Exam 4: Revenue and Recognition

Assume the following facts for a construction contract that was completed over four years. The contract price is $5.1 million. 2020 2021 2022 2023 Costs incurred to date 750,000 2,033,000 2,610,000 4,350,000 Estimated costs to complete 2,250,000 3,317,000 1,740,000 0 Using the percentage of completion method, calculate the gross profit or loss to be recognized as a result of this contract for each of the four years. The company used the cost-to-cost method to estimate the percentage complete.

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

Based on the note disclosure provided below for XYZ Group, when would the following types of revenue be recognized? a)Consignment sales of vehicles (Sales with repurchase commitments). b)Financial services. c)Lease rentals. d)Post-sale services (Multiple-component contracts). e)Sale of products. Revenues from the sale of products are recognized when the risks and rewards of ownership of the goods are transferred to the customer, the sales price is agreed or determinable and receipt of payment can be assumed. Revenues are stated net of discounts, allowances, settlement discount and rebates. In the case of long-term contracts, revenues are generally recognized in accordance with IFRS 15 (Revenue)on the basis of the stage of completion of work performed using the percentage of completion method. Revenues also include lease rentals and interest income from financial services. Revenues for the Financial Operations sub-group also include the interest income earned by Group financing companies. If the sale of products includes a determinable amount for subsequent services ("multiple performance obligation contracts")the related revenues are deferred and recognized as income over the period of the contract. Amounts are normally recognized as income by reference to the expected pattern of related expenditure. Profits arising on the sale of vehicles for which a Group company retains a repurchase commitment (buy-back contracts)are not recognized until such profits have been realized. The vehicles are included in inventories and stated at cost.

In early 2018, Ecotravel Corp. won a contract to build a rapid transit line connecting downtown Vancouver to the airport and the suburb of Richmond (the RAV line). The contract was for $2.2 billion to be received over the construction period of six years, ending in November 2024. Ecotravel has a December 31 year-end and uses the percentage of completion method to account for long-term contracts. Required: a. Ecotravel's management expects the gross profit on the total project to be 20%, and that $352 million would be incurred on the project by December 31, 2018. 1. How much gross profit (or loss)will Ecotravel record in the 2018 fiscal year if management's estimates are accurate? 2. Provide the journal entry to record revenue, cost of goods sold, and expected loss (if applicable)for fiscal 2018. b. Assume that it is now early 2022 and you are preparing the adjusting entries for 2021. The accounting records indicate that, by the end of 2020, a total of $758 million in revenue and $680 million in cost of goods sold had been recorded. You also know that $372 million in costs were incurred on the project in 2021, and management's best estimates indicate another $1,208 million in costs will be required to complete the project. 1. How much gross profit (or loss)should Ecotravel record in the 2021 fiscal year if management's estimates are accurate? 2. Provide the journal entry to record revenue, cost of goods sold, and expected loss (if applicable)for fiscal year 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 11,800 40 Oct 1 12 months What would be the deferred revenue at Oct 31, 2021? (Round to the nearest dollar).