{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

2.14.11 Lecture - Part II

2.14.11 Lecture - Part II - 5 21...

Info icon This preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 5- 21 Percentage-of—CompletionMethod Allocation of Gross Profit » _ 201 1 201 2 Contract price $5,000,000 $5,000,000 $5,000,000 Construction casts: Actual costs incurred during the year $1,500,000 $1,000,000 $1,600,000 Actual costs incurred in prior years —0— 1,500,000 2,500,000 Cumulative actual costs. incurred to date $1,500,000 $2,500,000 $4,100,090 Estimated remaining costs to complete 2,250,000 1,500,000 -0— Total costs (actual + estimated] $3,750,000 54.000300 $4,100,000 Total gram profit (contract price — total coals) $1,250,000 51,000,000 $ 900,000 Multipfiad by: x x x Parcentage—of-com p-Eetian: Actual costs to $1,500,000 $2,500,000 $4,100,000 date divided by the estimated total project 53.750330 “Imam 54'109'0‘10 “‘3“ = 40% = 52.5% - , Equak: Gross profit earned to date $ 500,000 $ 625,000 5 900,000 Lass: Gross profit recognized in prior periods -0- {500,000} (525,000) Equals: Gross profit recognized curmntw $ 500,000 $ 125,000 $ 275,000 Peroentage—of—Completion Method Allocation of Gross Profit 011 construction costs 011 gross profit ' End balance, 2011 012 construction costs 012 gross profit End balance, 2012 013 construction costs 013 gross profit 'alance, before closing Construction in Progress 1 , 500,000 500,000 2,000,000 1,000,000 125,000 3,1 25,000 1 ,600,000 2? 5,000 5,000,000 Porcentage-of-Complefion Billings on Construction Contract 1 200,000 2,000,000 1 300,000 5,000,000 2011 billings 2012 billings 2013 billings Balance, hemp closing What if a loss is projected on the entire project? 2011 2012 2013 Actual costs incurred during the year $1,500,000 $1,250,000 $2,440,000 Actual costs incurred in prior years —0— 1,500,000 2,750,000 Cumulative actual costs incurred 1,500,000 2,760,000 5,200,000 Estimated costs to complete 2,250,000 2,340,000 —0— Total costs {actual + estimated) £350,900 §5,100,000 §§,goo,oog In this situation, the total anticipated loss must be recognized in 2012 for both the percentage-of- completion method and the completed contract method. As a gross profit of $500,000 was recognized in 2011 using the percentage-of—completion method, a 36000001055 is recognized in 201T 2 so that the cumulative amount recognized to date totals a $100,000 loss. 2012 Revenue recognized to date (55,000,000 x 54.12%)* $2,705,000 Less: Revenue recognized in 2011 (2,000,000! Revenue recognized S 705,000 Cost of construction‘r , {1,305,000} Loss M) 2013 Revenue recognized to date ($5,000,000 x 100%) $5,000,000 Less: Revenue recognized in 2011 and 2012 12m ,000. 1 Revenue recognized $2,294,000 Cost of construction? (2,394,000) Loss § QOOQQQ) ”$2,760,000 + $5,100,000 = 54.12% viThe difference between revenue and loss The journal entries to record the losses in 2012 and 2013 are as follows: 2012 . Cost of construction Revenue from long-term contracts ........................ ' 705,000 Construction in progress (loss) ............. , .................. 500 ,000 2013 Cost of construction .................................................... Revenue from long-term contracts ........................ 2,294,000 Construction in progress (loss) ............................... 100,000 Revenue Recognition Exposure Draft (FYI only) CORE REVENUE RECOGNITION PRINCIPLE "An entity shall recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the entity receives, or expects to receive, in exchange for those goods or services.” KEY STEPS IN APPLYING THE PRINCIPLE 1. Identify a contract(s) with a customer. Contract needs: a. Commercial substance. b. Approval. c. Specified rights and obligations. d. Specified (or estimable) payment terms. e. Some non-cancelation aspect. 2. Identify the separate performance obligations in the contract. a. Estimate right of return and warrantee for latent defects and record as allowances. b. Include other warrantees as separate performance obligations. 3. Determine the transaction price. a. Only include amounts that can be reasonably estimated. b. Include allowance for customer credit risk. c. Consider time value of money. 4. Allocate the transaction price to the separate performance obligations. a. On a proportional basis. 5. Recognize revenue when the entity satisfies each performance obligation. Based on transfer of control. a. Key indicators that control of a good or service has passed from the seller to the buyer: i. buyer has an unconditional obligation to pay. ii. buyer has legal title. iii. buyer has physical possession. iv. buyer-specific design. b. Note: suggests only have percentage of completion accounting if seller transferring title to work in process as construction occurs! ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern