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Intermediate Accounting, 8/e 5-61
Exercise 5–21
SUMMARY
Revenue Recognized Over Time
Revenue Recognized Upon Completion
Situation
2016
2017
2018
2016
2017
2018
1
$166,667
$233,333
$100,000
$0
$0
$500,000
2
$166,667
$(66,667)
$100,000
$0
$0
$200,000
Situation 1 - Revenue Recognized Over Time
2016 2017 2018
Contract price $5,000,000 $5,000,000 $5,000,000
Gross profit (loss) recognized:
2016:
Revenue = $1,500,000
= 33.3333% × $5,000,000 = $1,666,667
$4,500,000
2017:
Revenue = $3,600,000
= 80.0% × $5,000,000 = $4,000,000 – 1,666,667
Exercise 5–21 (continued)
Note: We can calculate gross profit directly as:
2018:
Situation 1 - Revenue Recognized Upon Completion
Year
Gross profit recognized
2016
- 0 -
Situation 2 - Revenue Recognized Over Time
2016 2017 2018
Contract price $5,000,000 $5,000,000 $5,000,000
Actual costs to date 1,500,000 2,400,000 4,800,000
Intermediate Accounting, 8/e 5-63
Exercise 5–21 (continued)
Gross profit (loss) recognized:
2016:
2017:
2018:
Situation 2 - Revenue Recognized Upon Completion
Year
Gross profit recognized
2016
- 0 -
Exercise 5–21 (continued)
Situation 3 - Revenue Recognized Over Time
2016 2017 2018
Contract price $5,000,000 $5,000,000 $5,000,000
Actual costs to date 1,500,000 3,600,000 5,200,000
Gross profit (loss) recognized:
2016:
2017:
2018:
Intermediate Accounting, 8/e 5-65
Exercise 5–21 (continued)
Situation 3 - Revenue Recognized Upon Completion
Year
Gross profit (loss) recognized
2016
- 0 -
Situation 4 - Revenue Recognized Over Time
2016 2017 2018
Contract price $5,000,000 $5,000,000 $5,000,000
Gross profit (loss) recognized:
2016:
Exercise 5–21 (continued)
2017:
2018:
Situation 4 - Revenue Recognized Upon Completion
Year
Gross profit recognized
Situation 5 - Revenue Recognized Over Time
2016 2017 2018
Contract price $5,000,000 $5,000,000 $5,000,000
Intermediate Accounting, 8/e 5-67
Exercise 5–21 (continued)
Gross profit (loss) recognized:
2016:
Exercise 5–21 (concluded)
Situation 6 - Revenue Recognized Over Time
2016 2017 2018
Contract price $5,000,000 $5,000,000 $5,000,000
Gross profit (loss) recognized:
Situation 6 - Revenue Recognized Upon Completion
Year
Gross profit (loss) recognized
2016
$(100,000)
Intermediate Accounting, 8/e 5-69
Exercise 5–22
Requirement 1
Construction in progress = Costs incurred + Profit recognized
Requirement 2
Billings = Cash collections + Accounts receivable
Requirement 3
Let A = Actual cost incurred + Estimated cost to complete
Exercise 5–22 (concluded)
Requirement 4
Intermediate Accounting, 8/e 5-71
Exercise 5–23
Requirement 1
Requirement 2
By itself, this one ratio provides very little information. In general, the higher
the inventory turnover, the lower the investment must be for a given level of sales. It
Exercise 5–24
Turnover ratios for Anderson Medical Supply Company for 2016:
Inventory turnover ratio = $4,800,000
[$900,000 + 700,000] ÷ 2
Intermediate Accounting, 8/e 5-73
Exercise 5–25
Requirement 1
a. Profit margin on sales $180 ÷ $5,200 = 3.5%
Requirement 2
Retained earnings beginning of period $100,000
Exercise 5–26
Requirement 1
a. Profit margin on sales $180 ÷ $5,200 = 3.46%
Requirement 2
APPENDIX EXERCISES
Exercise 5–27
Requirement 1
2016 cost recovery %:
2017 cost recovery %:
2016 gross profit:
Intermediate Accounting, 8/e 5-75
Exercise 5–27 (concluded)
Requirement 2
2016 deferred gross profit balance:
2016 initial gross profit ($360,000 – 234,000) $126,000
Exercise 5–28
2016
Installment receivables ................................................... 360,000
2016
Cash ................................................................................ 150,000
2016
Deferred gross profit ....................................................... 52,500
2017
Installment receivables ................................................... 350,000
2017
Cash ................................................................................ 220,000
2017
Intermediate Accounting, 8/e 5-77
Exercise 5–29
Requirement 1
Year Income recognized
2016 $180,000 ($300,000 – 120,000)
Requirement 2
Cost recovery %:
Year
Cash Collected
Cost Recovery(40%)
Gross Profit(60%)
Requirement 3
Year
Cash Collected
Cost Recovery
Gross Profit
2016
$ 75,000
$ 75,000
- 0 -
Exercise 5–30
Requirement 1
July 1, 2016
Installment receivables ................................................... 300,000
Sales revenue .............................................................. 300,000
To record installment sale
Intermediate Accounting, 8/e 5-79
Exercise 5–30 (continued)
Requirement 2
July 1, 2016
Installment receivables ................................................... 300,000
Inventory ..................................................................... 120,000
Exercise 5–30 (concluded)
Requirement 3
July 1, 2016
Installment receivables ................................................... 300,000
Inventory ..................................................................... 120,000
