Exam 4: Revenue and Recognition

Yang Construction Company entered into a contract to build a new airport terminal for $2,500,000.Construction commenced on August 1,2017,with a planned completion date of December 31,2019.A summary of the costs,billings,and collections is provided below: Yang uses the percentage of completion method.How much gross profit would Yang recognize in 2018?

Nichols Construction Company (NCC)entered into a contract to build a shopping complex for $1,900,000.Construction commenced on July 1,2017,with a planned completion date of December 31,2019.A summary of the related accounting information is provided below: How much would the balance in accounts receivable be on the balance sheet of NCC at the end of 2018 if NCC uses the percentage of completion method?

Explain whether each of the following transactions would be accounted for as a change in accounting policy,change in accounting estimate or as an error correction.Assume that the entity reports its financial results in accordance with ASPE and all transactions are material.

In the chart below,identify the revenue recognition method that you feel is most appropriate and also explain why.

On June 1,Electronics Distribution ships 100 TVs to TV World on consignment.Electronic Distribution's pays its wholesaler $500 for each TV.It then sells each TV for $800 to its retail customers including TV World.At the end of June,TV World sold 50 units.How much revenue should be recorded by Electronics Distribution for the month of June?

Sunshine Contractors started a contract in January 2017 to build a bridge at a fixed price of $14 million.The bridge was to be completed by October 2019.Total cumulative costs incurred by the end of December 2017 and 2018 were $2 million and $6 million,respectively.Sunshine is unable to estimate the total costs of the project prior to completion.Final costs at the end of the project totaled $11 million.How much cost of sales will Sunshine report in 2019?

In July,Telly-Rental sells a home theatre for $1,000 on an installment basis.The system costs Telly-Rental $400.Telly-Rental generally earns a gross profit of 15%.How much revenue is recorded by Telly-Rental in July?

Ying Construction Company entered into a contract to build a new airport terminal for $2,500,000.Construction commenced on August 1,2017,with a planned completion date of December 31,2019.A summary of the costs,billings,and collections is provided below: Ying uses the percentage of completion method.What amount would appear as accounts receivable on Ying's December 31,2018 balance sheet?

Philips Corp.is unsure how to record the following transactions: • $60,000 of goods shipped F.O.B shipping point on December 28,2018. • $50,000 of goods shipped F.O.B.destination point on December 31,2018. What amount of sales related to these two transactions should Philips Corp.record in fiscal 2018?

Which of the following is correct about the value creation process?

How is the prudence principle applied to the accounting for construction contracts?

Briefly explain the following terms: a)Non-monetary exchange transaction b)Consignment transaction c)Franchise d)Installment sale

Which statement is correct about multiple performance obligation arrangements?

Which of the following is an acceptable revenue-recognition method?

What disclosures are required under IFRS for construction contracts?

Queensbridge Corp.started a contract in June 2017 to build a bridge at a fixed price of $45 million.The bridge was to be completed by October 2019 at a total estimated cost of $35 million.Total cumulative costs incurred by the end of December 2017 and 2018 were $7 million and $24 million,respectively.Because of cost overruns in 2018,it is now expected that the project will cost $5,000,000 more than originally estimated.Final costs at the end of the project totaled $36 million.Queensbridge Corp.follows the guidance in IFRS. Required: Determine the amount of gross profit to be recognized for the years ended December 31,2017 and December 31,2018.

Buildings Ltd.is constructing a residential building in downtown Vancouver for a contract price of $15,000,000.Costs for this contract were initially estimated to be $12,000,000.The company uses the percentage of completion method of revenue recognition,using the cost-to-cost method of estimating the percentage complete.The following information is available: Required: a.Calculate the amount of gross profit to be recognized in each year.Show computations in good form. b.Calculate the amount of revenue to be recognized in Year 2. c.Prepare all the journal entries required in Year 2. d.Prepare the journal entry required in Year 3 to acknowledge completion and acceptance of the project.

Which statement is correct about the "winner's curse"?

What are three exceptions to the use of the percentage of completion method for construction contracts?

ACME is investing in a new heavy oil rig operation in northern Alberta.ACME has hired Max Contractors to construct the facilities.The contract price is $4,450 million to be completed over four years.The following information pertains to this construction contract. Required: (Show all dollar amounts in millions. ): a.Calculate the amount of revenue,expense and gross profit to be recognized in the accounts of Max Contractors in each of the four years. b.If Max were to underestimate the cost to complete to be $1,690 million instead of $1,840 in Year 3,how much gross profit or loss would be recognized in each year? How much more or less gross profit or loss would be reported in that year? How much more or less gross profit or less would be reported in Year 4,and in total for all four years? c.Explain how Max would account for this project if there were significant uncertainty over the outcome of the contract,such that Max could not clearly identify or measure the construction costs. d.Explain what the completed contract method is,and which entities can use this approach.