Exam 8: Revenue Recognition

A consignment sale is an example of a principal-agent arrangement.

IT Technology enters into a contract with the federal government to create a system for the price of $8 million. IT receives $3 million when the contract is signed and the other $5 million upon completion of the project. The government maintains control of the system during the creation process. IT estimates that 15,000 labor hours will be required to complete the product. During the current year 7,000 labor hours are used and during the following year, the remaining 8,000 hours were used. What is the journal entry at inception of the project?

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,700,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete the project are $5,000,000. Tullis billed $4,000,000 in year 1 and collected $3,500,000 by the end of the end of the year. How should Tullis report Construction in Progress and Billings on Construction in Progress at the end of year 1 on the balance sheet assuming the use of the completed-contract method?

An automotive magazine charges an annual subscription fee of $300, with customers prepaying the fee. Subscribers receive 50 issues for the annual fee. The publisher provides the new subscribers with a discount coupon good for a 30 percent discount on a race car ride at a major track. The list price of the ride along experience is $200. The company estimates that 35% of the coupons will be utilized. What is the number of performance obligations?

At the beginning of 2019 Gordo Yachts enters into a contract to build a luxury yacht for a customer that is expected to take three years to complete. The contract price is $4,000,000. Completion is scheduled for the end of 2021. Gordo's year end is December 31. The following is a year by year summary of construction costs incurred and the estimated costs to complete the projects at the end of each year. Actual costs incurred current year \ 750,000 \ 2,250,000 \ 775,000 actual costs incurred prior years Cumulative actual costs incurred to date 750,000 3,000,000 3,775,000 Estimated costs to Complete end of year Total Cost \ 3,000,000 \ 3,750,000 \ 3,775,000 Billings \ 700,000 \ 2,600,000 \ 700,000 Cash Collections 500,000 2,000,000 1,500,000 Compute gross profit for 2019, 2020, and 2021 assuming the use of the completed- contract method.

The cumulative percentage of completion is found by dividing the total costs incurred to date by the estimated total cost of the project.

A performance obligation is a promise to transfer a good or service that is distinct.

At the beginning of 2019 Premier Yachts enters into a contract to build a luxury yacht for a customer that is expected to take three years to complete. The contract price is $12,000,000. Completion is scheduled for the end of 2021. Premier's year end is December 31. The following is a year by year summary of construction costs incurred and the estimated costs to complete the projects at the end of each year. Actual costs incurred current year \ 2,250,000 \ 6,750,000 \ 2,325,000 Actual costs incurred Prior years Cumulative actual costs incurred to date 2,250,000 9,000,000 11,325,000 Estimated costs to complete end of year Total Costs \ 9,000,000 \ 11,250,000 \ 11,325,000 Billings \ 2,100,000 \ 7,800,000 \ 2,100,000 Cash Collections 1,500,000 6,000,000 4,500,000 Required: Calculate the gross profit for each year assuming the percentage of completion method is used.

A yacht dealer sells high performance yachts to affluent customers. The sale also includes a 90-day warranty against any defects in workmanship. The number of performance obligations for each yacht is ________.

The Billings on Construction in Progress is a(n) ________.

For information to be relevant it should have predictive value which is a primary reason to use the completed-contract method.

Revenue recognition deals with the issues of timing and measurement of revenue.

Another name for channel stuffing is ________.

Kramer Iron Works Kramer Iron Works signs a contract to provide three different products to a customer for a total transaction price of $325,000. Each product represents a separate performance obligation. Kramer only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table. Market Standalone Competition Forecasted Product Selling Price Price Cost A-1 \ 87,500 \ 66,500 \ 60,000 A-2 150,000 156,000 125,000 A-3 Not Available Total \ 322,500 \ 250,00 -Refer to Kramer Iron Works. Allocate the transaction price using the adjusted market assessment approach. Round percentages to two decimal places.

At the beginning of 2017 Premier Yachts enters into a contract to build a luxury yacht for a customer that is expected to take three years to complete. The contract price is $12,000,000. Completion is scheduled for the end of 2019. Premier's year end is December 31. The following is a year by year summary of construction costs incurred and the estimated costs to complete the projects at the end of each year. Actual costs incurred current year \ 2,250,000 \ 6,750,000 \ 2,325,000 Actual costs incurred Prior years Cumulative actual costs incurred to date 2,250,000 9,000,000 11,325,000 Estimated costs to complete end of year Total Costs \ 9,000,000 \ 11,250,000 \ 11,325,000 Billings \ 2,100,000 \ 7,800,000 \ 2,100,000 Cash Collections 1,500,000 6,000,000 4,500,000 Required: Prepare the entries under the completed-contract method for 2019

Tullis Construction enters into a long-term fixed price contract to build an office tower for $10,100,000. In the first year of the contract Tullis incurs $3,000,000 of cost and the engineers determined that the remaining costs to complete the project are $5,000,000. Tullis billed $5,000,000 in year 1 and collected $3,500,000 by the end of the year. How much should Tullis report as Accounts Receivable at the end of year 1 on the balance sheet assuming the use of the completed-contract method?

Costanzo Auto Shop Costanzo Auto Shop signs a contract to provide three different products to a customer for a total transaction price of $975,000. Each product represents a separate performance obligation. Costanzo only sells two of the three products on an individual basis so they must estimate the standalone selling price for the third product. The information about these three products is provided in the following table. Market Standalone Competition Forecasted Zoom-1 \ 262,500 \ 199,500 \ 180,000 Zoom-2 450,000 468,000 375,000 Zoom-3 Not Available Total 7950,000 \ 67,500 -Refer to Costanzo Auto Shop. Allocate the transaction price using the adjusted market assessment approach. Round percentages to two decimal places.

In determining the transaction price, when does a significant financing component exist?

Billings in excess of costs and recognized profits are carried on the balance sheet as a(n) ________.

Costs and recognized profits in excess of billings are carried on the balance sheet as a(n) ________.