Intermediate Accounting w/ Annual Report; Connect Access Card
Intermediate Accounting w/ Annual Report; Connect Access Card
8th Edition
ISBN: 9781259546860
Author: J. David Spiceland
Publisher: McGraw-Hill Education
Question
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Chapter 5, Problem 5.13P

1

To determine

Contract:

Contract is a written document that creates legal agreement between the parties for buying and selling the property. It is committed by the parties to perform their obligation and to enforce their rights.

Revenue recognized point of long term contract:

A long-term contract qualifies for revenue recognition over time. The seller can recognize the revenue as per percentage of the completion of the project, which is recognized by revenue minus cost of completion until date.

If a contract does not meet the performance obligation norm, then the seller cannot recognize the revenue till the project is complete.

The revenue recognition principle

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.

To discuss:  The difference between recognizing revenue over time and upon project completion when accounting for long-term construction contract ends.

1

Expert Solution
Check Mark

Explanation of Solution

In recognizing revenue over time, the revenue is recognized when delivery occurs for a contract.

In recognizing revenue upon project completion, the revenue is recognized based on time requires to complete the project, and revenue of each period should be calculated based on the percentage of completion.

2 a)

To determine

The amount of revenue related to the contract C Builders report in 2016 and 2017 income statement (Assume revenue recognized over the time).

2 a)

Expert Solution
Check Mark

Explanation of Solution

The amount of revenue recognized for overtime period concept is $0, because the revenue is recognized based on project completion. Hence, C Builders would not report revenue in the year 2016 or 2017 income statement.

2 b)

To determine

The amount of gross profit or loss related to the contract C Builders during the year 2016 and 2017(Assume revenue recognized over the time).

2 b)

Expert Solution
Check Mark

Explanation of Solution

The amount of gross profit recognized for overtime period concept is $0, because the revenue is recognized based on project completion. Hence, C Builders would not report any gross profit in the year 2016 or 2017 income statement.

2 c)

To determine

To report: The balance sheet of C Builders in December 31, 2016.

2 c)

Expert Solution
Check Mark

Explanation of Solution

Balance sheet

At December 31,2016

Current assets Amount
Accounts receivable $200,000
   
Cost and profit in excess of billings $2,000,000

Table (1)

Working note:

Calculate the value of estimated gross profit

Particulars 2016 2017
Contract price 20,000,000 20,000,000
Actual costs to date 4,000,000 13,500,000
Estimated costs to complete 12,000,000 4,500,000
Less: Total estimated cost 16,000,000 18,000,0000
Estimated gross profit 4,000,000 2,000,000

Table (2)

(1)

3 a)

To determine

The amount of revenue related to the contract C Builders report in 2016 and 2017 income statement (Assume revenue recognized percentage of completion).

3 a)

Expert Solution
Check Mark

Explanation of Solution

In the year 2016:

Given,

The contract price is $20,000,000

Actual cost to date is $4,000,000

Calculated total estimated cost is $16,000,000

Now, calculate the revenue recognition:

Revenue recognition =Contract price×(Actual cost to dateTotal estimated cost)=$20,000,000×$4,000,000$16,000,000=$20,000,000×25%=$5,000,000

Hence, the calculated revenue recognition is $5,000,000.

In the year 2017:

Given,

The contract price is $20,000,000

Actual cost to date is $13,500,000

Calculated total estimated cost is $18,000,000

Now, calculate the revenue recognition:

Revenue recognition =[[Contract price×(Actual cost to dateTotal estimated cost)]Previous year revenue]=($20,000,000×$13,500,000$18,000,000)$5,000,000=($20,000,000×75%)$5,000,000=$10,000,000

Hence, the calculated revenue recognition is $10,000,000.

3 b)

To determine

The amount of gross profit or loss related to the contract C Builders during the year 2016 and 2017(Assume revenue recognized over the time).

3 b)

Expert Solution
Check Mark

Explanation of Solution

In the year 2016:

Here,

Revenue recognition in 2016 is $5,000,000

Actual cost to date is $4,000,000.

Now, calculate the gross profit recognition:

Gross profit recognition =(Revenue recognition in 2018 Actual cost to date)=$5,000,000$4,000,000=$1,000,000

Hence, the calculated gross profit recognition is $1,000,000.

In the year 2017:

Here,

Revenue recognition in 2017 is $10,000,000

Gross profit recognition is $9,500,000

Now, calculate the gross profit recognition:

Gross profit recognition =(Revenue recognition in 2019 Gross profit recognition )=$10,000,000$9,500,000=$500,000

Hence, the calculated gross loss recognition is $500,000.

3 c)

To determine

To report: The balance sheet of C Builders in December 31, 2016.

3 c)

Expert Solution
Check Mark

Explanation of Solution

Balance sheet

At December 31,2016

Current assets Amount
Accounts receivable $200,000
   
Cost and profit in excess of billings  (2) $2,000,000

Table (3)

Working note:

Calculate the cost and profit in excess of billings

Given,

Cost is $400,000

Billing profit is $100,000

Costs and profit in excess of billings =(Costs Billing loss)=$4,000,000$2,000,000=$2,000,000 (2)

4 a)

To determine

The amount of revenue related to the contract C Builders report in 2017 income statement (Assume revenue recognized percentage of completion).

4 a)

Expert Solution
Check Mark

Explanation of Solution

In the year 2017:

Given,

Contract price is $12,000,000 (3)

Revenue recognized in prior period is $5,000,000

Now, calculate the revenue recognition:

Revenue recognition =Contractprice(Revenue recognized in prior period)=$12,000,000($5,000,000)=$7,000,000

Hence, the calculated revenue recognition is $7,000,000.

Working note:

Calculate the total revenue recognized to date:

Given,

The contract price is $20,000,000

Actual cost to date is $13,500,000

Calculated total estimated cost is $22,500,000

Now, calculate the revenue recognition:

Revenue recognition =Contract price×(Actual cost to dateTotal estimated cost)=$20,000,000×$13,500,000$22,500,000=$20,000,000×60%=$12,000,000 (3)

4 b)

To determine

The amount of gross profit or loss related to the contract C Builders during the year 2017(Assume revenue recognized over the time).

4 b)

Expert Solution
Check Mark

Explanation of Solution

In the year 2017:

Here,

 Overall loss is ($2,500,000)

 Previously recognized gross profit is $1,000,000

Now, calculate the gross profit recognition:

Gross profit recognition =(Overall loss Previously recognized gorss profit )=($2,500,000)$1,000,000=$3,500,000

Hence, the calculated gross loss recognition is $3,500,000.

4 c)

To determine

To report: The balance sheet of C Builders in December 31, 2017.

4 c)

Expert Solution
Check Mark

Explanation of Solution

Balance sheet

At December 31,2017

Current assets Amount
Accounts receivable $1,600,000
   
Cost and profit in excess of billings  (4) $1,000,000

Table (4)

Working note:

Calculate the cost and profit in excess of billings

Given,

Profit is $12,000,000

Billing profit is $11,000,000

Costs and profit in excess of billings =(Profit - Billing profit)=$12,000,000$11,00,000=$1,000,000 (4)

Requirement – 5

To determine

To discuss: The point of revenue recognized from sale of single-family homes

Requirement – 5

Expert Solution
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Explanation of Solution

C Builders should recognize the revenue when the homes are completed and delivery to the customer. Recognizing revenue over time is not appropriate in this case, because the customer did not get any benefit when the seller is performed (at the time of construction). Hence, the performance of obligation is completed when seller is complete the single-family home contraction wholly.

Therefore, the point of revenue recognized when the delivery of single-family home to customer.

Requirement – 6

To determine

To prepare: The income statement and balance sheet of C Builders at the year ended 2016.

Requirement – 6

Expert Solution
Check Mark

Explanation of Solution

Solution:

The income statement and balance sheet of C Builders at the year ended 2016 are as follows:

Income statement:

Income statement of C Builders
 At the year ended December, 2016
 Particulars  $
 Sales revenue  (3×$600,000)        1,800,000
 Less: Cost of goods sold (3×$450,000)          1,350,000
 Gross profit        450,000

Table (5)

Balance sheet:

Balance sheet of C Builders
 At the year ended December, 2016
 Assets  $
 Current assets          2,700,000
 Inventory work in process  
 Current liabilities
 Customer deposits  (5)              300,000

Table (6)

Working note:

Calculate the value of customer deposits:

Customer deposits = (Cost×10%)×Number of home=($600,000×10100)×5=$300,000 (5)

Conclusion

Hence, the income statement and balance sheet of C Builders are prepared.

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Chapter 5 Solutions

Intermediate Accounting w/ Annual Report; Connect Access Card

Ch. 5 - Is a customers right to return merchandise a...Ch. 5 - Prob. 5.12QCh. 5 - Under what circumstances should sellers consider...Ch. 5 - When should a seller view a payment to its...Ch. 5 - What are three methods for estimating stand-alone...Ch. 5 - When is revenue recognized with respect to...Ch. 5 - In a franchise arrangement, what are a franchisors...Ch. 5 - When does a company typically recognize revenue...Ch. 5 - Prob. 5.19QCh. 5 - Prob. 5.20QCh. 5 - Must bad debt expense be reported on its own line...Ch. 5 - Explain the difference between contract assets,...Ch. 5 - Explain how to account for revenue on a long-term...Ch. 5 - Prob. 5.24QCh. 5 - Prob. 5.25QCh. 5 - Prob. 5.26QCh. 5 - Prob. 5.27QCh. 5 - Prob. 5.28QCh. 5 - What are the two general criteria that must be...Ch. 5 - Explain why, in most cases, a seller recognizes...Ch. 5 - Revenue recognition for most installment sales...Ch. 5 - Prob. 5.32QCh. 5 - How does a company report deferred gross profit...Ch. 5 - Prob. 5.34QCh. 5 - Briefly describe the guidelines for recognizing...Ch. 5 - Prob. 5.36QCh. 5 - Briefly describe the guidelines provided by GAAP...Ch. 5 - Prob. 5.1BECh. 5 - Timing of revenue recognition LO53 Estate...Ch. 5 - Prob. 5.3BECh. 5 - Allocating the transaction price LO54 Sarjit...Ch. 5 - Prob. 5.5BECh. 5 - Performance obligations; warranties LO55 Vroom...Ch. 5 - Prob. 5.7BECh. 5 - Prob. 5.8BECh. 5 - Prob. 5.9BECh. 5 - Prob. 5.10BECh. 5 - Prob. 5.11BECh. 5 - Variable consideration LO56 Leo Consulting enters...Ch. 5 - Prob. 5.13BECh. 5 - Prob. 5.14BECh. 5 - Prob. 5.15BECh. 5 - Payment s by the seller to the customer LO56...Ch. 5 - Estimating stand-alone selling prices: adjusted...Ch. 5 - Estimating stand-alone selling prices: expected...Ch. 5 - Estimating stand-alone selling prices; residual...Ch. 5 - Prob. 5.20BECh. 5 - Prob. 5.21BECh. 5 - Prob. 5.22BECh. 5 - Prob. 5.23BECh. 5 - Prob. 5.24BECh. 5 - Contract assets and contract liabilities LO58...Ch. 5 - Prob. 5.26BECh. 5 - Long-term contract; revenue recognition over time;...Ch. 5 - Prob. 5.28BECh. 5 - Long-term contract; revenue recognition upon...Ch. 5 - Long-term contract; revenue recognition; loss on...Ch. 5 - Prob. 5.35BECh. 5 - Prob. 5.36BECh. 5 - Prob. 5.37BECh. 5 - Prob. 5.38BECh. 5 - Prob. 5.39BECh. 5 - Revenue recognition; software contracts under IFRS...Ch. 5 - Prob. 5.41BECh. 5 - BE 5–31 Receivables and inventory turnover...Ch. 5 - Prob. 5.32BECh. 5 - Prob. 5.33BECh. 5 - Prob. 5.34BECh. 5 - Prob. 5.1ECh. 5 - Ski West, Inc., operates a downhill ski area near...Ch. 5 - Allocating transaction price LO54 Video Planet...Ch. 5 - Prob. 5.4ECh. 5 - Prob. 5.5ECh. 5 - Prob. 5.6ECh. 5 - Prob. 5.7ECh. 5 - On May 1, 2016, Meta Computer, Inc., enters into a...Ch. 5 - Prob. 5.9ECh. 5 - Variable considerationmost likely amount; change...Ch. 5 - Variable considerationexpected value; change in...Ch. 5 - Prob. 5.12ECh. 5 - Approaches for estimating stand-alone selling...Ch. 5 - E 5–14 FASB codification research LO5–6,...Ch. 5 - Prob. 5.15ECh. 5 - FASB codification research LO58 Access the FASB...Ch. 5 - Prob. 5.17ECh. 5 - Prob. 5.18ECh. 5 - Prob. 5.19ECh. 5 - Prob. 5.20ECh. 5 - Prob. 5.21ECh. 5 - Prob. 5.22ECh. 5 - Prob. 5.23ECh. 5 - Prob. 5.24ECh. 5 - Prob. 5.25ECh. 5 - Prob. 5.26ECh. 5 - Prob. 1CPACh. 5 - Prob. 2CPACh. 5 - Prob. 3CPACh. 5 - Prob. 4CPACh. 5 - Prob. 5CPACh. 5 - Prob. 6CPACh. 5 - Prob. 7CPACh. 5 - Prob. 8CPACh. 5 - Prob. 1CMACh. 5 - Prob. 5.1PCh. 5 - Prob. 5.2PCh. 5 - Prob. 5.3PCh. 5 - Prob. 5.4PCh. 5 - Prob. 5.5PCh. 5 - Prob. 5.6PCh. 5 - Prob. 5.7PCh. 5 - Prob. 5.8PCh. 5 - Prob. 5.9PCh. 5 - Prob. 5.10PCh. 5 - Prob. 5.11PCh. 5 - Prob. 5.12PCh. 5 - Prob. 5.13PCh. 5 - Prob. 5.14PCh. 5 - Prob. 5.15PCh. 5 - Prob. 5.16PCh. 5 - Prob. 5.17PCh. 5 - Prob. 5.18PCh. 5 - Prob. 5.19PCh. 5 - Prob. 5.20PCh. 5 - Prob. 5.21PCh. 5 - Prob. 5.22PCh. 5 - Prob. 5.23PCh. 5 - Prob. 5.1BYPCh. 5 - Judgment Case 52 Satisfaction of performance...Ch. 5 - Judgment Case 53 Satisfaction of performance...Ch. 5 - Prob. 5.4BYPCh. 5 - Prob. 5.5BYPCh. 5 - Prob. 5.6BYPCh. 5 - Prob. 5.8BYPCh. 5 - Prob. 5.9BYPCh. 5 - Prob. 5.10BYPCh. 5 - Prob. 5.11BYPCh. 5 - Prob. 5.12BYPCh. 5 - Prob. 5.13BYPCh. 5 - Prob. 5.15BYPCh. 5 - Prob. 5.16BYPCh. 5 - Prob. 5.17BYPCh. 5 - Prob. 5.18BYPCh. 5 - Prob. 5.19BYPCh. 5 - Prob. 5.23BYP
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