PROBLEM 18-1 (Continued)
Dement Publishing Division
Sales—fiscal 2014 …………………………………………………. $7,000,000
Less: Sales returns and allowances (20%) ……………… 1,400,000
Net sales—revenue to be recognized in fiscal 2014 …. $5,600,000
Ankiel Securities Division
Commissions and warranty returns are also selling expenses.
Both of these expenses will be accrued and will appear in the
operating expenses section of the income statement.
PROBLEM 18-2
(a)
2014
2015
2016
Contract price
$900,000
$900,000
$900,000
Less estimated cost:
Costs to date
Estimated cost to complete
—
Estimated total cost
Estimated total gross profit
$300,000
$300,000
$290,000
Gross profit recognized in—
2014:
$270,000
X $300,000 =
$135,000
$600,000
2015:
$450,000
X $300,000 =
$600,000
(b) In 2014 and 2015, no gross profit would be recognized.
Total billings ……………………………….. $900,000
PROBLEM 18-3
(a) Gross profit recognized in:
2014
2015
2016
Contract price
$3,000,000
$3,000,000
$3,000,000
Costs:
Costs to date
$ 600,000
$1,560,000
$2,100,000
Estimated costs
to complete
1,400,000
2,000,000
520,000
2,080,000
0
2,100,000
profit
920,000
Total gross profit
recognized
recognized in
previous years
300,000
690,000
recognized in
current year
$ 390,000
$ 210,000
Total estimated
(b) Construction in Process
($2,100,000 – $1,560,000) ………………………………… 540,000
Materials, Cash, Payables. ……………………….. 540,000
PROBLEM 18-3 (Continued)
(c) CHANCE COMPANY
Balance Sheet (Partial)
December 31, 2015
Current assets:
Accounts receivable
PROBLEM 18-4
(a)
2014
2015
2016
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
Estimated cost to complete
—
Estimated total cost
Estimated total gross profit
$1,200,000
$1,100,000
$1,010,000
$5,400,000
$5,500,000
Less 2014 recognized
gross profit
360,000
Gross profit in 2015
$410,000
Gross profit in 2016
(b) HEWITT CONSTRUCTION COMPANY
Balance Sheet
December 31, 2015
Current assets:
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
(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
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)
(1)
(2)
(3)
(4)
(5)
(6)
2014
$8,000
$1,600
$6,400*
$1,600
25%
2015
4,480
70%
2016
6,400
PROBLEM 18-5 (Continued)
Revenue recognition
Year
Contract
Price
Percent
Complete
Revenue
Recognizable
Less Prior
Year(s)
Current
Year
2014
$8,000
25%
$2,000
—
$2,000
2015
70%
$2,000
3,600
Profit recognition
Year
Estimated
Profit
Percent
Complete
Profit
Recognizable
Less Prior
Year(s)
Current
Year
2014
$1,600
2. Assuming the same facts as in Instruction (b) 1., but that cost
overruns of $800,000 were experienced in 2014, RCB’s revenue,
cost of sales, and gross profit for 2014, 2015, and 2016 were
calculated as follows:
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)
(1)
(2)
(3)
(4)
(5)
(6)
7,200
Revenue recognition
Year
Contract
Price
Percent
Complete
Revenue
Recognizable
Less Prior
Year(s)
Current
Year
2014
$8,000
33.33%
$2,666.4
—
$2,666.4
PROBLEM 18-5 (Continued)
Profit recognition
Year
Estimated
Profit
Percent
Complete
Profit
Recognizable
Less Prior
Year(s)
Current
Year
2014
$800
33.33%
$266.6
—
$266.6
2015
73.33%
3. Assuming the same facts as in Instructions (b) 1. and (b) 2., but
that additional cost overruns of $850,000 are experienced in 2015,
RCB’s revenue, cost of sales, and gross profit for 2014, 2015, and
2016 are calculated as follows:
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)
(1)
(2)
(3)
(4)
(5)
(6)
Revenue recognition
Year
Contract
Price
Percent
Complete
Revenue
Recognizable
Less Prior
Year(s)
Current
Year
2014
$8,000
33.33%
$2,666.4
—
$2,666.4
2016
1,908.0
Profit recognition
Year
Estimated
Profit
Percent
Complete
Profit
Recognizable
Less Prior
Year(s)
Current
Year
2014
$800
33.33%
$266.6
—
$266.6
2015
(50)
(50)
(316.6)
PROBLEM 18-6
(a) Computation of Recognizable Profit/Loss
Percentage-of–Completion Method
2014
Costs to date (12/31/14) ……………………………………. $2,880,000
2015
Costs to date (12/31/15)
($2,880,000 + $2,230,000)………………………………. $5,110,000
2016
Total revenue recognized …………………………………. $8,400,000
PROBLEM 18-6 (Continued)
*Alternative
(b) Computation of Recognizable Profit/Loss
Completed-Contract Method
2014—NONE
2015—NONE
2016
PROBLEM 18-7
(a) Computation of Recognizable Profit/Loss
Percentage-of–Completion Method
2014
Costs to date (12/31/14) …………………………………………. $ 300,000
2015
Costs to date (12/31/15) …………………………………………. $1,200,000
OR
Percent complete ($1,200,000 ÷ $2,000,000) ……………. 60%
Revenue recognized in 2015
PROBLEM 18-7 (Continued)
*2016 revenue
2016
Costs to date (12/31/16) …………………………………. $2,100,000
Estimated costs to complete …………………………. 0
(b) Computation of Recognizable Profit/Loss
Completed-Contract Method
2014—NONE
2015
Costs to date (12/31/15)…………………………………… $1,200,000
2016
Total costs incurred ……………………………………….. $2,100,000
PROBLEM 18-8
(a)
Rate of gross profit
(
Gross profit
Sales
)
2014
2015
2016
38%
37%
35%
Gross profit realized:
38% of $ 75,000
38% of $100,000
37% of $100,000
38% of $ 50,000
37% of $120,000
35% of $100,000
(b) Installment Accounts Receivable, 2016 ………………. 280,000
Installment Sales Revenue ………………………….. 280,000
Cash …………………………………………………………………. 270,000
Deferred Gross Profit, 2014 …………………………………. 19,000
Deferred Gross Profit, 2015 …………………………………. 44,400
Deferred Gross Profit, 2016 …………………………………. 35,000
Realized Gross Profit ………………………………….. 98,400
PROBLEM 18-9
2014
2015
2016
Sales
$385,000
$426,000
$525,000
Cost of sales
270,000
277,000
341,000
Gross profit
115,000
149,000
184,000
Total gross profit
Selling expenses
Administrative expenses
50,000
51,000
52,000
Net income
$ 21,000
$ 80,300
$153,600
Calculation of gross profit realized on installment sales:
2014
2015
2016
Rate of gross profit
* 33%*
** 36%**
40%***
Gross profit realized:
33% of $100,000
$33,000
33% of $ 90,000
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
PROBLEM 18-10
(a) Rate of gross profit on 2014 installment sales:
Deferred gross profit on repossessions
(b) Installment Sales Revenue ………………………………. 200,000
Cost of Installment Sales ………………………….. 120,000
Deferred Gross Profit, 2015 ………………………. 80,000
PROBLEM 18-10 (Continued)
(c) PAUL DOBSON STORES
Income Statement
For the Year Ended December 31, 2015
Sales revenue ………………………………………………….. $343,000
PROBLEM 18-11
(a) Installment Accounts Receivable, 2014 ……………. 500,000
Installment Sales Revenue ……………………….. 500,000
*Rate of gross profit =
$150,000
= 30%
$500,000
30% X $24,000 = $7,200
**[$11,200 – ($24,000 – $7,200)]
PROBLEM 18-12
(a) Rate of gross profit—2014:
Deferred gross profit beginning of year
$64,000 + $7,200 = $71,200
Rate of gross profit—2015:
Installment sales revenue ………………………………….. $180,000
Cost of installment sales ……………………………………. 111,600
Gross profit ………………………………………………………. $ 68,400
Rate of gross profit—2015 = $68,400 ÷ $180,000 = 38%
PROBLEM 18-12 (Continued)
Deferred Gross Profit, 2014 ………………………………… 32,000
Deferred Gross Profit, 2015 ………………………………… 19,000
Realized Gross Profit ………………………………….. 51,000
(40% X $80,000 = $32,000;
38% X $50,000 = $19,000)
(b) MANTLE INC.
Income Statement
For the Year Ended December 31, 2015
Sales revenue …………………………………….. $400,000
Cost of goods sold:
Inventory, January 1 …………………….. $120,000
Purchases ………………………………….. 360,000
Merchandise repossessed ……………. 8,000
PROBLEM 18-13
-1-
November 1, 2014
-2-
December 1, 2014
Cash …………………………..……………………………………………….. 30
Installment Accounts Receivable, 2014 …………………… 30
-3-
December 31, 2014
Cost of Installment Sales ………………………………………………. 540
Inventory ………………………………………………………………. 540
-4-
January 1 to July 1, 2015
Cash ($30 X 7) …………………………..………………………………….. 210
Installment Accounts Receivable, 2014 …………………… 210
-5-
August, 2015
Repossessed Merchandise ……………………………………………. 100