarios: a. A...Ch. 17 - On August 1, 2019, Aiken Corp. enters into a...Ch. 17 - On January 1, 2019, Spring Fashions Inc. enters...Ch. 17 - On January 1, 2019, Loud Company enters into a...Ch. 17 - Assume the same facts as in El7-5. On July 1,...Ch. 17 - Assume the same facts as in E17-5 and ignore...Ch. 17 - Prob. 8ECh. 17 - GrillMaster Inc. sells an industry-leading line of...Ch. 17 - WaterWorld Inc. operates an aquarium and water...Ch. 17 - Prob. 11ECh. 17 - Jonas Consulting enters into a contract to provide...Ch. 17 - On March 1, 2019, Elkhart enters into a new...Ch. 17 - On January 5, 2019, ShoeKing Corp. sells for cash...Ch. 17 - On January 1, 2019, Piper Company entered into an...Ch. 17 - On January 1, 2019, Fulton Inc. enters into a...Ch. 17 - Prob. 17ECh. 17 - On December 1, 2019, AwakcAllNight Inc. sells...Ch. 17 - Rix Company sells home appliances and provides...Ch. 17 - Assume the same facts as in E17-19, except that...Ch. 17 - Crazy Computer Store sells a back-to-school bundle...Ch. 17 - Each of the following is an independent situation...Ch. 17 - Prob. 23ECh. 17 - Prob. 24ECh. 17 - Koolman Construction Company began work on a...Ch. 17 - Prob. 26ECh. 17 - Each of the following independent situations...Ch. 17 - JustKitchens Inc. provides services to restaurants...Ch. 17 - On January 1, 2019, ForeRunner Inc. enters into a...Ch. 17 - January 2, 2019, TI enters into a contract with...Ch. 17 - Prob. 5PCh. 17 - Prob. 6PCh. 17 - Fender Construction Company receives a contract to...Ch. 17 - SoccerHawk Merchandise Inc. enters into a 6-month...Ch. 17 - Prob. 9PCh. 17 - Prob. 10PCh. 17 - Blackmon Company provides locator services to the...Ch. 17 - Prior to ASU 2014-09 changing the principles...Ch. 17 - The first step in the revenue recognition process...Ch. 17 - Prob. 3CCh. 17 - One of the more difficult issues that companies...Ch. 17 - Prob. 5CCh. 17 - On October 1, 2019, Grahams WeedFeed Inc. signs a...Ch. 17 - On January 1, 2019, Mopps Corp. agrees to provide...Ch. 17 - Prob. 8CCh. 17 - Revenue for a company is recognized for accounting...Ch. 17 - Prob. 10C
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The Naples Company uses the percentage-of-completion method and the cost-to-cost method for its long-te construction contracts. On one such contract, Naples expects total revenues of 260,000 and total costs of 200,000. During the first year, Naples incurred costs of 50,000 and billed the customer 30,000 under the contract. At what net amount should Naple's Construction in Progress for this contract be reported at the end of the first year?arrow_forwardIn 20x1, ABC Co. enters into a contract to construct a building for a customer. ABC identifies its performance obligation to be satisfied over time. ABC measures its progress on the contract based on costs incurred. The contract price is P20,000,000. ABC has an unconditional right to all billings made in accordance with the billing schedule stated in the contract. Information on the construction is as follows: 20x1 20x2 Contract costs incurred per year Billings per year Collections on billings 20x3 8,160,000 7,320,000 1,920,000 10,000,000 7,000,000 3,000,000 9,500,000 6,650,000 3,850,000 per year Estimated costs to 1911 complete (at each year-end)er from the Student Ha8,840,000 of 1,720,000 "Cheating during examinations, quizzes or plagiarism in connection with any academic work, abetting of the same: 1st violation- How much profit is recognized on the contract in 20x3? suspension with invalidation of grade; 3rd violation- suspensionarrow_forwardWidjaja Company is accounting for a long-term construction contract using the percentage-of-completion method. It is a 4-year contract that is currently in its second year. The latest estimates of total contract costs indicate that the contract will be completed at a profit to Widjaja Company. Instructions a. What theoretical justification is there for Widjaja Company's use of the percentage-of-completion method? b. How would progress billings be accounted for? Include in your discussion the classification of progress billings in Widjaja Company financial statements. c. How would the income recognized in the second year of the 4-year contract be determined using the cost-to-cost method of determining percentage of completion? d. What would be the effect on earnings per share in the second year of the 4-year contract of using the percentage-of-completion method instead of the completed-contract method? Discuss.arrow_forward
- A builder enters into a contract with a customer to redesign and update an office buidling for an agreed upon contract price of $2,400,000 and construction is estimated to take three years at a total estimated cost of $2,000,000. Assuming costs may fluctuate over the 3-year construction period. Which statement is most accurate regarding revenue recognition for this contract? The builder should recognize revenue over time using the cost-to-cost (percentage of completion) method. The builder should wait to recognize revenue until the full construction is complete at the end of the three year period. The builder should recognize recognize revenue across the three year construction period as they collect cash payments. The builder should recognize all revenue for the contract at the start of construction when the contract is initially signed.arrow_forwardNance Network Consultants, Incorporated uses the percentage-of-completion method to account for its long-term contracts. It uses the cost-to-cost approach to measure progress. During the current year, Nance signed a contract to develop a computer network for an international accounting firm. Information related to the contract follows. DELIVERABLES Compute the percentage-of-completion for each year. Compute the gross profit and revenue to be recognized each year of the contract. Prepare the journal entries required for each year of the contract. Prepare the t-accounts for construction in progress, billings on construction in progress, and accounts receivable. Determine the net asset (liability) for each year of the contract on December 31. Contract Price 800,000arrow_forwardIn 20x1, ABC Co. enters into a contract to construct a building for a customer. ABC identifies its performance obligation to be satisfied over time. ABC measures its progress on the contract based on costs incurred. The contract price is P20,000,000. ABC has an unconditional right to all billings made in accordance with the billing schedule stated in the contract. Information on the construction is as follows: 20x1 20x2 20x3 Contract costs incurred per year Billings per year Collections on billings per year 1,920,000 3,000,000 5,650,000 3,850,000 8,160,000 7,320,000 10,000,000 500,000 6600,000 Estimated costs to complete (at each year-end) from the Student Ha8,840,000 1,720,000 ons, quizzes rection with any academic work, abetting of the same: 1st violation How much profit is recognized on the contract in 20x3?arrow_forward
- Oriole Company enters into a contract with a customer to build a warehouse for $401900, with a performance bonus of $101900 that will be paid based on the timing of completion. The amount of the performance bonus decreases by 20% per week for every week beyond the agreed-upon completion date. The contract requirements are similar to contracts that Oriole has performed previously, and management believes that such experience is predictive for this contract. Management estimates that there is a 50% probability that the contract will be completed by the agreed-upon completion date, a 30% probability that it will be completed 1 week late, and a 20% probability that it will be completed 2 weeks late. What is the total transaction price for this revenue arrangement? $489534 $503800 $483420 $463040arrow_forwardThree construction jobs are being considered by Clam City Construction (see the accompanying table). Each is characterized by an initial deposit paid by the client to Clam City Construction (CCC), a yearly cost incurred by CCC at the end of each of three years, and a final payment to CCC by the client at the end of three years. CCC has the capacity to do only one of these contracts. Use an appropriate rate of return method to determine which it should choose. The company's MARR is 10 percent. Job 1 2 3 Deposit $100,000 $130,000 $145,000 Cost per Year $75,000 $100,000 $150,000 Final Payment $195,000 $240,000 $350,000 with an Considering the jobs in order of lowest first cost, the best option is incremental rate of return of percent. (Round to one decimal place as needed. Use an approximate ERR if the IRR cannot be used.)arrow_forwardOn June 1, 2021, Consulting Inc. enters into a contract with a customer to build a website for its start-up business for $100,000, plus a possible performance bonus. The contract includes the creation of the website to communicate information about the customer’s products, to sell products, and to collect payment for the products. The target completion date for the project is October 22, 2021. The pricing of the customized website includes a potential performance bonus to be paid to Consulting Inc. if the website is completed between October 1 - October 22, 2021. The performance bonus will be reduced each week closer to the October 22, 2021 deadline. A bonus will not be paid if the project is completed after October 22, 2021. Based on Consulting Inc.’s historical experience and the assessment of its current capabilities, the potential bonuses/probability are summarized in the table below: Completion Date Probability of Outcome Performance Bonus October 1, 2021…arrow_forward
- Lark Corp. appropriately determined that each of its long-term projects represents a single performance obligation that is satisfied over time. At the end of the current year, Lark estimates that its costs to complete a project exceed the contract price, so that an overall loss on the contract is anticipated. Required: What journal entry will Lark record at the end of the current year, given the following information? • Revenue to date is $350,000 ($175,000 of which is to be recognized in the current year). • The expense recognized previously was $100,000. • An overall loss of $30,000 is anticipatedarrow_forwardGeorge Co. enters into a contract to build an apartment for Jungle Co. For a fixed fee of P20,000,000. At contract inception, George Co. assesses its performance obligations in the contract and concludes that it has a single performance obligation that is satisfied over time. George Co. determines that the measure of progress that best depicts its performance in the contract is input method based on costs incurred. George estimates that the total contract costs would amount to P16,000.000 over the construction period. George incurs contract costs of P2,000,000 during the year. How much revenue is recognized for the year?arrow_forwardThe Naples Company uses the overtime/percentage-of-completion method and the point in- time/cost-to-cost method for its long-term construction contracts. On one such contract, Naples expects total revenues of P260,000 and total costs of P200,000. During the first year, Naples incurred costs of P50,000 and billed the customer P30,000 under the contract. At what net amount should Naples' Construction in Progress for this contract be reported at the end of the first year? a. P30,000 b.P35,000 c.P50,000 d.P65,000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT