AC 302 Chapter 18 Questions AND Problems
Exercise 18 Question 7
Name Date
Instructor Course
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E18-7 (Sales Recorded Both Gross and Net) On June 3, Hunt Company sold to Ann Mount
merchandise having a sales price of $8,000 with terms of 2/10, n/60, f.o.b. shipping
point. An invoice totaling $120 , terms n/30, was received by Mount on June 8 from
the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified
Hunt Company that merchandise costing $600 contained flaws that rendered it worthless.
The same day, Hunt Company issued a credit memo covering the worthless merchandise and asked
that it be returned at company expense. The freight on the returned merchandise was $24
paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount.
Instructions:
(a)(1) Prepare journal entries on Hunt Company books to record all the events noted above under the sales and receivables are entered at gross selling price concept.
Jun 3 Account Title Amount
Account Title Amount
Jun 5 Account Title Amount
Account Title Amount
Jun 7 Account Title Amount
Account Title Amount
Jun 12 Account Title Amount
Account Title Amount
Account Title Amount
(a)(2) Prepare journal entries on Hunt Company books to record all the events noted above under the sales and receivables are entered net of cash discounts concept.
Jun 3 Account Title Amount
Account Title Amount
Jun 5 Account Title Amount
Account Title Amount
Jun 7 Account Title Amount
Account Title Amount
Jun 12 Account Title Amount
Account Title Amount
"(b) Prepare the journal entry under basis 2, assuming that Ann Mount did not remit payment until
August 5."
Aug 5 Account Title 4600 Amount
Account Title Amount
Account Title Amount
Exercise 18-14
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E18-14 (Gross Profit on Uncompleted Contract) On April 1, 2012, Dougherty Inc. entered into a cost-plus-fixed-fee contract to construct an electric generator for Altom Corporation. At the contract date,
Dougherty estimated that it would take 2 years to complete the project at a cost of $2,000,000
The fixed fee stipulated in the contract is $450,000 Dougherty appropriately accounts for this
contract under the percentage-of-completion method. During 2012, Dougherty incurred costs of
$800,000 related to the project. The estimated cost at December 31, 2012, to complete the
contract is $1,200,000 Altom was billed $600,000 under the contract.
Instructions:
Prepare a schedule to compute the amount of gross profit to be recognized by Dougherty under the contract for the year ended December 31, 2012. Show supporting computations in good form.
DOUGHERTY INC.
Computation of Gross Profit to Be Recognized on Uncompleted Contract
For The Year Ended December 31, 2012
Total contract price
Title Amount
Title Amount
Total Formula
Total estimated cost Amount
Title Amount
Title Formula
Gross profit to be recognized Formula
Problem 18-3
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P18-3 (Recognition of Profit and Entries on Long-Term Contract) On March 1, 2012, Chance Company entered
into a contract to build an apartment building. It is estimated that the building will cost $2,000,000 and will take 3 years
to complete. The contract price was $3,000,000 The following information pertains to the construction period.
2012 2013 2014
Costs to date: $600,000 $1,560,000 $2,100,000
Estimated costs to complete: 1,400,000 520,000 0
Progress billing to date: 1,050,000 2,000,000 3,000,000
Cash collected to date: 950,000 1,950,000 2,850,000
Instructions:
(a) Compute the amount of gross profit to be recognized each year assuming the percentage-of-completion method is used.
Gross profit recognized in:
2012 2013 2005 2014
Contract price Amount Amount Amount
Costs:
Costs to date Amount Amount Amount
Estimated costs to complete Amount Formula Amount Formula Formula
Total estimated profit Formula Formula Formula
Percentage completed to date Formula Formula Formula
Total gross profit recognized Formula Formula Formula
Less: GP recognized in previous years Amount Formula Formula
Gross profit recognized in current year Formula Formula Formula
(b) Prepare all necessary journal entries for 2014.
Account Title Amount
Account Title Amount
Accounts Receivable Amount
Account Title Amount
Account Title Amount
Account Title Amount
Account Title Amount
Account Title Amount
Account Title Amount
Account Title Amount
Account Title Amount
(c) Prepare a partial balance sheet for December 31, 2013, showing the balances in the receivables and inventory accounts.
CHANCE COMPANY
Balance Sheet (Partial)
December 31, 2013
Current assets:
Title Amount
Inventories
Title Amount
Less: Title Amount
Costs and recognized gross profit in excess of billings Formula
Problem 18-5
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.
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