Intermediate Accounting, 8/e 5–121
Problem 5–11
Requirement 1
Year
Revenue
recognized
Gross profit
recognized
2016
–0–
– 0 –
2017
–0–
2018
– 0 –
Requirement 2
2016
2017
2018
Construction in progress
2,400,000
3,600,000
2,200,000
Various accounts
2,400,000
3,600,000
2,200,000
To record construction costs
2,000,000
4,000,000
4,000,000
To record progress billings
Cash
1,800,000
3,600,000
4,600,000
Accounts receivable
1,800,000
3,600,000
4,600,000
To record cash collections
Cost of construction
8,200,000
Revenue from long–term
Construction in progress
1,800,000
To record gross profit
Problem 5–11 (concluded)
Requirement 3
2016
2017
$ 200,000
400,000
Requirement 4
2016 2017 2018
Costs incurred during the year $2,400,000 $3,800,000 $3,200,000
Year
Revenue
recognized
Gross profit
recognized
2016
–0–
– 0 –
2017
–0–
2018
Requirement 5
2016 2017 2018
Costs incurred during the year $2,400,000 $3,800,000 $3,900,000
Estimated costs to complete
as of year–end 5,600,000 4,100,000 –
Year
Revenue
recognized
Gross profit (loss)
recognized
2016
–0–
– 0 –
2017
–0–
2018
Intermediate Accounting, 8/e 5–123
Problem 5–12
Requirement 1
2016 2017 2018
Contract price $4,000,000 $4,000,000 $4,000,000
Actual costs to date 350,000 2,500,000 4,250,000
Year
Gross profit (loss) recognized
2016
– 0 –
2017
Requirement 2
Gross profit (loss) recognition:
2016: Revenue: (10% × $4,000,000) – 350,000 cost = $50,000
Requirement 3
Balance Sheet
2016
2017
Current assets:
$ 130,000
$ 320,000
Problem 5–13
Requirement 1
Recognizing revenue upon completion of long-term construction contracts is
equivalent to recognizing revenue at the point in time at which deliver occurs.
Recognizing revenue over time requires assigning a share of the project’s expected
revenues and costs to each construction period. The share is estimated based on the
project’s costs incurred each period as a percentage of the project’s total estimated
costs.
Requirement 2
2016 2017
Contract price $20,000,000 $20,000,000
a. Revenue recognition: If revenue is recognized upon project completion,
b. Gross profit recognition:
Intermediate Accounting, 8/e 5–125
Problem 5–13 (continued)
c.
Balance Sheet
At December 31, 2016
Current assets:
Accounts receivable
$ 200,000
Requirement 3
2016 2017
Contract price $20,000,000 $20,000,000
a. Revenue recognition:
2016:
$ 4,000,000
b. Gross profit recognition:
Problem 5–13 (continued)
c.
Balance Sheet
At December 31, 2016
Current assets:
$ 200,000
Requirement 4
2016 2017
Contract price $20,000,000 $20,000,000
a. Revenue recognition:
Total revenue recognized to date = (percentage complete)(total revenue)
b. Gross profit recognition:
Intermediate Accounting, 8/e 5–127
Problem 5–13 (continued)
c.
Balance Sheet
At December 31, 2017
Current assets:
Current liabilities:
Accounts receivable
$ 1,600,000
Requirement 5
Citation should recognize revenue at the time of delivery, when the homes are
completed and title is transferred to the buyer. Recognizing revenue over time is not
appropriate in this case, because the criteria for revenue recognition over time are
Requirement 6
Income statement:
Sales revenue (3 x $600,000) $1,800,000
Problem 5–14
1. Inventory turnover ratio $6,300 ÷ [($800 + 600) ÷ 2] = 9.0
2. Average days in inventory 365 ÷ 9.0 = 40.56 days
Intermediate Accounting, 8/e 5–129
Problem 5–15
Requirement 1
Receivables turnover = Net sales
Accounts receivable
Requirement 2
Problem 5–15 (continued)
Inventory turnover = Cost of goods sold
Inventories
Average days in inventory = 365
Inventory turnover
Rate of return on assets = Net income
Total assets
Intermediate Accounting, 8/e 5–131
Problem 5–15 (continued)
Requirement 3
Profitability can be achieved by a high profit margin, high turnover, or a
combination of the two.
Rate of return on assets = Profit margin Asset
on sales turnover
= Net income Net sales
Net sales Total assets
Problem 5–15 (concluded)
Requirement 4
Requirement 5
Rate of return on = Net income
shareholders’ equity Shareholders’ equity
Equity multiplier = Total Assets
shareholders’ equity Shareholders’ equity
J&J = $48,263 = 1.80
$26,869
Intermediate Accounting, 8/e 5–133
Problem 5–16
a. Times interest earned ratio = (Net income + Interest + Taxes) ÷ Interest = 17
b. Return on assets = Net income ÷ Total assets = 10%
Problem 5–16 (concluded)
i. Noncurrent assets = Total assets – Current assets
= $200 – ($10 + 20 + 30) = $140
CADUX CANDY COMPANY
Balance Sheet
At December 31, 2016
Assets
Current assets:
Liabilities and Shareholders’ Equity
Current liabilities $ 30
Intermediate Accounting, 8/e 5–135
Problem 5–17
Requirement 1
Requirement 2
Profitability can be achieved by a high profit margin, high turnover, or a
combination of the two.
Rate of return on assets = Profit margin x Asset
on sales turnover
Rate of return on assets
= Net income
Total assets
Problem 5–17 (continued)
Requirement 3
Requirement 4
Rate of return on = Net income
shareholders’ equity Shareholders’ equity
Equity multiplier = Total assets
Shareholders’ equity
Intermediate Accounting, 8/e 5–137
Problem 5–17 (continued)
Requirement 5
Current ratio = Current assets
Current liabilities
Problem 5–17 (concluded)
Requirement 6
Requirement 7
Receivables turnover ratio = Sales
Accounts receivable
Times interest = Net income plus interest plus taxes
earned ratio Interest
Intermediate Accounting, 8/e 5–139
Problem 5–18
REAGAN CORPORATION
Income Statement
For the Year Ended December 31, 2016
Income before income taxes and
extraordinary item …………………………………
[1] $3,680,000
[1] Income from continuing operations before income taxes:
Unadjusted $4,200,000
Add: Gain from sale of equipment 50,000
APPENDIX PROBLEMS
Problem 5–19
Requirement 1
2016 cost recovery % :
Requirement 2
2016
Installment receivables …………………………………………… 300,000