Judy Beasley-AC501-02-Unit 3-Textbook Assignment

# Judy Beasley-AC501-02-Unit 3-Textbook Assignment - Judy...

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Judy Beasley AC501-02 December 20, 2011 Textbook Assignments Exercises Chapter 7 E7-5 Recognition of Profit for Long-Term Contracts A) Completed – Contract Method There is no computation that can be done, because no gross profit will be recognized before the completion of the contract. B) Percentage – of – Completion Method Total contract price \$ 6,300,000 Total estimated cost (\$1,185,800 + 4,204,200) \$ 5,390,000 Estimated Total gross profit from contract \$ 910,000 Percentage completed (\$1,185,800 / 5,390,000) 22% Gross profit to be recognized during the year (\$910,000 X 22%) \$ 200,200 E7-8 Installment-Sales and Cost-Recovery Methods A) Installment Sales Method Sale Year Gross Profit Percentage 2009 Collections 2009 Realized Profit 2008 0.25 / (1.00 + 0.25) = 20% \$ 240,000 \$ 48,000 2009 0.28 / (1.00 + 0.28) = 21.875% \$ 180,000 \$ 39,375 Total \$ 87,375 B) Cost Recovery Method Since, Gross profit as a percent of sales for 2008 equals 20%, as I have shown above in step A. Therefore, Gross Profit would be \$96,000 (\$480,000 X 20%) and also the 2008 sales would equal \$384,000 (\$480,000 – 96,000). Which in turn the amounts collected in

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## This note was uploaded on 03/11/2012 for the course BUSINESS AC501 taught by Professor Smith during the Spring '12 term at Kaplan University.

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Judy Beasley-AC501-02-Unit 3-Textbook Assignment - Judy...

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