Accounting Chapter 05 Homework Note Also Can Calculate Gross Profit Directly

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subject Words 1027
subject Authors David Spiceland, James Sepe, Mark Nelson, Wayne Thomas

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512 Intermediate Accounting, 8/e
PROBLEMS
Problem 5-1
Requirement 1
a. Number of performance obligations in the contract: 2. The unlimited access to
facilities and classes for one year is one performance obligation. Because the
discount voucher provides a material right to the customer that the customer
would not receive otherwise (a 25% discount rather than a 10% discount), it is a
b. To allocate the contract price to the performance obligation, we should first
consider that SZ would offer a 15 percent discount on the yoga course to all
customers as part of a seasonal promotion. So, a 35 percent discount provides a
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Alternate Exercises and Problems 513
Problem 5-1 (continued)
SZ must identify each performance obligation’s share of the sum of the stand-alone
selling prices of all deliverables:
Yoga discount voucher:
$20
3.85%
$20 + 500
SZ then allocates the total selling price based on stand-alone selling prices, as
follows:
c. Since the discount voucher of the yoga course would be a distinct performance
obligation, SZ would recognize revenue for the sale of annual membership fee
and discount voucher.
$500
Transaction Price
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514 Intermediate Accounting, 8/e
Problem 5-1 (concluded)
Requirement 2
a. Number of performance obligations in the contract: 2. The option to pay $12 for
additional visits does not constitute a material right, because it is equal to the
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Alternate Exercises and Problems 515
Problem 5-2
Requirement 1
2016 2017 2018
Contract price $15,000,000 $15,000,000 $15,000,000
Actual costs to date 4,000,000 8,800,000 13,000,000
Revenue recognition:
2016: $4,000,000
= 33.33% x $15,000,000 = $5,000,000
Gross profit (loss) recognition:
2016: $5,000,000 4,000,000 = $1,000,000
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516 Intermediate Accounting, 8/e
Problem 5-2 (continued)
Requirement 2
2016
2017
2018
Construction in progress
4,000,000
4,800,000
4,200,000
Various accounts
4,000,000
4,800,000
4,200,000
(1) Revenue recognized:
2016: 33.33% x $15,000,000 = $5,000,000
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Alternate Exercises and Problems 517
Problem 5-2 (continued)
Requirement 3
Balance Sheet
2016
2017
Current assets:
Requirement 4
2016 2017 2018
Costs incurred during the year $4,000,000 $4,200,000 $7,200,000
2016 2017 2018
Contract price $15,000,000 $15,000,000 $15,000,000
Actual costs to date 4,000,000 8,200,000 15,400,000
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518 Intermediate Accounting, 8/e
Problem 5-2 (concluded)
Revenue recognition:
2016: $4,000,000
= 33.33% x $15,000,000 = $5,000,000
Gross profit (loss) recognition:
2016: $5,000,000 4,000,000 = $1,000,000
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Alternate Exercises and Problems 519
Problem 5-3
Requirement 1
Total profit = $800,000 - 400,000 = $400,000
10/31/13
10/31/14
10/31/15
10/31/16
Cash collections
$200,000
$200,000
$200,000
$200,000
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520 Intermediate Accounting, 8/e
Problem 5-3 (continued)
Requirement 2
Point of
Delivery
Installment
Sales
Cost Recovery
Installment receivable
800,000
Sales revenue
800,000
To record sale on 10/31/13.
Installment receivable
800,000
800,000
To record sale on 10/31/14.
Cash
200,000
200,000
200,000
Entry made each Oct. 31.
Deferred gross profit
100,000
Entry made each Oct. 31.
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Alternate Exercises and Problems 521
Problem 5-3 (concluded)
Requirement 3
Point of
Delivery
Installment
Sales
Cost
Recovery
December 31, 2016
Assets
Installment receivables
600,000
600,000
600,000
December 31, 2017
Assets
Installment receivable
400,000
400,000
400,000

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