Intermediate Accounting, 8/e 5–141
Problem 5–19 (continued)
2017
Installment receivables …………………………………………… 400,000
Inventory …………………………………………………………… 280,000
Requirement 3
Date
Cash Collected
Cost Recovery
Gross Profit
2016
2016 sales
$120,000
$120,000
– 0 –
2016 sales
2017 sales
$250,000
$210,000
Problem 5–19 (concluded)
2016
Installment receivables …………………………………………… 300,000
Cash …………………………………………………………………….. 120,000
2017
Installment receivables …………………………………………… 400,000
Cash …………………………………………………………………….. 250,000
Intermediate Accounting, 8/e 5–143
Problem 5–20
Requirement 1
Total profit = $500,000 – 300,000 = $200,000
Installment sales method: Gross profit % = $200,000 ÷ $500,000 = 40%
8/31/16
8/31/17
8/31/18
8/31/19
Cash collections
$100,000
$100,000
$100,000
$100,000
$200,000
– 0 –
– 0 –
– 0 –
– 0 –
– 0 –
– 0 –
$100,000
Problem 5–20 (continued)
Requirement 2
Point of
Delivery
Installment
Sales
Cost Recovery
Installment receivable
500,000
Sales revenue
500,000
Cost of goods sold
300,000
Inventory
300,000
Installment receivable
500,000
500,000
Inventory
300,000
300,000
Deferred gross profit
Cash
100,000
100,000
100,000
Installment receivable
100,000
100,000
100,000
Deferred gross profit
100,000
Intermediate Accounting, 8/e 5–145
Problem 5–20 (concluded)
Requirement 3
Point of
Delivery
Installment
Sales
Cost
Recovery
December 31, 2016
Assets
Installment receivables
400,000
400,000
400,000
Problem 5–21
Requirement 1
All jobs consist of four equal payments: one payment when the job is completed and
three payments over the next three years.
Bluebird:
Job completed in 2014, so down payment made in 2014, another payment in 2015,
and two payments remain. $400,000 gross receivable at 1/1/2016 implies
PitStop:
Job completed in 2013, so down payment made in 2013, another payment in 2014,
another in 2015, and one payment remains. $150,000 gross receivable at 1/1/2016
Problem 5–21 (concluded)
Intermediate Accounting, 8/e 5–147
Totals:
Requirement 2
If Dan is focused on 2016, he would not be happy with a switch to the installment
sales method, because that would produce gross profit of only $102,500, which is
Problem 5–22
Requirement 1
Year
Gross profit recognized
2016
– 0 –
2017
– 0 –
2018
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
Accounts receivable
2,000,000
4,000,000
4,000,000
To record progress billings
Cash
1,800,000
3,600,000
4,600,000
To record cash collections
Construction in progress
(gross profit)
1,800,000
To record gross profit
Intermediate Accounting, 8/e 5–149
Problem 5–22 (concluded)
Requirement 3
Balance Sheet
2016
2017
Current assets:
Accounts receivable
$ 200,000
$ 600,000
$2,400,000
$6,000,000
400,000
Requirement 4
2016 2017 2018
Costs incurred during the year $2,400,000 $3,800,000 $3,200,000
Requirement 5
2016 2017 2018
Costs incurred during the year $2,400,000 $3,800,000 $3,900,000
Estimated costs to complete
Problem 5–23
Requirement 1
a. January 30, 2016
Cash ……………………………………………………………………. 200,000
b. September 1, 2016
Unearned revenue – franchise fee …………………………... 1,200,000
c. September 30, 2016
d. January 30, 2017
Intermediate Accounting, 8/e 5–151
Problem 5–23 (continued)
Requirement 2
a. January 30, 2016
Cash ……………………………………………………………………. 200,000
b. September 1, 2016
c. September 30, 2016
Problem 5-23 (concluded)
d. January 30, 2017
Cash …………………………………………………………………….. 100,000
Requirement 3
Balance Sheet
At December 31, 2016
Current assets:
Current liabilities:
Installment notes receivable
$ -0-
Intermediate Accounting, 8/e 5–153
CASES
Research Case 5–1
(Note: This case requires the student to reference a journal article.)
1.
Abuse
Explanation
1. Cutoff manipulation
The company either closes their books early (so some
2. Deferring too much
The company has an arrangement under which
3. Bill-and-hold sale
The company records sales even though it hasn’t yet
delivered the goods to the customer.
4. Right-of-return sale
The company sells to distributors or other customers
2. Manipulating estimates of percentage complete in order to manipulate gross
Judgment Case 5–2
Determining whether Toys4U satisfies the performance obligation requires the
company to consider indicators of whether McDonald’s has obtained control of the
dolls. Management should evaluate these indicators individually and in combination
to decide whether control has been transferred. The indicators include, but are not
limited to the following:
1. The customer has accepted the asset. There is no acceptance provision
3. The customer has physical possession of goods. McDonald’s has possession
4. The customer has the risks and rewards of ownership. Given that
5. The customer has an obligation to pay the seller. In this case, McDonald’s
In this case, Toys4U has not transferred control upon delivery because
McDonald’s has not accepted the asset, does not have the risks and rewards of
Intermediate Accounting, 8/e 5–155
Judgment Case 5–3
In this case, Kerry obtained the access code for Level I on December 1, meaning
that Kerry has obtained the control of the right to use the software for Level I on that
date. On that date Cutler should recognize $50 of revenue for Level I.
Ethics Case 5–4
Discussion should include these elements.
Facts:
Horizon Corporation, a computer manufacturer, reported profits from 2011
through 2014, but reported a $20 million loss in 2015 due to increased competition.
Ethical Dilemma:
Is Jim’s obligation to challenge the memo of the CFO and provide useful
information to users of the financial statements greater than the obligation to prevent
a company loss in 2016 that may lead to bankruptcy?
Who is affected?
Jim Fielding
CFO and other managers
Intermediate Accounting, 8/e 5–157
Judgment Case 5-5
Scenario 1: The terms of the contract and all the related facts and circumstances
indicate that Star controls the room as it is built. Crown is entitled to receive
payments throughout the contract as evidenced by the required progress payments
throughout the construction process.
Scenario 2: The terms of the contract and all the related facts and circumstances
indicate that Star does not obtain control of the gym until it is delivered. If the
Scenario 3: The terms of the contract and all the related facts and circumstances
indicate that Coco has the ability to direct the use of, and receive the benefit from,
Scenario 4: The terms of the contract and all the related facts and circumstances
indicate that Edwards, the customer, obtains control of the apartment upon
Judgment Case 5-6
The license granted by Pfizer is not a performance obligation, because it is not
separately identifiable. The only way to exploit the license is by utilizing ongoing
Intermediate Accounting, 8/e 5–159
Communication Case 5–7
The critical question that student groups should address is how to account for
punches in the punch card and the option to possibly receive a free ice cream cone
that it provides. Students should benefit from participating in the process, interacting
first with other group members, then with the class as a whole.
The preferred solution should include the idea that the sale of an ice cream cone
to a person who has a card involves two performance obligations:
1. Providing the ice cream cone
2. Eventually providing an additional ice cream cone, if and when a customer
reaches 10 punches on a card and redeems the card for the free cone.
Students should recognize that each punch on the punch card contributes to an
option to receive a future ice cream cone. That option is capable of being distinct
because it could be sold or provided separate from selling a cone, and it is separately