Chapter 18 Homework

Chapter 18 Homework The following information relates to a long term construction project of the Feldbrand Corporation: Year 1 Costs to date 50,000 Billings to date 40,000 Cash collections to date 40,000 Estimated costs To complete 140,000

Year 2 120,000 130,000 120,000

Year 3 200,000 250,000 250,000

80,000

Assume a contract price of $ 250,000. Prepare journal entries and a partial balance sheet for each year under: a. The completed contract method b. The percentage of completion method. Aspen enters into a contract for $ 840,000. The following data is available: Year 1 Costs incurred during the year 320,000 Estimated costs to complete 320,000

Year 2 260,000 145,000

Year 3 145,000 0

How much profit/loss should be recognized each year under: a. The completed contract method b. The percentage of completion method Long-term contract accounting (completed-contract). Ponce Construction, Inc. experienced the following construction activity in 2008, the first year of operations.

Contract X Y Z

Total Contract Price $260,000 330,000 233,000 $823,000

Billings through 12/31/08 $165,000 115,000 233,000 $513,000

Cash Collections through 12/31/08 $155,000 115,000 198,000 $468,000

Cost Incurred through 12/31/08 $182,000 100,000 158,000 $440,000

Estimated Additional Costs to Complete $ 63,000 247,000 -0$310,000

Each of the above contracts is with a different customer, and any work remaining at December 31, 2008 is expected to be completed in 2009.

Instructions Prepare a partial income statement and a partial balance sheet to indicate how the above contract information would be reported. Ponce uses the completed-contract method. Company C uses the percentage of completion method for construction projects. During Years 1 and 2, it incurred costs of $ 10,000 and $ 20,000 respectively, and it expects to incur another $40,000 in the future. In Year 1, it recognized $ 5,000 profit. The total contract price is $ 150,000. How much profit should they recognize in Year 2? If Company C uses the completed contract method, how much profit should they recognize in Year 1 and Year 2? In Year 3, Company C determines that it will make a loss of $ 50,000. How much gain or loss should Company C recognize in Year 3 under each of the two methods? The contract price was $ 2,000,000. The percentage of completion method is used. The following financial statement information follow for Year 1: Balance Sheet: Accounts Receivable Const. In Progress Less: Billings

$ 43,000 $ 130,000 $ 123,000

Const in excess of billings

$ 7,000

Income Statement: Income recognized in 2007

$ 36,400

a. How much cash was collected on this contract in Year 1? b. What was the initial estimated total income before tax on this contract? S&W Metals Inc. had the following information regarding its installment sales for Year 1 and Year 2. Prepare journal entries for both years. Year 1 Year 2 Sales 300,000 500,000 COGS 180,000 350,000 Collection on Year 1 Sales 140,000 160,000

Collection on Year 2 Sales 0 400,000 A customer’s AR balance is $ 30,000 and the Gross Profit percentage is 20% on sales. The customer defaults, and the merchandise, having a fair market value of $ 27,000 is repossessed. What is the gain or loss on this transaction? The Very Poor Company is involved in making installment sales whose probability of collection is extremely low. So it uses the cost recovery method. Information for two years of installment sales is as follows: Sales COGS Collection of Year 1 sales Collection of Year 2 sales

Year 1 50,000 35,000 25,000 0

How much profit should be recognized each year?

Year 2 80,000 60,000 15,000 40,000