Alternate Exercises and Problems 5–1
Chapter 5 Revenue Recognition and Profitability Analysis
EXERCISES
Exercise 5–1
Happy first must identify each performance obligation’s share of the sum of the
stand-alone selling prices of all performance obligations:
Patio:
$3,400
= 85%
$3,400 + 200 + 400
Happy would allocate the total selling price of the package ($1,900) based on
stand-alone selling prices, as follows:
Patio:
$3,800
×
=
$3,230
5–2 Intermediate Accounting, 8/e
Exercise 5-2
Requirement 1
Requirement 2
The most likely amount is $30,000, because the probability of exceeding the
Requirement 3
Because Mohan is very uncertain of its estimate, Mohan can’t argue that it is
Alternate Exercises and Problems 5–3
Exercise 5-3
Requirement 1
2016 2017
Contract price $2,600,000 $2,600,000
Actual costs to date 360,000 2,010,000
Revenue recognition:
2016: $ 360,000
= 18.75% x $2,600,000 = $487,500
Gross profit recognition:
2016: $487,500 – 360,000 = $127,500
Requirement 2
5–4 Intermediate Accounting, 8/e
Exercise 5-3 (concluded)
Requirement 3
Balance Sheet
At December 31, 2016
Current assets:
Accounts receivable
$ 110,000
Requirement 4
Balance Sheet
At December 31, 2016
Current assets:
Accounts receivable
$ 110,000
Current liabilities:
Alternate Exercises and Problems 5–5
Exercise 5-4
Requirement 1
2016 2017 2018
Contract price $12,000,000 $12,000,000 $12,000,000
Actual costs to date 3,000,000 7,000,000 12,800,000
Revenue recognition:
2016: $3,000,000
Gross profit (loss) recognition:
2016: $4,000,000 – 3,000,000 = $1,000,000
5–6 Intermediate Accounting, 8/e
Exercise 5-4 (continued)
Requirement 2
2016
2017
Construction in progress
3,000,000
4,000,000
Various accounts
3,000,000
4,000,000
To record construction costs.
Accounts receivable
3,800,000
3,500,000
Billings on construction contract
3,800,000
3,500,000
To record progress billings.
Cash
3,250,000
3,600,000
To record cash collections.
Cost of construction
3,000,000
To record gross profit.
Cost of construction (2)
4,266,667
Revenue from long-term contracts
2,666,667
Construction in progress (loss)
1,600,000
(1) and (2):
Percent complete = $7,000,000 ÷ $12,600,000 = 55.55%
Revenue recognized to date:
Alternate Exercises and Problems 5–7
Exercise 5-4 (concluded)
Requirement 3
Balance Sheet
2016
2017
Current assets:
Accounts receivable
$550,000
$450,000
Current liabilities:
5–8 Intermediate Accounting, 8/e
Exercise 5-5
Turnover ratios for Garret & Sons Music Company for 2016:
[$800,000 + 600,000] ÷ 2
The company turns its inventory over 7 times per year compared to the industry
average of 6 times per year. The asset turnover ratio also is slightly better than the
Inventory turnover ratio = $6,000,000
[$850,000 + 700,000] ÷ 2
Alternate Exercises and Problems 5–9
Exercise 5-6
Requirement 1
a. Profit margin on sales $360 ÷ $7,200 = 5%
b. Return on assets $360 ÷ [($2,900 + 2,700) ÷ 2] = 12.86%
5–10 Intermediate Accounting, 8/e
Exercise 5-7
Requirement 1
Year Income recognized
2013 $250,000 ($400,000 – 150,000)
2014 – 0 –
Requirement 2
Year
Cash Collected
Cost Recovery(37.5%)
Gross Profit(62.5%)
2016
$100,000
$ 37,500
$ 62,500
2017
75,000
28,125
46,875
2018
75,000
2019
2020
$400,000
$150,000
$250,000
Requirement 3
Year
Cash Collected
Cost Recovery
Gross Profit
2016
$100,000
$100,000
– 0 –
2017
75,000
50,000
$ 25,000
2018
2019
2020
$400,000
$150,000
$250,000
Alternate Exercises and Problems 5–11
Exercise 5-8
November 15, 2016 To record franchise agreement and down payment
Cash (50% x $25,000) ……………………………………………….. 12,500
February 15, 2017 To recognize franchise fee revenue