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December On 15, 2006, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2007, and December 15, 2008. Ignore interest charges. Rigsby has a December 31 year-end. 74. In 2006, Rigsby would recognize realized gross profit of: A) $500,000. B) $ 0. C) $900,000. D) $100,000. Register to View AnswerLearning Objective: 2 Level of Learning: 3 Rationale: Gross profit % = ($4,500,000 - 3,600,000)/$4,500,000 = 20% 2006: 20% x $500,000 = $100,000 75. In 2007, Rigsby would recognize realized gross profit of: A) $ 0. B) $450,000. C) $300,000. D) $400,000. Register to View AnswerLearning Objective: 2 Level of Learning: 3 Rationale: Gross profit % = ($4,500,000 3,600,000)/$4,500,000 = 20% 2006: 20% x $500,000 = $100,000 2007: 20% x [($4,500,000 500,000)/2] = $400,000 76. In its December 31, 2006, balance sheet, Rigsby would report: A) Realized gross profit of $100,000. B) Deferred gross profit of $100,000. C) Installment receivables (net) of $3,200,000. D) Installment receivables (net) of $4,000,000. Register to View AnswerLearning Objective: 2 Level of Learning: 3 Rationale: Sale: Installment receivables 4,500,000 Inventory 3,600,000 Deferred gross profit 900,000 Payment: Cash 500,000 Installment receivables 500,000 Deferred gross profit 100,000 Realized gross profit 100,000 Balance sheet: Installment receivables $4,500,000 500,000 Deferred gross profit: $900,000 100,000 Installment receivables (net) $4,000,000 800,000 $3,200,000 77. At December 31, 2007, Rigsby would report in its balance sheet: A) Realized gross profit of $500,000. B) Deferred gross profit of $400,000. C) Realized gross profit of $400,000. D) Cost of installment sales $1,600,000. Register to View AnswerLearning Objective: 2 Level of Learning: 3 Rationale: 12/15/07 Cash 2,00,000 Installment receivables 2,000,000 Deferred gross profit 400,000 Realized gross profit 400,000 Balance sheet: Deferred gross profit: $800,000 400,000 = $400,000 Realized gross profit of $400,000 would be reported in the income statement. Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Merchandise costing $30,000 was sold for $55,000 in 2005. Collections on this sale were $20,000 in 2005, $15,000 in 2006, and $20,000 in 2007. 78. In 2005, Reliable would recognize gross profit of: A) $ 0. B) $25,000. C) $ 8,090. D) $ 8,333. Register to View AnswerLearning Objective: 2 Level of Learning: 3 Rationale: Costs not yet recovered. 79. In 2006, Reliable would recognize gross profit of: A) $ 0. B) $ 6,000. C) $ 5,000. D) $10,000. Register to View AnswerLearning Objective: 2 Level of Learning: 3 Rationale: Cost $30,000 2006 payment 2005 cost recovery (20,000 ) Cost recovery Remaining cost $10,000 Gross profit 80.In 2007, Reliable would recognize gross profit of: A) $ 0. B) $ 6,000. C) $ 8,000. D) $20,000. Register to View AnswerLearning Objective: 2 Level of Learning: 3 $15,000 (10,000 ) $5,000 Rationale: Cost 2005 cost recovery 2006 cost recovery Remaining cost $30,000 (20,000 ) (10,000 ) 0 The entire $20,000 payment received in 2007 is recognized as gross profit. 81. In its 2005 year-end balance sheet, Reliable would report installment receivables (net) of: A) $20,000. B) $35,000. C) $25,909. D) $10,000. Register to View AnswerLearning Objective: 2 Level of Learning: 3 Rationale: Sale: Installment receivables 55,000 Inventory Deferred gross profit Payment: Cash 20,000 Installment receivables Balance sheet: Installment receivables $55,000 20,000 Deferred gross profit receivables Installment (net) 30,000 25,000 20,000 $35,000 (25,000 ) $10,000 82. In its 2006 year-end balance sheet, Reliable would report installment receivables (net) of: A) $ 0. B) $20,000. C) $ 4,000. D) $15,000. Register to View AnswerLearning Objective: 2 Level of Learning: 3 Rationale: Sale: Installment receivables 55,000 Inventory Deferred gross profit 2005: Cash 20,000 Installment receivables Cash 15,000 Installment receivables 2006: Deferred gross profit 5,000 Realized gross profit Balance sheet: Installment receivables Deferred gross profit Installment receivables (net) 30,000 25,000 20,000 15,000 5,000 $20,000 (20,000 ) $ 0 JRE Inc. entered into a contract to install a pipeline for a fixed price of $2,200,000. JRE uses the percentage-of-completion method of revenue recognition. Cost incurred Estimated Cost to Complete 2005 $ 250,000 $1,550,000 2006 1,600,000 500,000 2007 450,000 0 71. In 2005, JRE would report (rounded to the nearest thousand) gross profit (loss) of : A) $0. B) $(100,000). C) $ 56,000. D) $ 73,000. Register to View AnswerLearning Objective: 4 Level of Learning: 3 Rationale: $250,000/($250,000 + 1,550,000) = 13.89% 13.89% x ($2,200,000 - 250,000 - 1,550,000) = $55,560 or $56,000 rounded 72. In 2006, JRE would report (rounded to the nearest thousand) gross profit (loss) of: A) $ (223,000). B) $ (150,000). C) $ (206,000). D) $(102,000). Register to View AnswerLearning Objective: 4 Level of Learning: 3 Rationale: 2006: $2,200,000 - ($250,000 + 1,600,000 + 500,000) = $(150,000) $(150,000) - 55,560 = $(205,560) or $(206,000) rounded 73. In 2007, JRE would report (rounded to the nearest thousand) gross profit (loss) of: A) $(100,000). B) $ 50,000. C) $ 123,000. D) $ 2,000. Register to View AnswerLearning Objective: 4 Level of Learning: 3 Rationale: 2007: $2,200,000 - ($250,000 + 1,600,000 + 450,000) = $(100,000) $(100,000) - (150,000) = $50,000 Arizona Desert Homes (ADH) constructed a new subdivision during 2005 and 2006 under contract with Cactus Development Co. Relevant data are summarized below: Contract amount $3,000,000 Cost: 2005 1,200,000 2006 600,000 Gross profit: 2005 800,000 2006 400,000 Contract 2005 1,500,000 billings: 2006 1,500,000 ADH uses the percentage-of-completion method to recognize revenue. 68.What would be the journal entry made in 2005 to record revenue? A) Accounts receivable 1,500,000 Revenue for long-term contracts B) Accounts receivable 2,300,000 Gross profit Revenue for long-term contracts C) Construction in progress 800,000 Cost of construction 1,200,000 Revenue for long-term contracts D) Accounts receivable 1,500,000 Billings in excess of cost 300,000 Revenue for long-term contracts Register to View AnswerLearning Objective: 4 Level of Learning: 3 Rationale: Cost + profits: $1,200,000 + 800,000 = $2,000,000 Billings: 1,500,000 Excess: $ 500,000 69. In its December 31, 2005 balance sheet, ADH would report: A) The asset, cost and profits in excess of billings of $500,000. B) The liability, billings in excess of cost of $300,000. C) The asset, contract amount in excess of billings of $1,500,000. D) The asset, deferred profit of $ 400,000. Register to View AnswerLearning Objective: 4 Level of Learning: 3 Rationale: Cost + profits: $1,200,000 + 800,000 = $2,000,000 Billings: 1,500,000 Excess: $ 500,000 70. What would be the journal entry to record revenue in 2006? A) Accounts receivable 1,500,000 Revenue for long-term contracts B) Construction in progress 400,000 Cost of construction 600,000 Revenue for long-term contracts C) Cost of construction 2,000,000 Gross profit 1,000,000 Revenue for long-term contracts D) Accounts receivable 1,500,000 Cost of construction Gross profit Deferred revenue Register to View AnswerLearning Objective: 4 Level of Learning: 3 1,500,000 800,000 1,500,000 2,000,000 1,800,000 1,500,000 1,000,000 3,000,000 600,000 600,000 300,000 ... View Full Document

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