Intermediate Accounting II Chapter 18+

Intermediate Accounting II Chapter 18+ - EXERCISE 18-7(2530...

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EXERCISE 18-7 (25 30 minutes) (a) 1. Gross profit recognized in 2010: Contract price ............................................... $1,200,000 Costs: Costs to date ......................................... $280,000 Estimated additional costs ................... 520,000 800,000 Total estimated profit ................................... 400,000 Percentage completion to date ($280,000/$800,000) .................................. 35% Gross profit recognized in 2010 .................. $ 140,000 Gross profit recognized in 2011: Contract price ............................................... $1,200,000 Costs: Costs to date ......................................... $600,000 Estimated additional costs ................... 200,000 800,000 Total estimated profit ................................... 400,000 Percentage completion to date ($600,000/$800,000) .................................. 75% Total gross profit recognized ...................... 300,000 Less: Gross profit recognized in 2010 ....... 140,000 Gross profit recognized in 2011 .................. $ 160,000
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EXERCISE 18-7 (Continued) 2. Construction in Process ($600,000 $280,000) .... 320,000 Materials, Cash, Payables, etc. ..................... 320,000 Accounts Receivable ($500,000 $150,000) ........ 350,000 Billings on Construction in Process ............. 350,000 Cash ($320,000 $120,000) ................................... 200,000 Accounts Receivable ..................................... 200,000 Construction in Process ....................................... 160,000 Construction Expenses ......................................... 320,000 Revenues from Long-Term Contracts .......... 480,000* *$1,200,000 X [($600,000 $280,000) ÷ $800,000] (b) Income Statement (2011) Gross profit on long-term construction contract ......... $160,000 Balance Sheet (12/31/11) Current assets: Receivables construction in process .................. $180,000* Inventories construction in process totaling $900,000** less billings of $500,000 ................... $400,000 * *$180,000 = $500,000 $320,000 **Total cost to date $600,000 2010 Gross profit 140,000 2011 Gross profit 160,000 $900,000
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EXERCISE 18-8 (15 20 minutes) (a) 2010 $640,000 X $2,200,000 = $880,000 $1,600,000 2011 $2,200,000 (contract price) minus $880,000 (revenue recognized in 2010) = $1,320,000 (revenue recognized in 2011). (b) All $2,200,000 of the contract price is recognized as revenue in 2011. (c) Using the percentage-of-completion method, the following entries would be made: Construction in Process ........................................ 640,000 Materials, Cash, Payables, etc. ...................... 640,000 Accounts Receivable ............................................. 420,000 Billings on Construction in Process ............. 420,000 Cash ........................................................................ 350,000 Accounts Receivable ...................................... 350,000 Construction in Process ........................................ 240,000* Construction Expenses ......................................... 640,000 Revenue from Long-Term Contracts [from (a)] ...................................................... 880,000 *[$2,200,000 ($640,000 + $960,000)] X ($640,000 ÷ $1,600,000) (Using the completed-contract method, all the same entries are made except for the last entry. No income is recognized until the contract is completed.)
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EXERCISE 18-9 (15 25 minutes) (a) Computation of Gross Profit to Be Recognized under Completed- Contract Method . No computation necessary. No gross profit to be recognized prior to completion of contract. Computation of Billings on Uncompleted Contract in Excess of Related Costs under Completed-Contract Method . Construction costs incurred during the year .................. $ 1,185,800 Partial billings on contract (25% X $6,000,000) ............... (1,500,000 ) $ (314,200 ) (b) Computation of Gross Profit to Be Recognized under Percentage- of-Completion Method . Total contract price ............................................................. $6,000,000 Total estimated cost ($1,185,800 + $4,204,200) ................. 5,390,000 Estimated total gross profit from contract ........................ 610,000 Percentage-of-completion ($1,185,800/$5,390,000) .......... 22% Gross profit to be recognized during the year ($610,000 X 22%) .............................................................. $ 134,200 Computation of Billings on Uncompleted Contract in Excess of Related Costs and Recognized Profit under Percentage-of- Completion Method . Construction costs incurred during the year .................... $ 1,185,800 Gross profit to be recognized during the year (above) .... 134,200 Total charged to construction-in-process ................. 1,320,000 Partial billings on contract (25% X $6,000,000) ................. (1,500,000 ) $ (180,000 )
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EXERCISE 18-10 (15 25 minutes) BERSTLER CONSTRUCTION COMPANY Partial Income Statement Year Ended December 31, 2010 Revenue from long-term contracts (Project 3) ......................... $520,000 Costs of construction (Project 3) ............................................... 330,000 Gross profit ................................................................................. 190,000 Loss on long-term contract (Project 1)* .................................... (20,000) *Computation of loss (Project 1)
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