18–41
PROBLEM 18-1 (Continued)
Dement Publishing Division
Sales—fiscal 2012 …………………………………………………. $7,000,000
Less: Sales returns and allowances (20%) ……………… 1,400,000
Net sales—revenue to be recognized in fiscal 2012 …. $5,600,000
Ankiel Securities Division
Revenue for fiscal 2012 = $5,200,000.
The revenue is the amount of goods actually billed and shipped when
revenue is recognized at point of sale (terms of F.O.B. factory).
PROBLEM 18-2
(a)
2012
2013
2014
Contract price
$900,000
$900,000
$900,000
Less estimated cost:
Costs to date
270,000
450,000
610,000
Estimated cost to complete
Estimated total cost
Estimated total gross profit
$300,000
$300,000
$290,000
Gross profit recognized in—
2012:
$270,000
X $300,000 =
$135,000
$600,000
2013:
$450,000
X $300,000 =
$600,000
Gross profit in 2013
2014:
Less 2012–2013
recognized gross profit
225,000
Gross profit in 2014
$ 65,000
18–43
PROBLEM 18-3
(a) Gross profit recognized in:
2012
2013
2014
Contract price
$3,000,000
$3,000,000
$3,000,000
Costs:
recognized in
previous years
0
300,000
690,000
Gross profit
recognized in
current year
$ 300,000
$ 390,000
$ 210,000
**$600,000 ÷ $2,000,000
**$1,560,000 ÷ $2,080,000
(b) Construction in Process
($2,100,000 – $1,560,000) ………………………………… 540,000
Materials, Cash, Payables. ……………………….. 540,000
$ 600,000
$1,560,000
$2,100,000
1,400,000
0
Total estimated
profit
Total gross profit
recognized
Less: Gross profit
PROBLEM 18-3 (Continued)
(c) CHANCE COMPANY
Balance Sheet (Partial)
December 31, 2013
Current assets:
Accounts receivable
($2,000,000 – $1,950,000) ……………………… $ 50,000
18–45
PROBLEM 18-4
(a)
2012
2013
2014
Contract price
$6,600,000
$6,600,000
$6,510,000
Less estimated cost:
Costs to date
1,620,000
3,850,000
5,500,000
Gross profit recognized in—
2012:
$1,620,000
X $1,200,000 =
$360,000
$5,400,000
2013:
$3,850,000
X $1,100,000 =
$5,500,000
Gross profit in 2013
Gross profit in 2014
(b) HEWITT CONSTRUCTION COMPANY
Balance Sheet
December 31, 2013
Current assets:
Accounts receivable
($3,300,000 – $2,800,000) ……………. $ 500,000
Estimated cost to complete
Estimated total cost
Estimated total gross profit
$1,200,000
$1,100,000
$1,010,000
PROBLEM 18-5
(a) The completed-contract method of revenue recognition recognizes income
only upon completion of a project or shipment of a product. All associ-
ated costs are expensed at the point of sale, and there are no interim
charges or credits to income. Completed-contract revenue recognition
is used for long-term projects when estimates of revenue and costs
are not reliable.
(b) Using the data provided for the Bluestem Tractor Plant, and on the
assumption that the percentage-of-completion method of revenue recog-
nition is used, the calculations of RCB’s revenue and gross profit for
2012, 2013, and 2014 under three sets of circumstances are presented
below.
Percentage-of–Completion
($000 omitted)
Year
Contract
Price
Costs
to Date
Estimated
Total
Costs
Estimated
Gross Profit
(Col. 2–Col. 4)
Percent
Complete
(Col. 3/Col. 4)
18–47
PROBLEM 18-5 (Continued)
Revenue recognition
Year
Contract
Price
Percent
Complete
Revenue
Recognizable
Less Prior
Year(s)
Current
Year
Profit recognition
Year
Estimated
Profit
Percent
Complete
Profit
Recognizable
Less Prior
Year(s)
Current
Year
2. Assuming the same facts as in Instruction (b)1., but that cost
overruns of $800,000 were experienced in 2012, RCB’s revenue,
costs of sales, and gross profit for 2012, 2013, and 2014 were
calculated as follows:
*($2,400 + $2,880 + $1,920)
Revenue recognition
Year
Contract
Price
Percent
Complete
Revenue
Recognizable
Less Prior
Year(s)
Current
Year
PROBLEM 18-5 (Continued)
Profit recognition
Year
Estimated
Profit
Percent
Complete
Profit
Recognizable
Less Prior
Year(s)
Current
Year
2012
$800
33.33%
$266.6
—
$266.6
2013
73.33%
$266.6
3. Assuming the same facts as in Instructions (b)1. and (b)2., but that
additional cost overruns of $850,000 are experienced in 2013, RCB’s
revenue, cost of sales, and gross profit for 2012, 2013, and 2014
are calculated as follows:
Year
Contract
Price
Costs
to Date
Estimated
Total
Costs
Estimated
Gross Profit
(Col. 2–Col. 4)
Percent
Complete
(Col. 3/Col. 4)
(1)
(2)
(3)
(4)
(5)
(6)
2012
$8,000
$2,400
$7,200
$800
33.33%
2013
8,000
6,130*
8,050
(50)
76.15%
2014
8,000
8,050
8,050
(50)
100%
*($5,280 + $850)
Year
Complete
Recognizable
Less Prior
Year(s)
Current
Year
2012
33.33%
$2,666.4
—
2014
8,000
100%
8,000.0
6,092.0
1,908.0
Profit recognition
Year
Estimated
Profit
Percent
Complete
Profit
Recognizable
Less Prior
Year(s)
Current
Year
2012
$800
33.33%
$266.6
—
$266.6
2013
(50)
(50)
$266.6
18–49
PROBLEM 18-6
(a) Computation of Recognizable Profit/Loss
Percentage-of–Completion Method
2012
Costs to date (12/31/12) ……………………………………. $2,880,000
Estimated costs to complete ……………………………. 3,520,000
Estimated total costs ………………………………… $6,400,000
2013
Costs to date (12/31/13)
($2,880,000 + $2,230,000)………………………………. $5,110,000
Estimated costs to complete ……………………………. 2,190,000
Estimated total costs ………………………………… $7,300,000
2014
Total revenue recognized …………………………………. $8,400,000
PROBLEM 18-6 (Continued)
*Alternative
Revenue recognized in 2014
($8,400,000 X 30%) ……………………………………….. $2,520,000
Costs incurred in 2014 …………………………………….. (2,190,000)
Profit recognized in 2014 ………………………………….. $ 330,000
18–51
PROBLEM 18-7
(a) Computation of Recognizable Profit/Loss
Percentage-of–Completion Method
2012
Costs to date (12/31/12) …………………………………………. $ 300,000
Estimated costs to complete …………………………………. 1,200,000
Estimated total costs ……………………………………… $1,500,000
2013
Costs to date (12/31/13) …………………………………………. $1,200,000
Estimated costs to complete …………………………………. 800,000
Estimated total costs ……………………………………… 2,000,000
OR
Percent complete ($1,200,000 ÷ $2,000,000) ……………. 60%
Revenue recognized in 2013
[($1,900,000 X 60%) – $380,000] ………………………….. $ 760,000
PROBLEM 18-7 (Continued)
*2014 revenue
($1,900,000 – $380,000 – $760,000) ……………… $ 760,000
Less: 2014 estimated costs …………………………... 800,000
2014 loss …………………………………………….. $ (40,000)
2014
Loss recognized in 2014 ………………………………… $ (100,000)
(b) Computation of Recognizable Profit/Loss
Completed-Contract Method
2012—NONE
2013
Costs to date (12/31/13)…………………………………… $1,200,000
18–53
PROBLEM 18-8
(a)
Rate of gross profit
(
Gross profit
Sales
)
2012
2013
2014
38%
37%
35%
Gross profit realized:
(b) Installment Accounts Receivable (2014) ……………… 280,000
Installment Sales Revenue ………………………….. 280,000
Cash …………………………………………………………………. 270,000
Installment Accounts Receivable (2012) ………. 50,000
Installment Accounts Receivable (2013) ………. 120,000
Installment Accounts Receivable (2014) ………. 100,000
Installment Sales Revenue …………………………..…….. 280,000
Cost of Installment Sales …………………………….. 182,000
Deferred Gross Profit (2014) ……………………….. 98,000
38% of $ 75,000
38% of $100,000
37% of $100,000
38% of $ 50,000
37% of $120,000
35% of $100,000
PROBLEM 18-9
2012
2013
2014
Sales
$385,000
$426,000
$525,000
Cost of sales
270,000
277,000
341,000
Gross profit
115,000
149,000
184,000
Gross profit realized on installment
sales (See calculation below)
33,000
69,300
113,600
Total gross profit
148,000
218,300
297,600
Selling expenses
Administrative expenses
50,000
51,000
52,000
Total selling and administrative
Net income
$ 21,000
$ 80,300
Calculation of gross profit realized on installment sales:
2012
2013
2014
Rate of gross profit
* 33%*
** 36%**
40%***
Gross profit realized:
33% of $100,000
$33,000
33% of $ 90,000
$29,700
36% of $110,000
33% of $ 40,000
36% of $140,000
40% of $125,000
$33,000
*
$320,000 – $214,400
*= 33%
$320,000
$275,000 – $176,000
$275,000
$380,000 – $228,000
18–55
PROBLEM 18-10
(a) Rate of gross profit on 2012 installment sales:
Deferred gross profit on repossessions
$8,000 – $800 – $4,800 = $2,400
$2,400 ÷ $8,000 = 30%
Rate of gross profit on 2013 installment sales:
$200,000 – $120,000
= 40%
$200,000
(b) Installment Sales Revenue ………………………………. 200,000
Cost of Installment Sales ………………………….. 120,000
Deferred Gross Profit (2013) …………………….. 80,000
Realized Gross Profit ……………………………………… 72,400
Sales Revenue ……………………………………………….. 343,000
Income Summary …………………………………….. 31,600
Cost of Goods Sold ………………………………….. 255,000
Loss on Repossession …………………………….. 800
Operating Expenses ………………………………… 128,000
PROBLEM 18-10 (Continued)
(c) PAUL DOBSON STORES
Income Statement
For the Year Ended December 31, 2013
Sales ………………………………………………………………. $343,000
Cost of goods sold ………………………………………….. 255,000
18–57
PROBLEM 18-11
(a) Installment Accounts Receivable …………………….. 500,000
Installment Sales Revenue ……………………….. 500,000
Repossessed Merchandise ……………………………… 11,200
Deferred Gross Profit ……………………………………… 7,200*
Loss on Repossession ……………………………………. 5,600**
Installment Accounts Receivable ……………… 24,000
Installment Sales Revenue …………………………..….. 500,000
Cost of Installment Sales ………………………….. 350,000
Deferred Gross Profit ……………………………….. 150,000
PROBLEM 18-12
(a) Rate of gross profit—2012:
Deferred gross profit beginning of year
$64,000 + $7,200 = $71,200
(Inasmuch as the repossessions “were recorded correctly,” the 2012
rate of gross profit also may be computed by dividing $7,200 by $18,000)
Rate of gross profit—2013:
Rate of gross profit—2013 = $68,400 ÷ $180,000 = 38%
Cost of Goods Sold …………………………………………… 376,400*
Cost of Installment Sales …………………………………… 111,600
Inventory (1/1/13) ………………………………………….. 120,000
Purchases …………………………………………………….. 360,000
Repossessed Merchandise ……………………………. 8,000
18–59
PROBLEM 18-12 (Continued)
Deferred Gross Profit (2012) ………………………………. 32,000
Realized Gross Profit ………………………………………. 51,000
Income Summary ……………………………………… 51,000
(b) MANTLE INC.
Income Statement
For the Year Ended December 31, 2013
Sales ………………………………………………….. $400,000
Cost of goods sold:
Inventory, January 1 …………………….. $120,000
Less cost of installment sales ………. 111,600 245,000
Gross profit on regular sales …… 155,000
Gross profit realized on
installment sales …………………. 51,000
18–60
PROBLEM 18-13
-1-
November 1, 2012
Cash ……………………………………………………………………………. 300
Installment Accounts Receivable ($900 – $300) ………………. 600
Installment Sales Revenue ……………………………………… 900
-3-
December 31, 2012
Cost of Installment Sales ………………………………………………. 540
Inventory ………………………………………………………………. 540
-4-
January 1 to July 1, 2013
Cash ($30 X 7) ………………………………………………………………. 210
Installment Accounts Receivable ……………………………. 210
-5-
August, 2013