accounting

________________________________________ Question 1: (10 points) E 5-2 Installment sales method; journal entries LO2 Charter Corporation, which began business in 2006, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales during 2006 and 2007: 2006 2007 Installment sales $360,000 $350,000 Cost of installment sales 234,000 245,000 Cash collections on installment sales during: 2006 150,000 100,000 2007 — 120,000 Required: Prepare summary journal entries for 2006 and 2007 to account for the installment sales and cash collections. The company uses the perpetual inventory system. 2006 To record installment sales __________ ____________ __________ ____________ __________ ____________ 2006 To record cash collections from installment sales __________ ____________ __________ ____________ 2006 To recognize gross profit from installment sales __________ ____________ __________ ____________ 2007 To record installment sales __________ ____________ __________ ____________ __________ ____________ 2007 To record cash collections from installment sales __________ ____________ __________ ____________ 2007 To recognize gross profit from installment sales __________ ____________ __________ ____________ ________________________________________ Question 2: (10 points) E 5-3 Installment sales; alternative recognition methods LO2 On July 1, 2006, the Foster Company sold inventory to the Slate Corporation for $400,000. Terms of the sale called for a down payment of $100,000 and three annual installments of $100,000 due on each July 1, beginning July 1, 2007. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $120,000. The company uses the perpetual inventory system. Required: 1. Compute the amount of gross profit to be recognized from the installment sale in 2006, 2007, 2008, and 2009 using point of delivery revenue recognition. Ignore interest charges. 2. Repeat requirement 1 applying the installment sales method. 3. Repeat requirement 1 applying the cost recovery method. Round final answers to nearest whole number, use unrounded numbers for interim calculations. 1. Year Income recognized 2006 $ ____________ 2007 ____________ 2008 ____________ 2009 ____________ ________________________________________ Total $ ____________ ________________________________________________________________________________ 2. Year Cash Collected Cost Recovery Gross Profit 2006 $ ____________ $ ____________ $ ____________ 2007 ____________ ____________ ____________ 2008 ____________ ____________ ____________ 2009 ____________ ____________ ____________ ________________________________________ ________________________________________ ________________________________________ Totals $ ____________ $ ____________ $ ____________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ 3. Year Cash Collected Cost Recovery Gross Profit 2006 $ ____________ $ ____________ $ ____________ 2007 ____________ ____________ ____________ 2008 ____________ ____________ ____________ 2009 ____________ ____________ ____________ ________________________________________ ________________________________________ ________________________________________ Totals $ ____________ $ ____________ $ ____________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________ Question 3: (15 points) E 5-7 Long-term contract; percentage-of-completion and completed contract methods LO4 Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2006 and was completed in 2007. Data relating to the contract are summarized below: 2006 2007 Costs incurred during the year $ 300,000 $1,575,000 Estimated costs to complete as of 12/31 1,200,000 –0– Billings during the year 380,000 1,620,000 Cash collections during the year 250,000 1,750,000 Required: 1. Compute the amount of gross profit or loss to be recognized in 2006 and 2007 using the percentage-of-completion method. 2. Compute the amount of gross profit or loss to be recognized in 2006 and 2007 using the completed contract method. 3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2006 using the percentage-of-completion method. 4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2006 using the completed contract method. 1. Gross Profit Recognition: 2006 2007 2006: $ ____________ 2007: $ ____________ 2. Gross Profit Recognition: 2006 $ ____________ 2007 $ ____________ 3. Balance Sheet At December 31, 2006 Current Assets: Accounts Receivable $ ____________ Costs and Profit in Excess of Billings ____________ 4. Balance Sheet At December 31, 2006 Current Assets: Accounts Receivable $ ____________ Current Liabilities: Billings in Excess of Costs $ ____________ ________________________________________ Question 4: (20 points) E 5-10 Completed contract method; loss projected on entire project LO4 On February 1, 2006, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,000,000. During 2006, costs of $2,000,000 were incurred with estimated costs of $4,000,000 yet to be incurred. Billings of $2,500,000 were sent and cash collected was $2,250,000. In 2007, costs incurred were $2,500,000 with remaining costs estimated to be $3,600,000. 2007 billings were $2,750,000 and $2,475,000 cash was collected. The project was completed in 2008 after additional costs of $3,800,000 were incurred. The company’s fiscal year-end is December 31. Arrow uses the completed contract method. Required: 1. Calculate the amount of gross profit or loss to be recognized in each of the three years. 2. Prepare journal entries for 2006 and 2007 to record the transactions described (credit various accounts for construction costs incurred). 3. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2006 and 2007. Amounts in parenthesis do not require a minus sign. 1. Year Gross profit (loss) recognized 2006 $ ____________ 2007 ( ____________) 2008 ( ____________) ________________________________________ Total Project Loss $( ____________) ________________________________________________________________________________ 2. 2006 2007 __________ ____________ ____________ Various Accounts ____________ ____________ To record construction costs. __________ ____________ ____________ __________ ____________ ____________ To record progress billings. __________ ____________ ____________ __________ ____________ ____________ To record cash collections. __________ ____________ __________ ____________ To record an expected loss. 3. Balance Sheet 2006 2007 Current Assets: Accounts Receivable $ ____________ $ ____________ Current Liabilities: Billings in Excess of Costs $ ____________ Billings in Excess of Costs Less Loss $ ____________ ________________________________________ Question 5: (50 points) E 5-11 Income (loss) recognition; percentage-of-completion and completed contract methods compared LO4 Brady Construction Company contracted to build an apartment complex for a price of $5,000,000. Construction began in 2006 and was completed in 2008. The following are a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars. Estimated Costs to Complete Costs Incurred During Year (As of the End of the Year) Situation 2006 2007 2008 2006 2007 2008 1 1,500 2,100 900 3,000 900 — 2 1,500 900 2,400 3,000 2,400 — 3 1,500 2,100 1,600 3,000 1,500 — 4 500 3,000 1,000 3,500 875 — 5 500 3,000 1,300 3,500 1,500 — 6 500 3,000 1,800 4,600 1,700 — Required: Complete the following table. Round all answers to the nearest whole dollar. Amounts in parenthesis do not require a minus sign. Gross Profit (Loss) Recognized Percentage-of-Completion Completed Contract Situation 2006 2007 2008 2006 2007 2008 1 $ ____________ $ ____________ $ ____________ $ ____________ $ ____________ $ ____________ 2 ____________ ( ____________) ____________ ____________ ____________ ____________ 3 ____________ ( ____________) ( ____________) ____________ ( ____________) ( ____________) 4 ____________ ____________ ____________ ____________ ____________ ____________ 5 ____________ ( ____________) ____________ ____________ ____________ ____________ 6 ( ____________) ( ____________) ( ____________) ( ____________) ( ____________) ( ____________) ________________________________________

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Remaining Balance $ ____________

Answered by xdunn



Gross Profit (Loss) Recognized
Percentage-of-Completion Completed Contract
Situation 2006 2007 2008 2006 2007 2008
1 $ 500 $ 500 $ 1,000 $ 0 $ 1,500 $ 5,000,000
2 500 (500) 3,000 0 2,500 5,000,000
3 500 (500) (500) 0 1,000 5,000,000
4 0 2,000 1,000 0 2,000 5,000,000
5 0 (500) 1,300 0 1,800 5,000,000
6 (500) (500) (500) (500) (500) 5,000,000

Using the percentage of completion method, the contractor recognizes profit or loss as the project progresses and records revenue in the same proportion as the costs it has incurred. By contrast, using

Answered by nrush

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