EXERCISE 18.24 (continued)
(c) Cash…………………………….…………………………. 300,000
EXERCISE 18.25 (5–10 minutes)
(a) Inventoriable costs:
80 units shipped at cost of $500 each …………
$40,000
Freight………………………….…………………………..
840
Total inventoriable cost ………………….…..
$40,840
Note: Since the installation costs related only to goods sold, the
installation costs are not part of the inventory cost, but are a selling
expense.
EXERCISE 18.26 (10–15 minutes)
(a) January 2, 2020
Cash…………………………….………………………………….. 50,000
Sales Revenue ……………..……………………..…….. 50,000
During 2020
(b)
January 2, 2020
Cash ($50,000 + $800).……………………………………….
Sales Revenue ……….……………………..……………
50,800
50,000
Unearned Warranty Revenue (Service-type) …
Grando recognizes $400 ($800 X 1/2) of revenue on the service type warranty
in 2022 and 2023. Warranty costs in the extended warranty period will be
expensed as incurred.
EXERCISE 18.27 (15–20 minutes)
(a) October 1, 2020
To record sales revenue, warranties, and related cost of goods sold
(b) Celic recognizes warranty expenses associated with the assurance–
type warranty as actual warranty costs are incurred during the first 90
EXERCISE 18.28 (10–15 minutes)
(a) No entry – neither party has performed on the contract on January 1,
2020.
(b) The entries to record the sale and related cost of goods sold of the
EXERCISE 18.28 (continued)
(c) The entries to record the sale and related cost of goods sold of the
shelving unit is as follows:
February 25, 2020
EXERCISE 18.29 (20–25 minutes)
(a) Cash….…………………..……………………………….
Sales Revenue (90 X $100) .……………….
9,000
9,000
1,000
Cost of Goods Sold …………………………..…….
4,860
EXERCISE 18.29 (continued)
Under the prospective approach, Gaertner determines the transaction
price for subsequent sales ($97.86) as follows:
As indicated, the numerator includes products not yet transferred
under original contract ($100 X 60) plus products to be transferred
under the contract modification ($95 X 45), which is divided by the
remaining 105 products.
EXERCISE 18.30 (20–25 minutes)
(a) January 1, 2020
Cash…………………………….…………………………. 10,000
Unearned Service Revenue ……..………… 10,000
EXERCISE 18.30 (continued)
January 1, 2021
(b) January 1, 2022
Cash ($8,000 + $20,000) …………………………… 28,000
Unearned Service Revenue ………………. 28,000
(c) Given the change in services in the extended contract period, the
services are distinct; the modification should not be considered as
part of the original contract. Tyler recognizes revenue on the
EXERCISE 18.30 (continued)
EXERCISE 18.31 (10–15 minutes)
(a) The $2,000 commission costs related to obtaining the contract are
recognized as an asset. The design services ($3,000), controllers
($6,000), testing and inspection fees ($2,000) should be capitalized as
well, as they are specific to the contract.
LO: 4, Bloom: AP, Difficulty: Moderate, Time: 10-15, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving
EXERCISE 18.32 (20–25 minutes)
(a) If the contract is for less than 1 year, Rex can use the practical
expedient and recognize the incremental costs of obtaining a contract
as an expense when incurred.
(b) The collectibility of the contract payments will not affect the amount of
revenue recognized. That is, the amount recognized is not adjusted for
*EXERCISE 18.33 (20–25 minutes)
(a) Gross profit recognized in:
2020
2021
2022
Contract price
$1,600,000
$1,600,000
$1,600,000
Costs:
Costs to date
Estimated costs to
$400,000
$825,000
$1,070,000
*EXERCISE 18.33 (continued)
(b)
2021
Construction in Process ($825,000 – $400,000)….
Materials, Cash, Payables ………………….……..
425,000
425,000
Cash ($810,000 – $270,000) ………………………………
540,000
Construction in Process ………………………………….
135,000
Accounts Receivable ($900,000 – $300,000) ………
600,000
(c)
Gross profit recognized in:
*EXERCISE 18.34 (10–15 minutes)
(a) Contract billings to date………………..…………………
$61,500
Less: Accounts receivable 12/31/20 ………….……..
18,000
Portion of contract billings collected ………………..
$43,500
*EXERCISE 18.35 (10–15 minutes)
DOUGHERTY INC.
Computation of Gross Profit to be
Recognized on Uncompleted Contract
Year Ended December 31, 2020
Total contract price
Estimated contract cost at completion
*EXERCISE 18.36 (15–20 minutes)
(a)
2020:
$640,000
X $2,200,000 = $880,000
$1,600,000
(c) Using the percentage-of-completion method, the following entries
would be made:
Construction in Process…………………………………. 640,000
Materials, Cash, Payables………..………………. 640,000
*EXERCISE 18.36 (continued)
*EXERCISE 18.37 (15–25 minutes)
(a) Computation of Gross Profit to Be Recognized under Completed-
Contract Method.
(b) Contract price ………………………………………. $6,000,000
Costs to date ………………..…………………….... $1,185,800
Estimated costs to complete …………………. 4,204,200
Total …………..…………………….…………… 5,390,000
*EXERCISE 18.38 (20–25 minutes)
(a) May 1, 2020
Cash…………………………….………………………………….. 28,000
Notes Receivable ($70,000 – $28,000) ………………… 42,000
Discount on Notes Receivable
(b) May 1, 2020
Cash…………………………….………………………………….. 28,000
Notes Receivable ($70,000 – $28,000) ………………… 42,000
(c) May 1, 2020
Cash…………………………….…………………….………..….. 28,000b
Notes Receivable ($70,000 – $28,000) ………………… 42,000a
*EXERCISE 18.38 (continued)
July 1, 2020
Unearned Service Revenue (Training) …………………
1,200***
Unearned Franchise Revenue …………………………….
Franchise Revenue ………………………………….….
60,416
60,416
*EXERCISE 18.39 (15–20 minutes)
(a)
January 1, 2020
Cash…………………………….……………………………………
10,000
Notes Receivable ($50,000 – $10,000) ………..………..
40,000
Discount on Notes Receivable ……………………..
10,433
39,567
April 1, 2020
Unearned Franchise Revenue ……………………………. 39,567
Franchise Revenue …………………..………………… 39,567
*EXERCISE 18.39 (continued)
December 31, 2020
Discount on Notes Receivable………………..…………. 3,252*
(b) January 1, 2020
Cash…………………………….…………………………………..
10,000
Notes Receivable ($50,000 – $10,000) …………………
40,000
April 1, 2020
Unearned Service Revenue (Training)……………..….
900
Unearned Franchise Revenue…………….………………
35,967
(c) January 1, 2020
Cash…………………………….………………………………….. 10,000
Notes Receivable ($50,000 – $10,000) ………………... 40,000
Discount on Notes Receivable ………………..….. 10,433
*EXERCISE 18.39 (continued)
December 31, 2020
Unearned Franchise Revenue ……………………..…….. 7,913**
TIME AND PURPOSE OF PROBLEMS
Problem 18.1 (Time 30–35 minutes)
Problem 18.2 (Time 20–25 minutes)
Purpose—to provide the student with an opportunity to determine transaction price, allocate the
transaction price to performance obligations, and account for a contract modification.
Problem 18.3 (Time 30–35 minutes)
Purpose—to provide the student with an opportunity to determine transaction price, allocate the
Problem 18.4 (Time 35–40 minutes)
Purpose—to provide the student with an opportunity to determine transaction price, allocate the
transaction price to performance obligations, and account for discounts and time value.
Problem 18.5 (Time 35–40 minutes)
Problem 18.6 (Time 25–30 minutes)
Problem 18.7 (Time 30–35 minutes)
Purpose—to provide the student with an understanding of the criteria and applications utilized in the
Problem 18.8 (Time 30–35 minutes)
Purpose—to provide the student with an understanding of and an opportunity to determine transaction
price, allocate the transaction price to performance obligations, and account for time value, gift cards,
and discounts.
*Problem 18.9 (Time 30–40 minutes)
Purpose—to provide the student with an understanding of both the percentage-of-completion and
*Problem 18.10 (Time 20–25 minutes)
Purpose—to provide the student with a long-term construction contract problem that requires the
*Problem 18.11 (Time 40–50 minutes)
Purpose—to provide the student with a long-term construction contract problem that requires the
*Problem 18.12 (Time 35–45 minutes)
Purpose—to provide the student with an understanding of the accounting treatment accorded franchis-
PROBLEM 18.1
SOLUTIONS TO PROBLEMS
(a) The total revenue of $50,000 (100 contracts X $500d) should be
allocated to the two performance obligations based on their relative
standalone selling prices. In this case, the standalone selling price of
January 2, 2020
Cash ($500 X 100) …………….……………………….………
Unearned Service Revenue (100 X $273) ………
50,000
27,300
The sale of the tablets (and gross profit) should be recognized once
the tablets are delivered on January 2, 2020.
December 31, 2020
PROBLEM 18.1 (Continued)
The total revenue of $120,000 (200 contracts X $600) should be allocated to
the three performance obligations based on their relative standalone
selling prices:
Tablet
$250
Internet service
300
Tablet service plan
$700
Tablet
$214
Internet service
Tablet service
$600
Tablet Tailors makes the following entries for 200 Tablet Bundle B:
July 1, 2020
Cash ($600l X 200)….…………………….…………………….
Unearned Service Revenue (Internet)……………
120,000
51,400*
PROBLEM 18.1 (Continued)
December 31, 2020
Unearned Service Revenue (Internet)
(c) Without reliable data with which to estimate the standalone selling
price of the internet service Tablet Tailors allocates $250 for each
contract to revenue on the tablets, with the residual amount allocated
to the Internet service. Tablet Tailors makes the following entries:
January 2, 2020
December 31, 2020
Unearned Service Revenue ($25,000 ÷ 3) ……………. 8,333
Service Revenue…………….……………………..…… 8,333