AC 302 Chapter 18 Problem Question 5

AC 302 Chapter 18 Problem Question 5
Name				Date		
Instructor				Course		
Intermediate Accounting 14th Edition by Kieso Weygandt and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
P18-5 (Completed-Contract and Percentage-of-Completion with Interim Loss) Reynolds Custom Builders (RCB) was established in 1987 by Avery Conway and initially built high-quality customized homes under contract with specific buyers. In the 1990s, Conway- two sons joined the company and expanded RCB- activities into the high-rise apartment and industrial plant markets. Upon the retirement of RCB- long-time financial manager, Conway- sons recently hired Ed Borke as controller for RCB. Borke, a former college friend of Conway- sons, has been associated with a public accounting firm for the last 6 years.						
						
						
						
						
						
						
Upon reviewing RCB- accounting practices, Borke observed that RCB followed the completed-contract method of revenue recognition, a carryover from the years when individual home building was the majority of RCB- operations. Several years ago, the predominant portion of RCB- activities shifted to the high-rise and industrial building areas. From land acquisition to the completion of construction, most building contracts cover several years. Under the circumstances, Borke believes that RCB should follow the percentage-of-completion method of accounting. From a typical building contract, Borke developed the following data.						
						
						
						
						
						
						
	BLUESTEM TRACTOR PLANT					
	Contract price		$8,000,000 			
			2012	2013	2014	
	Estimated costs		$1,600,000 	$2,880,000 	$1,920,000 	
	Progress billings		1,000,000 	2,500,000 	4,500,000 	
	Cash collections		800,000 	2,300,000 	4,900,000 	
						
Instructions:						
"(a) Explain the difference between completed-contract revenue recognition and percentage-
     of-completion revenue recognition."						
						
						
Enter text answer here as appropriate.						
						
						
						
						
						
						
						
						
						
						
						
"(b) Using the data provided for the Bluestem Tractor Plant and assuming the percentage-of-completion
     method of revenue recognition is used, calculate RCB- revenue and gross profit for 2012, 2013,
     and 2014, under each of the following circumstances."						
						
						
"(1) Assume that all costs are incurred, all billings to customers are made, and all collections from
     customers are received within 30 days of billing, the RCB- revenue, cost of sales, and gross profit for 2012, 2013, and 2014, are calculated as follows:"						
						
						
Percentage-of-Completion (Cost-to-Cost Basis)						
($000 omitted)						
Year	"Contract
Price"	"Costs
to Date"	"Estimated
Total Costs"	"Estimated Gross
Profit"	"Percent
Complete"	
2012	Amount	Amount	Formula	Formula	Formula	
2013	Amount	Amount	Formula	Formula	Formula	
2014	Amount	Amount	Formula	Formula	Formula	
						
Revenue recognition						
Year	"Contract
Price"	"Percent
Complete"	"Revenue
Recognizable"	"Less Prior
Year(s)"	"Current
Year"	
2012	Amount	Formula	Formula	Formula	Formula	
2013	Amount	Formula	Formula	Formula	Formula	
2014	Amount	Formula	Formula	Formula	Formula	
						
Profit recognition						
Year	"Estimated
Profit"	"Percent
Complete"	"Profit
Recognizable"	"Less Prior
Year(s)"	"Current
Year"	
2012	Amount	Formula	Formula	Formula	Formula	
2013	Amount	Formula	Formula	Formula	Formula	
2014	Amount	Formula	Formula	Formula	Formula	
						
(2) Further assume that, as a result of unforeseen local ordinances and the fact that the building site						
     was in a wetlands area, RCB experienced cost overruns of					$800,000 	in 2012 to bring 
the site into compliance with the ordinances and to overcome wetlands barriers to construction.						
						
Percentage-of-Completion (Cost-to-Cost Basis)						
($000 omitted)						
Year	"Contract
Price"	"Costs
to Date"	"Estimated
Total Costs"	"Estimated Gross
Profit"	"Percent
Complete"	
2012	Amount	Amount	Amount	Formula	Formula	
2013	Amount	Amount	Amount	Formula	Formula	
2014	Amount	Amount	Amount	Formula	Formula	
						
Revenue recognition						
Year	"Contract
Price"	"Percent
Complete"	"Revenue
Recognizable"	"Less Prior
Year(s)"	"Current
Year"	
2012	Amount	Formula	Formula	Formula	Formula	
2013	Amount	Formula	Formula	Formula	Formula	
2014	Amount	Formula	Formula	Formula	Formula	
						
Profit recognition						
Year	"Estimated
Profit"	"Percent
Complete"	"Profit
Recognizable"	"Less Prior
Year(s)"	"Current
Year"	
2012	Amount	Formula	Formula	Formula	Formula	
2013	Amount	Formula	Formula	Formula	Formula	
2014	Amount	Formula	Formula	Formula	Formula	
						
(3) Further assume that, in addition to the cost overruns of				$800,000 	for this contract incurred 	
     under part (b)2, inflationary factors over and above those anticipated in the development of the 						
     original contract cost have caused an additional cost overrun of					$850,000 	in 2013. It is 
     not anticipated that any cost overruns will occur in 2014.						
						
Percentage-of-Completion (Cost-to-Cost Basis)						
($000 omitted)						
Year	"Contract
Price"	"Costs
to Date"	"Estimated
Total Costs"	"Estimated Gross
Profit"	"Percent
Complete"	
2012	Amount	Amount	Amount	Formula	Formula	
2013	Amount	Amount	Amount	Formula	Formula	
2014	Amount	Amount	Amount	Formula	Formula	
						
Revenue recognition						
Year	"Contract
Price"	"Percent
Complete"	"Revenue
Recognizable"	"Less Prior
Year(s)"	"Current
Year"	
2012	Amount	Formula	Formula	Formula	Formula	
2013	Amount	Formula	Formula	Formula	Formula	
2014	Amount	Formula	Formula	Formula	Formula	
						
Profit recognition						
Year	"Estimated
Profit"	"Percent
Complete"	"Profit
Recognizable"	"Less Prior
Year(s)"	"Current
Year"	
2012	Amount	Formula	Formula	Formula	Formula	
2013	Amount	Formula	Formula	Formula	Formula	
2014	Amount	Formula	Formula	Formula	Formula	
						
	Enter text answer as appropriate.