Exam 8: Revenue Recognition

Tussle Company began operations on January 1,2014,and appropriately uses the installment method of accounting.The following data are available for 2014 and 2015: The realized gross profit for 2015 is

Under which of the following circumstances is the installment sales method appropriate for the recognition of revenue in the income statement?

Assume the Abokair Corporation sold $30,000 worth of merchandise on the installment basis.The cost of the merchandise was $24,000,and collectibility of the receivable is uncertain.Collection in the current year on the account is $8,000.How much gross profit should be reported as realized?

Lennor Company sold inventory to Myers Incorporated and recorded the sale as revenue.Part of the agreement of the sale is that Lennor will repurchase the merchandise at a specified price over a specified period of time.Meanwhile,Myers uses the inventory purchased from Lennor as collateral for a loan.Myers uses the proceeds from the loan to pay Lennor for the inventory purchased.Lennor ultimately repurchases the inventory from Myers.Myers then uses the proceeds of the repayment to pay its loan obligation. Required: 1.Explain the rationale for the two companies engaging in this series of transactions. 2.Explain how the sale of the inventory would be reported on the records of Lennor Company.

Antoine Construction Company has consistently used the percentage-of completion method of recognizing income.During 2014,Antoine entered into a fixed-price contract to construct an office building for $10,000,000.Information relating to the contract is as follows: Contract costs incurred during 2015 were

Chantal Company began operations on January 2,2014,and appropriately used the installment sales method of accounting.The following data are available for 2014 and 2015: The realized gross profit for 2015 is

An adjusting entry in which revenue is recognized and a receivable is established indicates that revenue has been

Hussong,Inc.,appropriately uses the installment sales method of revenue recognition.The company sold $1,500,000 on installment accounts during 2014.The cost of items sold was $900,000.At December 31,2014,Hussong reported a balance of $100,000 in the Deferred Gross Profit account.How much cash did Hussong collect on installment contracts during 2014?

Santos Company allows a liberal return privilege on its normal sales.Products purchased by customers may be returned within 90 days of purchase if in resalable condition,for a full refund.The following information relates to 2014: Assuming that all criteria of SFAS No.48,"Revenue Recognition When Right of Return Exists," are not met,what is the gross margin to be reported by the company in 2014?

The Alliance Corporation introduced a new line of product the profitability of which is quite uncertain.This uncertainty has resulted in Alliance choosing to use the cost recovery method to account for this product. The following information relating to the new product line is available for the year 2014: Required: 1.Explain the general approach of the cost recovery method and when it should be used. 2.Record the journal entries for the new product for 2014 and 2015 based on the information given above. 3.How and in what amount would the deferred gross margin be presented on the balance sheet of Alliance at December 31,2014? 4.How does the cost recovery method differ from the installment sales method?

Andrew Greene recently purchased on layaway a big screen television from Zack & Zany Home Furnishings.Zack & Zany is a public company.Gary paid $100 as a cash deposit on the television.The television cost Zack & Zany $1,500 and has a total retail price of $2,000.Zack & Zany has set the television aside pending the payment by Miller of the balance owed. Zack & Zany does not require its customers to enter into an installment note or other fixed payment commitment or agreement when the initial deposit is received.Merchandise on layaway generally is not released to the customer until the customer pays the full purchase price.If the customer fails to pay the remaining purchase price,the customer forfeits his or her cash deposit.In the event the merchandise is lost,damaged,or destroyed,Zack & Zany either must refund the cash deposit to the customer or provide replacement merchandise. When should Zack & Zany recognized the revenue from the sale to Greene? Prepare the appropriate journal entries on Zack & Zany's books to record the receipt of the cash and the subsequent delivery of the television when the remaining balance is collected.

Steinman Construction Company uses the percentage-of-completion method for long-term construction contracts.The company has a project with a contract price of $7,000 on which $600 of gross profit has been recognized in prior years.Information for the current year is as follows: What is the loss that Steinman should recognize in the current year?

Sunfish Construction Company uses the percentage-of-completion method of accounting.In 2014,Sunfish began work on a project which had a contract price of $1,600,000 and estimated costs of $1,200,000.Additional information is as follows: The amount of gross profit Sunfish should recognize on this contract during 2014 is

Which of the following is NOT an element identified by the AICPA as being necessary in order to use percentage-of-completion accounting?

Which of the following is NOT a difference between the percentage-of completion and completed-contract methods of accounting for long-term construction contracts?

Baywatch Construction contracted to build a ship over a two year period.The contract price was $21,000,000 with an estimate total cost of $18,400,000.The following cost data relate to the construction period. Prepare the necessary journal entries for 2014,2015,and 2016 assuming Baywatch uses the percentage-of-completion method.

The following data relate to a construction job started by Harrington Co. during 2014: -See Harrington Co.information above.Under the percentage-of-completion method,how much should Harrington recognize as gross profit for 2014?

Johann Builders has a fixed -price contract providing $120,000 of revenue.Construction on the contract was begun in 2013 and was completed in 2014.Information relating to the contract is as follows: What amount of income should Johann recognize in 2014 assuming that the company appropriately uses the percentage-of-completion method of income recognition?

Assume that a company receives $600 cash from a customer as the initial sign-up fee for a service.In addition to the sign-up fee,the customer also is required to pay $25 per month for the service.The expected economic life of the service agreement is 50 months.The company providing the service could subcontract with a third party to provide the service for 100 months for $200,which is also the cost to the company of providing the service. Current professional standards regarding revenue recognition would require that the sign-up fee be recognized over the 50 months the service is provided.Nonetheless,you have heard that the FASB is considering another approach to revenue recognition called the asset-and-liability approach. Required: Explain how this transaction would be accounted for under the FASB's asset-and-liability approach and evaluate this new approach.

F & R Construction,Inc.has consistently used the percentage-of-completion method of recognizing revenue.Last year F & R started work on a $5,000,000 construction contract,which was completed this year.The accounting records disclosed the following data for last year: How much revenue should F & R have recognized on this contract last year?