Su06Ch18_Solutions - Chapter 18 Revenue Recognition Homework Solutions EXERCISE 18-5(10-15 minutes(a Contract billings to date Less accounts receivable

Su06Ch18_Solutions - Chapter 18 Revenue Recognition...

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Chapter 18: Revenue Recognition Homework Solutions EXERCISE 18-5 (10-15 minutes) (a) Contract billings to date $61,500 Less accounts receivable 12/31/04 21,500 Portion of contract billings collected $40,000 $18,200 (b) $65,000 = 28% (The ratio of gross profit to revenue recognized in 2004.) $1,000,000 X .28 = $280,000 (The initial estimated total gross profit before tax on the contract.) EXERCISE 18-11 (15-20 minutes) (a) Computation of gross profit recognized: 2004 2005 $370,000 X 30%* $111,000 $350,000 X 30%* $105,000 $475,000 X 32%** ______________ 152,000 $111,000 $257,000 * *($900,000 – $630,000) ÷ $900,000 **($1,000,000 – $680,000) ÷ $1,000,000 (b) Installment Accounts Receivable—2005 ................................................... 1,000,000 Installment Sales ............................................................................. 1,000,000 Cost of Installment Sales ............................................................................ 680,000 Inventory ......................................................................................... 680,000 Cash ............................................................................................. 825,000 Installment Accounts Receivable— 2004 .............................................................................................. 350,000 Installment Accounts Receivable— 2005 .............................................................................................. 475,000 Installment Sales ......................................................................................... 1,000,000 Cost of Installment Sales ................................................................ 680,000 Deferred Gross Profit on Installment Sales—2005 .................................................................................. 320,000 Deferred Gross Profit on Installment Sales—2004 ............................................................................................... 105,000 Deferred Gross Profit on Installment Sales—2005 ............................................................................................. 152,000 Realized Gross Profit on Installment Sales ............................................................................................. 257,000 Realized Gross Profit on Installment Sales ......................................................................................................... 257,000 Income Summary ............................................................................ 257,000
Chapter 18: Revenue Recognition Homework Solutions EXERCISE 18-12 (15-20 minutes) (a) Deferred Gross Profit—2004 ..................................................................... 3,150* Deferred Gross Profit—2005 ..................................................................... 12,400** Deferred Gross Profit—2006 ..................................................................... 69,400*** Realized Gross Profit ...................................................................... 84,950 (To recognize gross profit on installment sales) *Adjustment for deferred gross profit—2004: Balance in deferred gross profit account prior to adjustment $7,000 Balance after adjustment ($11,000 X 35%) 3,850 Adjustment $3,150 **Adjustment for deferred gross profit—2005: Balance in deferred gross profit account prior to adjustment $26,000 Balance after adjustment ($40,000 X 34%) 13,600 Adjustment $12,400 ***Adjustment for deferred gross profit—2006: Balance in deferred gross profit account prior to adjustment $95,000 Balance after adjustment ($80,000 X 32%) 25,600 Adjustment $69,400 (b) Cash collected in 2003 on accounts receivable of 2004: $3,150/35% = $9,000. Cash collected in 2003 on accounts receivable of 2005: $12,400/34% = $36,470.59. Cash collected in 2003 on accounts receivable of 2006: $69,400/32% = $216,875.