Exam 4: Revenue and Recognition

Smile Operators entered into a contract to build a swimming complex for $1,800,000. Construction commenced on July 1, 2020, with a planned completion date of December 31, 2022. A summary of the related accounting information is provided below: Costs incurred during the year 400,000 500,000 650,000 Estimated costs to complete at year end 1,200,000 600,000 0 Billings during the year 360,000 440,000 1,000,000 Cash collections during the year 300,000 410,000 1,090,000 How much gross profit would be recognized in 2021 if the company uses the completed contract method under ASPE?

Which statement about the cost recovery method is correct?

Which accounting method is permitted under ASPE for construction contracts in limited circumstances?

List the five key steps in the revenue recognition process.

Yang Construction Company entered into a contract to build a new airport terminal for $2,500,000. Construction commenced on August 1, 2020, with a planned completion date of December 31, 2022. A summary of the costs, billings, and collections is provided below: Costs incurred during the year 500,000 700,000 1,100,000 Estimated costs to complete at year end 1,500,000 1,200,000 0 Billings during the year 440,000 1,000,000 1,060,000 Cash collections during the year 400,000 900,000 1,200,000 Yang uses the percentage of completion method. How much gross profit would Yang recognize in 2021?

Here are some financial records for Accounting Plus Magazine which started operations in October 2021. Sales for its first month were as follows: Subscriptions sold Price per subscription Subscription start date Subscription term (months) 16,400 25 Oct 1 6 months Oct 1 months What would be the subscription revenue to be recognized for the month of Oct 2021? (Round to the nearest dollar).

Creation Construction Company (CCC)has contracted to build an office building for Property Corp. The construction started on January 1, 2021, and the project was completed on July 1, 2024. The contract price was $70 million. Due to uncertainties in the construction process, the two parties to the project agreed to a risk-sharing arrangement whereby Property Corp. covers 50% of all cost overruns in excess of the originally estimated cost of $65 million (e.g., if estimated total costs are $69 million, then CCC would receive an additional $2 million for the contract). The following data relate to the construction period. 2021 2022 2023 2024 Costs incurred to date 16,500 42,900 56,100 69,000 Estimated costs to complete 49,500 35,100 9,900 0 Billings during the year 24,000 38,600 61,600 ???? Collections during the year 19,000 35,100 58,100 68,500 Required: Calculate the estimated gross profit (loss)for 2021, 2022, 2023, and 2024, assuming that the percentage of completion method is used.

Explain why accounting standards generally prescribe a smaller set of alternatives for revenue recognition.

Which formula explains how gross profit is recognized when an overall loss is expected on the contract under the percentage completion method?

Which statement best explains the percentage of completion method?

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?

Larimar Computers provides customers the option to purchase products with three installment payments made over 12 months (equal payments at the end of the 4th, 8th, and 12th months). In January 2021, Larimar sold $39,000 of computers to one customer on this installment plan. The cost of these computers is $30,420. Required: Using the installment sales method, record the journal entries for Larimar's installment sales made in January 2021 and the subsequent payments received on each installment date. Assume all installment payments are received, and ignore the time value of money.

How is revenue recognized on a cost plus 7% contract?

On January 1, 2021 Sukhi's Cycles Inc. sells a motorcycle for $24,000. Terms offered are $1,000 per month first due February 1, 2021. The market interest rate for transactions of this type is 0.25% per month. What is the amount of revenue that Sukhi should record at time of sale?

Aurora Gold Company produced 650,000 ounces of gold in 2021. Average sales price was $870/oz. The price was $870/oz at the start of the year and $870/oz at the end of the year. Production cost averaged $588/oz, which has been stable for several years. The company had 50,000 ounces in inventory at the beginning of the year, and 20,000 ounces at the end of the year. Required: a)Calculate Aurora Gold's revenue, cost of goods sold, and gross profit, assuming the company recognizes revenue at the point of sale/delivery. 2020 2021 Revenue \ 546,000,000 Cost of goods sold 382,200,000 Gross profit 163,800,000 b)Determine the amount that should be shown as ending inventory on Aurora's 2021 balance sheet.

Tyco Ltd entered into a contract to build a sports arena for $1,800,000. Construction commenced on August 1, 2020, with a planned completion date of December 31, 2022. A summary of the related accounting information is provided below: Costs incurred during the year 400,000 500,000 650,000 Estimated costs to complete at year end 1,200,000 600,000 0 Billings during the year 560,000 640,000 700,000 Cash collections during the year 500,000 310,000 990,000 How much would the balance in accounts receivable be on the balance sheet of Tyco at the end of 2020 if Tyco uses the percentage of completion method?

Which statement best explains the completed contract method?

Which of the following statements is correct about the revenue recognition criteria for a performance obligation satisfied over time?

Nova Construction Company (NCC)entered into a contract to build a school for $1,800,000. Construction commenced on May 1, 2020, with a planned completion date of December 31, 2022. A summary of the related accounting information is provided below: Costs incurred during the year 400,000 500,000 650,000 Estimated costs to complete at year end 1,200,000 600,000 0 Billings during the year 560,000 640,000 600,000 Cash collections during the year 500,000 310,000 990,000 How much gross profit would be recognized in fiscal 2020 if NCC uses the percentage of completion method?

Which of the following is TRUE when goods are sold on consignment?