266) Typhoon Sons & Co. manufactures various types of golf clubs to third party vendors. On
April 1, 2018, Typhoon delivers a large quantity of golf clubs to Resona Country Club. Under
the sales agreement, Resona is obligated to pay Typhoon $200,000 within six months. On May 1,
Typhoon purchases for cash the right to advertise its products during Resona’s annual golf
tournament event for $3,000. Resona normally charges $2,500 for such services. On August 15,
Resona pays Typhoon all amounts owed.
Required:
Prepare the journal entries Typhoon should record to account for the transaction on April 1, May
1 and August 15. Indicate the amount of revenue that Typhoon should recognize on its sale of
golf clubs to Resona.
267) AgriFoods, Inc. prepares and delivers agricultural products to industrial-scale kitchens and
food service providers. One of its key customers is Home Kitchen & Co., which provides
cafeteria solutions for corporations and universities. On January 1, 2018, AgriFoods obtained a
one-year contract to supply a pre-specified amount of vegetables to Home Kitchen, and received
$600,000 in cash. Then, on March 15, AgriFoods hired Home to run one of its employee
cafeterias for a period of six months, from April to September, and paid $70,000 in cash. For
similar arrangements, Home usually charged $50,000.
Required:
(a) Prepare the journal entries AgriFoods would record on January 1, 2018 and January 31, 2018
with respect to the sales contract. Assume revenue is accrued on a monthly basis.
(b) Prepare the journal entry to account for AgriFoods’ purchase of Home’s services.
Use this information to answer the following questions:
Beaumont Company enters into a contract to provide a high quality diving-certification
preparation package, including goggles, snorkels, air tanks, fins, a wetsuit, and 5 private lessons
to get ready for diving certifications. The entire package sells for $2,500.
268) Other competing sellers in the same region charge an average of $250 for a set of goggles
and $750 for the lessons, if sold separately. Beaumont Company usually sells at a 5% discount
compared to other shops, since it is a bit farther away from the ocean.
Required:
What would be Beaumont’s stand-alone selling price of the goggles and the lessons, based on
adjusted market assessment approach?
269) Typically, Beaumont incurs $375 on compensation and other costs to provide the private
lessons, and earns an average of 40% profit over cost on service offerings.
Required:
Assuming that the diving equipment and the certification lessons are separate performance
obligations, estimate the stand-alone selling price of the certified lessons based on the expected
cost plus margin approach.
270) Typically, if Beaumont were to sell the equipment only, it would ask for $2,000.
Required:
Assuming that the diving equipment and the certification lessons are separate performance
obligations, estimate the stand-alone selling price of the lessons based on the residual approach.
271) CompuLand Center sells a full assortment of computer parts, including motherboards, video
cards, and cables, and also offers complementary computer assembly services. The assembly
service is offered by other vendors for $100 on average, and CompuLand typically charges
approximately 20% more than other vendors for similar services on a stand-alone basis.
Required:
Estimate the stand-alone selling price of the assembly service using the adjusted market
assessment approach.
272) CompuValue Center sells a full assortment of computer parts, including motherboards,
video cards, and cables, and also offers complementary computer assembly services.
CompuValue estimates that it incurs $50 in labor and materials on average to complete one
assembly order, with an average of 75% profit based on cost.
Required:
Assuming that computer parts and assembly service are separate performance obligations,
estimate the stand-alone selling price of the assembly service based on the expected cost plus
margin approach.
273) CompuTime Center sells a full assortment of computer parts, including motherboards,
video cards, and cables. It also offers complementary computer assembly services. A customer
places an order for an advanced workstation, and CompuTime asks for $3,500. If CompuTime
were to sell only the parts in an advanced workstation, with no assembly, the price would be
$3,300.
Required: Assuming that computer parts and assembly service are separate performance
obligations, estimate the stand-alone selling price of the assembly service based on the residual
approach.
274) Bria Furniture sells bed frames and mattresses. One of its products is a premium therapeutic
bed set produced by OmniSleep, which comes with a mattress and a bed frame. Bria offers a
package consisting of the mattress, the frame, and on-site installation by its staff. All of these
components can be sold separately, as often done by other vendors, so Bria concludes that these
are separate performance obligations. Bria sells the OmniSleep package for $3,000. The mattress
and the frame are sold separately for $2,000 and $900, respectively. Other vendors in the same
area typically charge $200 for on-site installation. Bria does not sell on-site installation
separately. On average, the prices charged by Bria are 10% higher than those of its competitors.
Bria estimates that it incurs about $100 of compensation and other costs to provide the
installation service. The profit margin over cost is estimated to be approximately 35%.
Required:
Estimate the stand-alone selling price of the installation service using (a) the adjusted market
assessment approach, (b) the expected cost plus margin approach, and (c) the residual approach.
275) Mahogany Billiards sells upscale pool tables and related supplies. It sells a premium
package consisting of a pool table imported from Europe, a full set of cues and balls, and on-site
installation by its staff. Mahogany determines that each of these components is a performance
obligation. Mahogany sells the pool table separately for $3,000 and the set of cues and balls for
$1,000. The entire package is sold at $4,500. Mahogany does not offer on-site installation
separately, as part of company policy. It also estimates that it incurs about $350 of compensation
and other costs per each installation. Other competing vendors sell on-site installation separately
for $450, on average. Mahogany typically earns a profit margin of 40% over cost, and its prices
are generally 5% lower than those charged by competitors.
Required:
Estimate the stand-alone selling price of the installation service using (a) the adjusted market
assessment approach, (b) the expected cost plus margin approach, and (c) the residual approach.
276) Assume that, on April 1, 2018, a customer visits MicrosoftStore.com and purchases
Microsoft Windows 7 Ultimate for $170. Windows 7 Ultimate comes in a DVD format which
the customer can use permanently, and Microsoft does not expect that its actions subsequent to
April 1, 2018 will affect the value the customer obtains from using the software.
Required:
How much revenue should Microsoft recognize in 2018 with respect to this particular
transaction?
277) Smith & Sons is a CPA firm that provides proprietary software to its clients. One of its
software packages sells for $150 and contains pre-programmed tutorials on basic accounting
concepts. Another product sells for $3,000 and contains Smith & Sons’ archive of accounting
standards and articles, which Smith & Sons updates on a weekly basis and downloads to archive
users for the two years following purchase of the product.
Required:
If a customer purchases both software packages on June 1, 2018, how much revenue should
Smith & Sons recognize for the year?
278) Berry Farm produces organic tomatoes and strawberries. In June 2018, it transported 100
boxes of strawberries with a price of $20 per box to the Bay Farmers’ Market. Berry Farm paid
an upfront fee of $100 to present its products at the market for one week, and the market earns a
25% profit margin on each item sold, but Berry Farm is responsible for any items that remain
unsold at the end of the week.
Required:
The market was able to sell 65 boxes of strawberries to customers. How much revenue should
Berry Farm recognize with respect to this transaction?
279) Holmgren Seafoods, Inc. catches and processes salmon and tuna caught off the coast of
Maine. In May 2018, it placed 100 freshly caught wild salmon with a retail price of $75 each in
Joe’s Fish Shop. Holmgren’s contract with the shop stipulates that the shop will earn a 15%
commission on each salmon sold. Joe’s is responsible for purchasing any fish that remain unsold
at the end of a three-day period.
Required:
During the three-day period, Joe’s Fish Shop was able to sell 88 of the 100 salmon. How much
revenue should Holmgren recognize with respect to this transaction?
280) Colombo Coffee sells gift cards that can be used at its 55 branches. During 2017, customers
purchased $25,000 of gift cards, of which $3,000 were redeemed during 2018. It is estimated that
a balance of $1,500 of cards sold in 2017 remains unused as of the end of 2018, and Colombo
determines that this amount will never be redeemed, based on historical experience. During
2018, Colombo further sold $32,000 of gift cards, of which $26,000 were redeemed and $6,000
remain unused but may be used by customer in 2019.
Required:
How much gift card revenue should Colombo recognize in 2018?
281) Moretti Department Store sells gift cards that expire three years from the date of purchase.
During 2016, Moretti sold $50,000 of gift cards, of which $1,500 were redeemed during 2018.
At the end of 2018, it is estimated that approximately $800 of the 2016 balance remains unused,
and Moretti concludes that it will never be redeemed. Moretti sold another $55,000 of gift cards
in 2017, of which $22,000 were redeemed in 2018, and $60,000 of gift cards in 2018, of which
$40,000 were redeemed in 2018.
Required:
How much revenue with respect to gift cards should Moretti recognize in 2018?
151
Use this information to answer the following questions:
Beck Construction Company began work on a new building project on January 1, 2017. The
project is to be completed by December 31, 2019, for a fixed price of $108 million. The
following are the actual costs incurred and estimates of remaining costs to complete the project
that were made by Beck’s accounting staff:
Years Actual costs incurred in each year Estimated remaining costs to complete the
project (measured at Dec. 31 of each year)
2017 $30 million $60 million
2018 $45 million $45 million
2019 $35 million $ 0
282) What amount of gross profit (or loss) would Beck record on this project in each year,
assuming that Beck recognizes revenue for this project upon completion of the project? Place
answers in the spaces provided below and show supporting computations.
Gross Profit (or Loss)
Years recognized Supporting computations
2017
2018
2019
283) What amount of gross profit (or loss) would Beck record on this project in each year,
assuming that Beck recognizes revenue for this project over time according to percentage of
completion? Place answers in the spaces provided below and show supporting computations.
Gross Profit (or Loss)
Years recognized Supporting computations
2017
2018
2019
Use this information to answer the following questions:
Beavis Construction Company was the low bidder on a construction project to build an earthen
dam for $1,800,000. The project was begun in 2017 and completed in 2018. Cost and other data
are presented below:
2017 2018
Costs incurred during the year $ 450,000 $1,100,000
Estimated costs to complete 1,050,000 0
Billings during the year 400,000 1,400,000
Cash collections during the year 300,000 1,500,000
284) Assume that Beavis recognizes revenue on this contract over time according to percentage
of completion.
Required:
Compute the amount of gross profit recognized during 2017 and 2018.
285) Assume that Beavis recognizes revenue on this contract over time according to percentage
of completion.
Required:
Prepare all journal entries to record costs, billings, collections, and profit recognition.
286) Assume that Beavis recognizes revenue upon completion of the project.
Required:
Compute the amount of gross profit recognized during 2017 and 2018.
287) Assume that Beavis recognizes revenue upon completion of the project.
Required:
Prepare all journal entries to record costs, billings, collections, and profit recognition.
288) In 2018, Chicago Construction began work on a three-year construction project to build a
new performing arts complex (the PAC). The PAC contract price is $150 million. Chicago
recognizes revenue on this contract over time according to percentage of completion. At the end
of 2018, the following financial statement information indicates the results to date for the PAC
(missing items denoted by letter):
INCOME STATEMENT:
Revenue $ w million
Cost of construction 35 million
Gross profit $ x million
BALANCE SHEET:
Accounts receivable from construction billings $14 million
Construction in progress $50 million
Less: Billings on construction ($y million)
Net billings in excess of construction in progress $z million
CASH FLOW STATEMENT
Cash collections $46 million
Required:
Compute the following, placing your answer in the spaces provided and showing supporting
computations below:
Item to compute Answer
Total revenue recognized during 2018 (w):
Gross profit recognized during 2018 (x):
Billings on construction (y):
Net billings in excess of construction in progress (z):
Calculate the percentage of PAC that was completed during 2018: