PROBLEM 18-11B
(a) Installment Accounts Receivable …………………….. 600,000
Installment Sales Revenue ……………………….. 600,000
Cash ………………………………………………………………. 210,000
Installment Accounts Receivable ……………… 210,000
PROBLEM 18-12B
(a) Rate of gross profit—2014:
Deferred gross profit beginning of year
$70,000 + $8,400 = $78,400
Accounts receivable beginning of year
PROBLEM 18-12B (Continued)
Deferred Gross Profit (2014) ………………………………. 28,000
Deferred Gross Profit (2015) ………………………………. 18,880
Realized Gross Profit ………………………………….. 46,880
(35% X $80,000 = $28,000;
(b) STAR INC.
Income Statement
For the Year Ended December 31, 2015
Sales ………………………………………………….. $531,000
Cost of goods sold:
Gross profit realized on
installment sales …………………. 46,880
Total gross profit realized …. 243,480
Operating expenses ……………………………. 141,000
Loss on repossession ………………………… 3,400 144,400
-1-
November 1, 2014
-2-
-3-
December 31, 2014
Cost of Installment Sales ………………………………………………. 728
-4-
-5-
May, 2015
PROBLEM 18-13B (Continued)
Balance at repossession ………….. $500*
PROBLEM 18-14B
(a) 1. EURO COMPANY
Schedule to Compute Cost
of Goods Sold on Installments
2. EURO COMPANY
Schedule to Compute Average Unit Cost
of Goods Sold on Installments
PROBLEM 18-14B (Continued)
(b) EURO COMPANY
Schedule to Compute Gross Profit Percentages
For 2014, 2015, and 2016
2014
2015
2016
Sales:
Cost of goods sold
Gross profit percentages:
$82,800 ÷ $366,000
PROBLEM 18-14B (Continued)
(d) EURO COMPANY
Schedule to Compute Net Income
From Installment Sales
PROBLEM 18-15B
(a) DOLPHIN CONSTRUCTION COMPANY, INC.
Computation of Costs on Uncompleted Contract
In Excess of Related Billings
December 31, 2014
PROBLEM 18-15B (Continued)
DOLPHIN CONSTRUCTION COMPANY, INC.
Computation of Costs Relating to Substantially
Completed Contract in Excess of Billings
December 31, 2016
Balance, December 31, 2016 …………………………………….. $ 200,000
(b) DOLPHIN CONSTRUCTION COMPANY, INC.
Computation of Profit or Loss to be Recognized
On Uncompleted Contract
Year Ended December 31, 2014
PROBLEM 18-15 (Continued)
DOLPHIN CONSTRUCTION COMPANY, INC.
Computation of Loss to be Recognized
On Uncompleted Contract
Year Ended December 31, 2015
PROBLEM 18-16B
Dear Kim:
This letter regards the revenue recognition matter which we discussed earlier.
By using a recognition method called percentage-of-completion, you will
show a profit in every year of the construction project, assuming, of course,
contract will be completed.)
The most frequently used measure of this degree of completion is the cost–
to-cost method, which determines the percentage of a project’s completion
as the ratio of costs that have already been incurred to the total estimated
costs required in order to finish the project. This percentage is then applied
PROBLEM 18-16B (Continued)
2014 and 2015 actually allow you to show a profit before the project has been
PROBLEM 18-16B (Continued)
Percentage-of–Completion Method
Three-Year Schedule of Gross Profit Recognition
Gross profit recognized in 2014:
Contract price ……………………………………… $2,400,000
Costs to date …………………………..…………… $1,300,000
Estimated additional costs ……………………. 700,000 2,000,000
Total estimated profit …………………………... 400,000
Percentage completion to date
($1,300,000/$2,000,000) ……………………… X 65%
PROBLEM 18-17B
(a) Schedule to Compute Gross Profit for 2014
A
B
C
D
E
Estimated profit (loss):
A: ($200,000 – $180,000)
$20,000
B: ($500,000 – $400000)
$100,000
C: ($360,000 – $381,000)
$(21,000)
D: ($600,000 – $635,000)
$(35,000)
A: ($162,000 ÷ $180,000)
B: ($320,000 ÷ $400,000)
C: (not applicable)
D: (not applicable)
Gross profit (loss) recognized
$18,000
$(21,000)
$(35,000)
C
D
37,000
PROBLEM 18-17B (Continued)
(b) Partial Income Statement
Revenue from long-term contracts …………………………………. $1,305,985*
Costs of construction
($162,000 + $320,000 + $304,465 + $197,520 + $230,000) .. 1,213,985
($1,110,000 – $815,000) ……………………….. $ 295,000
Inventories
Construction in process …………………………. $816,000***
Less: Billings ………………………………………… 630,000***
Costs and recognized profits
PROBLEM 18-17B (Continued)
(c) Schedule to Compute Gross Profit for 2014
A
B
C
D
E
A: Not completed
–0–
B: Not completed
–0–
C: ($360,000 – $381,000)
$(21,000)
D: ($600,000 – $635,000)
Gross profit (loss) recognized
$(21,000)
B
320,000
280,000
$40,000
C
279,000 a
250,000
29,000
D
137,000 b
100,000
37,000
$898,800
$830,000
$106,000
$28,000
a$300,000 – $21,000
PROBLEM 18-17B (Continued)
On the other hand, the percentage-of-completion method does recog-
nize revenue and gross profit before the completion of a project. If
Quinn can determine reliable estimates of its progress and meets the