Exam 18: Revenue Recognition

Terry Company is unable to reliably estimate revenues and costs associated with its only long-term construction contract. Under IFRS, Terry Company must use the completed-contract method to account for this contract.

Use the following information for questions 96-98. During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. -What is the rate of gross profit on the installment sales made by Vaughn Corporation during 2014?

Daily, Inc. appropriately used the installment method of accounting to recognize income in its financial statement. Some pertinent data relating to this method of accounting include: What amount to be realized gross profit should be reported on Daily's income statement for 2015?

For which of the following products is it appropriate to recognize revenue at the completion of production even though no sale has been made?

The International Accounting Standards Board (IASB) defines revenue to include both revenues and gains.

Use the following information for questions 96-98. During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000. -What amount would be shown in the December 31, 2015 financial statement for realized gross profit on 2014 installment sales, and deferred gross profit on 2014 installment sales, respectively?

Trade loading is a practice through which manufacturers try to show sales, profits, and market share they don't actually have.

Dixon Construction Company was awarded a contract to construct an interchange at the junction of U.S. 94 and Highway 30 at a total contract price of $12,000,000. The estimated total costs to complete the project were $9,000,000. Instructions (a) Make the entry to record construction costs of $5,400,000, on construction in process to date. (b) Make the entry to record progress billings of $3,000,000. (c) Make the entry to recognize the profit that can be recognized to date, on a percentage-of-completion basis.

Deferred gross profit on installment sales is generally treated as a(n)

Adler Construction Co. uses the percentage-of-completion method. In 2014, Adler began work on a contract for $6,600,000 and it was completed in 2015. Data on the costs are: For the years 2014 and 2015, Adler should recognize gross profit in 2014 and 2015 of

Penner Builders contracted to build a high-rise for $28,000,000. Construction began in 2014 and is expected to be completed in 2017. Data for 2014 and 2015 are: Penner uses the percentage-of-completion method. Instructions (a) How much gross profit should be reported for 2014? Show your computation. (b) How much gross profit should be reported for 2015? (c) Make the journal entry to record the revenue and gross profit for 2015.

Companies can recognize revenue prior to completion and delivery of the product under certain circumstances.

Melton Company sold some machinery to Addison Company on January 1, 2014. The cash selling price would have been $947,700. Addison entered into an installment sales contract which required annual payments of $250,000, including interest at 10%, over five years. The first payment was due on December 31, 2014. What amount of interest income should be included in Melton's 2015 income statement (the second year of the contract)?

Revenues are realized when a company exchanges goods and services for cash or claims to cash.

The most popular input measure used to determine the progress toward completion in long-term contracts is the cost-to-cost basis.

Use the following information for questions 108 and 109. On May 1, 2015, TV Inc. consigned 80 TVs to Ed's TV. The TVs cost $450. Freight on the shipment paid by Ed's TV was $1,000. On July 10, TV Inc. received an account sales and $21,500 from Ed's TV. Thirty TVs had been sold and the following expenses were deducted: Freight \ 1,000 Commission (20\% of sales price) ? Advertising 650 Delivery 350 -The inventory of TVs will be reported on whose balance sheet and at what amount?

Pasta Inn charges an initial fee of $1,600,000 for a franchise, with $320,000 paid when the agreement is signed and the balance in four annual payments. The present value of the annual payments, discounted at 10%, is $1,014,000. The franchisee has the right to purchase $60,000 of kitchen equipment and supplies for $50,000. An additional part of the initial fee is for advertising to be provided by Pasta Inn during the next five years. The value of the advertising is $1,000 a month. Collectibility of the payments is reasonably assured and Pasta Inn has performed all the initial services required by the contract. InstructionsPrepare the entry to record the initial franchise fee. Show supporting computations in good form.

IFRS prohibits use of the percentage-of-completion method of accounting for long-term construction contracts.

Remington Construction Company uses the percentage-of-completion method. During 2014, the company entered into a fixed-price contract to construct a building for Sherman Company for $24,000,000. The following details pertain to the contract: The amount of construction costs incurred during 2015 was

All units in a multiple-deliverable arrangement are considered separate units of accounting, provided that: