ch18 practice

Cash cost estimated total billings collections

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Cash Cost Estimated Total Billings Collections Incurred Additional Contract through through through Costs to Contract Price 12/31/11 12/31/11 12/31/11 Complete X \$260,000 \$165,000 \$155,000 \$182,000 \$ 63,000 Y 330,000 115,000 115,000 100,000 247,000 Z 233,000 233,000 198,000 158,000 -0- \$823,000 \$513,000 \$468,000 \$440,000 \$310,000 Each of the above contracts is with a different customer, and any work remaining at December 31, 2011 is expected to be completed in 2012. Instructions Prepare a partial income statement and a partial balance sheet to indicate how the above contract information would be reported. Evans uses the completed-contract method. Solution 18-134 Evans Construction, Inc. Income Statement For the Year 2011 Revenue from long-term contracts (contract Z) \$233,000 Cost of construction (contract Z) 158,000 Gross profit \$ 75,000 Provision for loss (contract Y)* 17,000 *Contract costs through 12/31/11 \$100,000 Estimated costs to complete 247,000 Total estimated costs 347,000 Total contract price 330,000 Loss recognized in 2011 \$ 17,000 18 - 46

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Revenue Recognition Solution 18-134 (cont.) Evans Construction, Inc. Balance Sheet As of 12/31/11 Current assets: Accounts receivable (\$513,000 – \$468,000) \$ 45,000 Inventories Construction in process (contract X) \$182,000 Less: Billings 165,000 Unbilled contract costs 17,000 Current liabilities: Billings (\$115,000) in excess of contract costs (\$100,000) 15,000 Estimated loss from long-term contracts 17,000 Pr. 18-135 —Installment sales. Houser Appliances accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/12. Cash \$45,000 Installment accounts receivable—2010 20,000 Installment accounts receivable—2011 50,000 Installment accounts receivable—2012 90,000 Inventory 27,400 Repossessed merchandise 4,600 Accounts payable \$ 37,600 Deferred gross profit—2010 12,000 Deferred gross profit—2011 26,400 Common stock 125,000 Retained earnings 10,000 Installment sales 120,000 Cost of installment sales 78,000 Loss on repossessions 3,000 Operating expenses 13,000 \$331,000 \$331,000 Additional information: 2010 gross profit rate: 25% Total cash receipts during 2012: \$118,000 Merchandise sold in 2011 was repossessed in 2012 and the following entry was prepared: Deferred Gross Profit—2011 ..................................................... 2,400 Repossessed Merchandise ....................................................... 4,600 Loss on Repossessions ............................................................. 3,000 Installment Accounts Receivable—2011 ........................ 10,000 18 - 47
Test Bank for Intermediate Accounting, Thirteenth Edition Pr. 18-135 (cont.) Instructions (a) What is the gross profit rate for 2011? Show supporting computations. (b) What is the gross profit rate for 2012? Show supporting computations. (c) Of the total cash receipts in 2012, how much represents collections from installment sales of: (Show supporting computations.) (1) 2010? (2) 2011? (3) 2012? (d) What is the total realized gross profit in 2012? Show supporting computations. Solution 18-135 (a) Determined from the repossession entry: Deferred gross profit \$2,400 ———— = 24% Installment accounts receivable \$10,000 b) Installment sales \$120,000 Cost of sales 78,000 Gross profit \$ 42,000 Gross profit \$42,000 ————- = 35% gross profit rate Installment sales \$120,000 (c) 2010 Deferred gross profit balance \$ 12,000 Gross profit rate ÷ 25% Beginning accounts receivable \$ 48,000 Beginning accounts receivable \$ 48,000 Ending accounts receivable (20,000 ) Cash collected \$ 28,000 2011 Deferred gross profit balance \$ 26,400 Gross profit rate ÷ 24% Beginning accounts receivable* \$110,000 Beginning accounts receivable* \$110,000 Ending accounts receivable* (50,000 ) Cash collected \$ 60,000 2012

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