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Practice_Solutions_for_Final_Revision_Questions

Practice_Solutions_for_Final_Revision_Questions - Practice...

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Practice Solutions for Final Revision Questions Revenue Recognition E18-8 and E18-9 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 ........ 14 0,000 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.
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