Individual Income Taxes
43rd Edition
ISBN: 9780357109731
Author: Hoffman
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 18, Problem 57P
a.
To determine
Provide information of the effects of the transactions and incidents on the taxable income of W Company for the year 2019 and 2020.
b.
To determine
Provide information of the effects of the transactions and incidents on the taxable income of W Company for the year 2019 and 2020. Assume that W Company had $100,000 of accumulated costs under the contract at the end of the year 2019.
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On July 1, 2017, Dinar obtained a contract to construct a building. The building was estimated to be built at a total cost of P15,000,000 and is scheduled for completion on October 2019. The contract contains a penalty clause to the effect that the other party was to deduct P35,000 from the contract price for each week of delay. On the other hand, if the contractor was able to finish the building earlier than agreed, it will be rewarded an amount equal to P50,000 for every month of early completion. Furthermore, cost escalation clause was included in the contract. In 2018, the estimated costs of particular construction material amounting to P520,000 were bought for P780,000. The increase in the contract price related to this cost escalation was approved by the client. Completion was delayed for 4 weeks. The records show:
2017
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P1,750,000
6,440,000
1,085,000
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7,000,000
1,810,000
--
Progress billings…
On January 1, 2020, Gordon Co. enters into a contract to sell a customer a wiring base and shelving unit that sits on the base in exchange for $3,000. The contract requires delivery of the base first but states that payment for the base will not be made until the shelving unit is delivered. Gordon identifies two performance obligations and allocates $1,200 of the transaction price to the wiring base and the remainder to the shelving unit. The cost of the wiring base is $700; the shelves have a cost of $320.
Instructions
a. Prepare the journal entry on January 1, 2020, for Gordon.
b. Prepare the journal entry on February 5, 2020, for Gordon when the wiring base is delivered to the customer.
c. Prepare the journal entry on February 25, 2020, for Gordon when the shelving unit is delivered to the customer and Gordon receives full payment.
On March 31, 2018, Big Boats Company entered into a contract with Vacations Unlimited to produce a state-of-the-art cruise ship to be completed within three years. Big Boats estimated the total cost of building the ship at $300,000,000. The contract price was $400,000,000. The ship was completed on February 15, 2021.
What tax accounting method must Big Boats use for the contract? Why?
Using the financial data provided relating to the contract’s performance, com- plete the following schedule.
What are the consequences of the total cost of $360,000,000 exceeding the estimated total cost of $300,000,000?
Chapter 18 Solutions
Individual Income Taxes
Ch. 18 - Prob. 1DQCh. 18 - Prob. 2DQCh. 18 - Prob. 3DQCh. 18 - Prob. 4DQCh. 18 - Prob. 5DQCh. 18 - Prob. 6DQCh. 18 - Prob. 7DQCh. 18 - LO.2 In 2019, the taxpayer became ineligible to...Ch. 18 - LO.2 Osprey Corporation, an accrual basis...Ch. 18 - Prob. 10DQ
Ch. 18 - Prob. 11DQCh. 18 - Prob. 12DQCh. 18 - LO.2 Emerald Motors is an automobile dealer. The...Ch. 18 - Prob. 14DQCh. 18 - Prob. 15DQCh. 18 - Prob. 16DQCh. 18 - Prob. 17DQCh. 18 - LO.4, 7 In December 2019, Carl Corporation sold...Ch. 18 - LO.2, 5 What are the similarities between the crop...Ch. 18 - Prob. 20DQCh. 18 - Prob. 21DQCh. 18 - Prob. 22DQCh. 18 - LO.6 Largo Company is an engineering consulting...Ch. 18 - Prob. 24DQCh. 18 - Prob. 25DQCh. 18 - Prob. 26DQCh. 18 - Prob. 27CECh. 18 - LO.2 Gaffney Corporation is a wholesale...Ch. 18 - Prob. 29CECh. 18 - LO.2 In 2019, Chaya Corporation, an accrual basis,...Ch. 18 - Prob. 31CECh. 18 - Prob. 32CECh. 18 - Prob. 33CECh. 18 - Prob. 34CECh. 18 - Prob. 35CECh. 18 - Prob. 36CECh. 18 - Prob. 37CECh. 18 - Prob. 38CECh. 18 - Prob. 39PCh. 18 - Prob. 40PCh. 18 - Prob. 41PCh. 18 - In 2018, Juan entered into a contract to write a...Ch. 18 - Prob. 43PCh. 18 - Compute Marys income or deductions for 2019 using...Ch. 18 - What accounting method (cash or accrual) would you...Ch. 18 - Blue Company, an architectural firm, has a...Ch. 18 - How do the all events and economic performance...Ch. 18 - Ross Company is a C corporation providing property...Ch. 18 - Prob. 49PCh. 18 - Prob. 50PCh. 18 - Floyd, a cash basis taxpayer, has received an...Ch. 18 - Prob. 52PCh. 18 - Prob. 53PCh. 18 - On June 30, 2019, Kelly sold property for 240,000...Ch. 18 - Prob. 55PCh. 18 - Prob. 56PCh. 18 - Prob. 57PCh. 18 - Prob. 58PCh. 18 - Prob. 59PCh. 18 - Ostrich Company makes gasoline storage tanks....Ch. 18 - Prob. 61PCh. 18 - Grouse Company is a furniture retailer whose...Ch. 18 - Lavender Manufacturing Company began business in...Ch. 18 - Silver Creek Ranch LLC is a small, family-owned...Ch. 18 - In 2019, Gail changed from the lower of cost or...Ch. 18 - At the end of 2020, Magenta Manufacturing Company...Ch. 18 - Prob. 67PCh. 18 - Prob. 68PCh. 18 - Prob. 69PCh. 18 - Prob. 1RPCh. 18 - Prob. 2RPCh. 18 - Prob. 3RPCh. 18 - Paula has sales that qualify to be reported on the...
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