ACT_3392_Chp_18_Homework_Solutions

ACT_3392_Chp_18_Homework_Solutions - Intermediate...

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Intermediate Accounting II Amanda N. Paul, CPA, MBA Troy University
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Chapter 18 EXERCISE 18-1 (a) Huish could recognize revenue at the point of sale based upon the time of shipment because the books are sold f.o.b. shipping point. Because of the return policy one might argue in favor of the cash collection basis. Because the returns can be estimated, one could argue for shipping point less estimated returns. (b) Based on the available information and lack of any information indicating that any of the criteria in FASB Statement No. 48 were not met, the correct treatment is to report revenue at the time of shipment as the gross amount less the 12% normal return factor. This is supported by the legal test of transfer of title and the criteria in SFAS No. 48 . One could be very conservative and use the 30% maximum return allowance. (c) Accounts Receivable 16,000,000 Sales Revenue—Texts 16,000,000 Sales Returns* ($16,000,000 X 12%) 1,920,000 Allowance for Sales Returns 1,920,000
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EXERCISE 18-1 (d) Sales Returns* 80,000 Allowance for Sales Returns 1,920,000 Accounts Receivable 2,000,000 Cash 14,000,000 Accounts Receivable 14,000,000 *A debit to Sales Revenue—Texts or Sales Returns could be made here.
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EXERCISE 18-4 (a) Gross profit recognized in: 2007 2008 2009 Contract price $1,500,000 $1,500,000 $1,500,000 Costs: Costs to date $400,000 $935,000 $1,070,000 Estimated costs to complete 600,000 1,000,000 165,000 1,100,000 0 1,070,000 Total estimated profit 500,000 400,000 430,000 Percentage completed to date 40%* 85%** 100% Total gross profit recognized 200,000 340,000 430,000 Less: Gross profit recognized in previous years 0 200,000 340,000 Gross profit recognized in current year $ 200,000 $ 140,000 $ 90,000 **$400,000 ÷ $1,000,000 **$935,000 ÷ $1,100,000
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(b) Construction in Process 535,000 ($935,000 – $400,000) Materials, Cash, Payables, etc. 535,000 Accounts Receivable ($900,000 – $300,000) 600,000 Billings on Construction in Process 600,000 Cash ($810,000 – $270,000) 540,000 Accounts Receivable 540,000 Construction Expenses 535,000 Construction in Process 140,000 Revenue from Long-Term Contracts 675,000* *$1,500,000 X (85% – 40%)
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This note was uploaded on 04/07/2009 for the course ACT 3392 taught by Professor Paul during the Spring '08 term at Troy.

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ACT_3392_Chp_18_Homework_Solutions - Intermediate...

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