Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 5.14P
Income statement presentation; installment sales method (Chapters 4 and 5)
Reagan Corporation computed income from continuing operations before income taxes of $4,200,000 for 2018. The following 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 the manufacturing 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 antitrust violations 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 last eight years.
4. It was discovered that
In addition, you learn that included in revenues is $400,000 from installment sales made during the year. The cost of these 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’s accountant 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 outstanding throughout the year.
Required:
Prepare an income statement for 2018 beginning with income from continuing operations before income taxes. Include appropriate EPS disclosures.
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The records for Ivanhoe Co. show this data for 2021:
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Gross profit on installment sales recorded on the books was $460,000. Gross profit from collections of installment receivables was $320,000.
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Life insurance on officers was $4,200.
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Machinery was acquired in January for $340,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Ivanhoe may deduct 14% for 2021.
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Interest received on tax exempt Iowa State bonds was $9,400.
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The estimated warranty liability related to 2021 sales was $22,000. Repair costs under warranties during 2021 were $14,000. The remainder will be incurred in 2022.
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The records for Bosch Co. show this data for 2019:
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Gross profit on installment sales recorded on the books was $340,000. Actual collections of installment receivables (how it is recorded for tax) was $200,000 in 2019 , $40,000 in 2020 and $100,000 in 2021.
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Machinery was acquired in January for $220,000. Straight-line depreciation over a five-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Bosch may deduct 14% for 2019 37% for 2020, 28% for 2021, 15% for 2022 and 6% for 2023 .
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The estimated warranty liability related to 2019 sales expensed for book was $20,800. Actual repair costs under warranties deductible for tax during 2019 were $12,800. The remainder will be paid in 2020.
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Each year the company receives $5,000 in municipal bond dividend income. (not taxable).
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The records for Ivanhoe Co. show this data for 2021:
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Gross profit on installment sales recorded on the books was $350,000. Gross profit from collections of installment receivables was $210,000.
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Life insurance on officers was $3,100.
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Machinery was acquired in January for $230,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Ivanhoe may deduct 14% for 2021.
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Interest received on tax exempt Iowa State bonds was $8,300.
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The estimated warranty liability related to 2021 sales was $20,900. Repair costs under warranties during 2021 were $12,900. The remainder will be incurred in 2022.
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Chapter 5 Solutions
Intermediate Accounting
Ch. 5 - What are the five key steps a company follows to...Ch. 5 - What indicators suggest that a performance...Ch. 5 - What criteria determine whether a company can...Ch. 5 - We recognize service revenue either at one point...Ch. 5 - What characteristics make a good or service a...Ch. 5 - Prob. 5.6QCh. 5 - What must a contract include for the contract to...Ch. 5 - How might the definition of probable affect...Ch. 5 - When a contract includes an option to buy...Ch. 5 - Prob. 5.10Q
Ch. 5 - Prob. 5.11QCh. 5 - Is a customers right to return merchandise a...Ch. 5 - Prob. 5.13QCh. 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. 5.20QCh. 5 - Prob. 5.21QCh. 5 - Prob. 5.22QCh. 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. 5.26QCh. 5 - Prob. 5.27QCh. 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. 5.31QCh. 5 - How does a company report deferred gross profit...Ch. 5 - Prob. 5.33QCh. 5 - Briefly describe the guidelines for recognizing...Ch. 5 - Prob. 5.35QCh. 5 - Briefly describe the guidelines provided by GAAP...Ch. 5 - Revenue recognition at a point in time LO52 On...Ch. 5 - Timing of revenue recognition LO53 Estate...Ch. 5 - Prob. 5.3BECh. 5 - Allocating the transaction price LO54 Sarjit...Ch. 5 - Existence of a contract LO5-5 Tulane Tires wrote...Ch. 5 - Prob. 5.6BECh. 5 - Prob. 5.7BECh. 5 - Performance obligations; 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revenue recognition; loss on...Ch. 5 - Installment sales method On July 1, 2018, Apache...Ch. 5 - Prob. 5.36BECh. 5 - Cost recovery method Refer to the situation...Ch. 5 - Prob. 5.38BECh. 5 - Prob. 5.39BECh. 5 - Revenue recognition; software contracts under IFRS...Ch. 5 - Prob. 5.41BECh. 5 - Prob. 5.1ECh. 5 - Prob. 5.2ECh. 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 - Prob. 5.8ECh. 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 - FASB codification research LO56, LO57 Access the...Ch. 5 - Franchises; residual method LO56, LO57 Monitor...Ch. 5 - FASB codification research LO58 Access the FASB...Ch. 5 - Long-term contract; revenue recognition over time...Ch. 5 - Long-term contract; revenue recognition over time...Ch. 5 - Long-term contract; revenue recognition over time;...Ch. 5 - Long-term contract; revenue recognition upon...Ch. 5 - Income (loss) recognition; Long-term contract;...Ch. 5 - Long-term contract; revenue recognition over time;...Ch. 5 - Installment sales method Charter Corporation,...Ch. 5 - Installment sales method; journal entries [This is...Ch. 5 - Installment sales; alternative recognition methods...Ch. 5 - Journal entries; point of delivery, installment...Ch. 5 - Prob. 5.27ECh. 5 - Prob. 5.28ECh. 5 - Prob. 5.29ECh. 5 - Prob. 5.30ECh. 5 - Prob. 5.31ECh. 5 - Prob. 5.32ECh. 5 - Prob. 5.33ECh. 5 - Prob. 5.34ECh. 5 - Prob. 5.35ECh. 5 - Prob. 5.1PCh. 5 - Prob. 5.2PCh. 5 - Prob. 5.3PCh. 5 - Prob. 5.4PCh. 5 - Prob. 5.5PCh. 5 - Variable consideration; change of estimate LO53,...Ch. 5 - Prob. 5.7PCh. 5 - Prob. 5.8PCh. 5 - Prob. 5.9PCh. 5 - Long-term contract; revenue recognition over time ...Ch. 5 - Long-term contract; revenue recognition upon...Ch. 5 - Long-term contract; revenue recognized over time;...Ch. 5 - Long-term contract; 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