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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
×
85%
=
$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:
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.
To record cash collections.
(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
5–8 Intermediate Accounting, 8/e
Exercise 5-5
Turnover ratios for Garret & Sons Music Company for 2016:
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
Requirement 3
Year
Cash Collected
Cost Recovery
Gross Profit
2016
$100,000
$100,000
- 0 -
2017
75,000
50,000
$ 25,000
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
