Exam 5: Income Measurement

Use the following to answer questions McCombs Contractors received a contract to construct a mental health facility for $2,500,000.Construction was begun in 2015 and completed in 2016.Cost and other data are presented below: -Assume that McCombs recognizes revenue on this contract over time according to percentage of completion. Required: Compute the amount of gross profit recognized during 2015 and 2016.

Under IFRS,one of the conditions for revenue from product sales to be recognized is when the risks and rewards of ownership have been transferred to the customer.

If an option to purchase an extended warranty at a special discount is included with a product when the product is purchased,a portion of the contract price needs to be allocated to the option.

Assume at March 15,2015,the time of signing the contract,collection of the receivable was reasonably assured and there were no significant continuing obligations.The journal entry at signing would include a:

On June 1^st,Lucy & Bros received an order for 500 cupcakes.Lucy delivered the cupcakes to the client on June 25^th.A $50 deposit was received on June 5^th and the remaining $450 was paid on June 30^th.Lucy likely would recognize revenue on

Explain two approaches a seller can use to estimate variable consideration,and when each approach is likely to be more appropriate.

Assume Emmet estimates variable consideration as the most likely amount.How much revenue should Emmet recognize on this contract in 2016?

Hulkster's 2016 inventory turnover is (rounded):

Revenue typically should not be recognized when payment is received but the goods are warehoused at the seller's facility.

Which of the following is true about accounting for long-term construction contracts?

Holmgren Seafoods,Inc.catches and processes salmon and tuna caught off the coast of Maine.In May 2016,it placed 100 freshly caught wild salmon with a retail price of $75 each in Joe's Fish Shop.Holmgren's contract with the shop stipulates that the shop will earn a 15% commission on each salmon sold.Joe's is responsible for purchasing any fish that remain unsold at the end of a three-day period. Required: During the three-day period,Joe's Fish Shop was able to sell 88 of the 100 salmon.How much revenue should Holmgren recognize with respect to this transaction?

Prepare Terra's March 31 journal entry to record the revenue earned from March 1 - March 31,as well as any appropriate adjustments to the revenue presumed already recorded as earned from January 1 - February 28.

Firms have free choice as to whether to recognize revenue over time or at a point in time to account for a long-term contract.

Contract liability,deferred revenue and unearned revenue are all ways to describe a liability that the seller recognizes with respect to unsatisfied performance obligations for which the seller has already been paid.

Many high-tech companies sell products with the opportunity for retailers to return the merchandise if it is unsold after a certain period.This reduces the retailer's risk of inventory obsolescence.Explain the implications on revenue recognition under this kind of policy.Include a specific example.

Which of the following is not true about revenue recognition with respect to long-term construction contracts?

Under IFRS,which of the following is not a condition for recognizing revenue?

Maas LLP developed software that helps farmers to plow their fields in a manner that prevents erosion and maximizes the effectiveness of irrigation.Sunny Dale paid a licensing fee of $20,000 for a copy of the software.Although Sunny Dale can use the software as long as it wants,Maas expects that Sunny Dale will use the software for approximately 5 years.Maas does not anticipate any further interaction with Sunny Dale following transfer of the license.How much revenue should Maas recognize in the first year of the contract?

Hulkster's 2016 asset turnover is (rounded):

Waldman Associates received a written,approved contract to deliver economic consulting services,with service and payment commencing in one month.The contract specifies the services that Waldman is to perform,and the payment terms.Waldman and the customer both can cancel the contract without penalty prior to commencing service.Does Waldman have a contract for purposes of revenue recognition on the day the contract is received?