Chapter 5 Solutions
Chapter 5 Solutions
Chapter 5 Solutions
Chapter 5
Analysis
Exercise 5-5
Requirement 1
July 1, 2011
To record installment sale
Installment receivables ................................................... 300,000
Sales revenue ..............................................................
300,000
Cost of goods sold .......................................................... 120,000
Inventory.....................................................................
120,000
To record cash collection from installment sale
Cash ................................................................................ 75,000
Installment receivables ...............................................
75,000
July 1, 2012
To record cash collection from installment sale
Cash ................................................................................ 75,000
Installment receivables ...............................................
75,000
Requirement 2
July 1, 2011
To record installment sale
Installment receivables ................................................... 300,000
Inventory.....................................................................
120,000
Deferred gross profit ..................................................
180,000
To record cash collection from installment sale
Cash ................................................................................ 75,000
Installment receivables ...............................................
75,000
To recognize gross profit from installment sale
Deferred gross profit ...................................................... 45,000
5-1
45,000
July 1, 2012
To record cash collection from installment sale
Cash ................................................................................ 75,000
Installment receivables ...............................................
75,000
To recognize gross profit from installment sale
Deferred gross profit ...................................................... 45,000
Realized gross profit...................................................
45,000
Requirement 3
July 1, 2011
To record installment sale
Installment receivables ................................................... 300,000
Inventory.....................................................................
120,000
Deferred gross profit ..................................................
180,000
To record cash collection from installment sale
Cash ................................................................................ 75,000
Installment receivables ...............................................
75,000
July 1, 2012
To record cash collection from installment sale
Cash ................................................................................ 75,000
Installment receivables ...............................................
75,000
To recognize gross profit from installment sale
Deferred gross profit ...................................................... 30,000
Realized gross profit...................................................
30,000
5-2
Exercise 5-9
Requirement 1
Contract price
Actual costs to date
Estimated costs to complete
Total estimated costs
Gross profit (estimated in 2011)
2011
$2,000,000
300,000
1,200,000
1,500,000
$ 500,000
2012
$2,000,000
1,875,000
-01,875,000
$ 125,000
Requirement 2
2011
2012
$ -0$125,000
Requirement 3
Balance Sheet
At December 31, 2011
Current assets:
Accounts receivable
Costs and profit ($400,000*) in excess
of billings ($380,000)
5-3
$ 130,000
20,000
Requirement 4
Balance Sheet
At December 31, 2011
Current assets:
Accounts receivable
$ 130,000
Current liabilities:
Billings ($380,000) in excess of costs ($300,000)
$ 80,000
Exercise 5-11
Requirement 1
Contract price
Actual costs to date
Estimated costs to complete
Total estimated costs
Estimated gross profit (loss)
(actual in 2013)
2011
$8,000,000
2,000,000
4,000,000
6,000,000
2012
$8,000,000
4,500,000
3,600,000
8,100,000
2013
$8,000,000
8,300,000
-08,300,000
$2,000,000
$ (100,000)
$ (300,000)
5-4
Requirement 2
Construction in progress
Various accounts
To record construction costs.
2011
2012
2,000,000
2,500,000
2,000,000
2,500,000
Accounts receivable
Billings on construction contract
To record progress billings.
2,500,000
2,750,000
2,500,000
2,750,000
Cash
Accounts receivable
To record cash collections.
2,250,000
2,475,000
2,250,000
2,475,000
Construction in progress
(gross profit)
Cost of construction
Revenue from long-term contracts
666,667
2,000,000
(33.3333% x $8,000,000)
2,666,667
(1)
2,544,000
1,777,333
766,667
5-5
Requirement 3
Balance Sheet
2011
Current assets:
Accounts receivable
Costs and profit ($2,666,667*) in
excess of billings ($2,500,000)
2012
$250,000 $525,000
166,667
Current liabilities:
Billings ($5,250,000) in excess
of costs less loss ($4,400,000**)
$850,000
Exercise 5-12
Requirement 1
Year
2011
2012
2013
Total project loss
Requirement 2
Construction in progress
Various accounts
To record construction costs.
2011
2012
2,000,000
2,500,000
2,000,000
2,500,000
Accounts receivable
Billings on construction contract
To record progress billings.
2,500,000
2,750,000
2,500,000
2,750,000
Cash
Accounts receivable
To record cash collections.
2,250,000
2,475,000
2,250,000
2,475,000
5-6
100,000
100,000
2011
$250,000
2012
$525,000
Current liabilities:
Billings ($2,500,000) in excess of costs
($2,000,000)
$500,000
$850,000
Exercise 5-14
Requirement 1
Construction in progress = Costs incurred + Profit recognized
$100,000
$20,000
$30,000
5-7
Requirement 3
Let A = Actual cost incurred + Estimated cost to complete
Actual cost incurred
x (Contract price A) = Profit recognized
A
$80,000
($1,600,000 A) = $20,000
A
$128,000,000,000 80,000A = $20,000A
$100,000A = $128,000,000,000
A = $1,280,000
Estimated cost to complete = $1,280,000 80,000 = $1,200,000
Requirement 4
$80,000
= 6.25%
$1,280,000
Exercise 5-15
Requirement 1
Revenue should be recognized as follows:
Software
date of shipment, July 1, 2011
Technical support evenly over the 12 months of the agreement
Upgrade
date of shipment, January 1, 2012
The amounts are determined by an allocation of total contract price in
proportion to the individual fair values of the components if sold separately:
Software
Technical support
Upgrade
Total
5-8
Requirement 2
July 1, 2011
Exercise 5-16
Requirement 1
Conveyer
Labeler
Filler
Capper
total
Requirement 2
Exercise 5-17
Requirement 1
Conveyer
Labeler
Filler
Capper
total
5-9
Requirement 2
Under IFRS, it is likely that Richardson would recognize revenue the same
as in Requirement 1, because (a) revenue for each part can be estimated
reliably and (b) the receipt of economic benefits is probable.
Problem 5-5
Requirement 1
Contract price
Actual costs to date
Estimated costs to complete
Total estimated costs
Estimated gross profit (loss)
(actual in 2013)
2011
$10,000,000
2,400,000
5,600,000
8,000,000
2012
$10,000,000
6,000,000
2,000,000
8,000,000
2013
$10,000,000
8,200,000
-08,200,000
$ 2,000,000
$ 2,000,000
$ 1,800,000
2012
2013
Construction in progress
Various accounts
To record construction costs.
2,400,000
3,600,000
2,200,000
2,400,000
3,600,000
2,200,000
Accounts receivable
2,000,000
5-10
4,000,000
4,000,000
Billings on construction
contract
To record progress billings.
Cash
Accounts receivable
To record cash collections.
Construction in progress
(gross profit)
Cost of construction
(cost incurred)
Revenue from long-term
contracts (1)
To record gross profit.
2,000,000
4,000,000
4,000,000
1,800,000
3,600,000
4,600,000
1,800,000
3,600,000
4,600,000
600,000
900,000
300,000
2,400,000
3,600,000
2,200,000
3,000,000
4,500,000
2,500,000
$3,000,000
$7,500,000
(3,000,000)
$4,500,000
$10,000,000
(7,500,000)
$2,500,000
Requirement 3
Balance Sheet
2011
Current assets:
Accounts receivable
$ 200,000
Construction in progress $3,000,000
Less: Billings
(2,000,000)
Costs and profit in excess
of billings
1,000,000
5-11
2012
$600,000
$7,500,000
(6,000,000)
1,500,000
Requirement 4
Costs incurred during the year
Estimated costs to complete
as of year-end
Contract price
Actual costs to date
Estimated costs to complete
Total estimated costs
Estimated gross profit
(actual in 2013)
2011
$2,400,000
2012
$3,800,000
2013
$3,200,000
5,600,000
3,100,000
2011
$10,000,000
2,400,000
5,600,000
8,000,000
2012
$10,000,000
6,200,000
3,100,000
9,300,000
2013
$10,000,000
9,400,000
-09,400,000
$ 2,000,000
$ 700,000
$ 600,000
Requirement 5
Costs incurred during the year
Estimated costs to complete
as of year-end
Contract price
Actual costs to date
Estimated costs to complete
Total estimated costs
2011
$2,400,000
2012
$3,800,000
5,600,000
4,100,000
2011
$10,000,000
2,400,000
5,600,000
8,000,000
2012
$10,000,000
6,200,000
4,100,000
10,300,000
5-12
2013
$3,900,000
2013
$10,000,000
10,100,000
-010,100,000
$ 2,000,000
$ (300,000)
$ (100,000)
$2,400,000
= 30.0% x $2,000,000 = $600,000
$8,000,000
2012:
2013:
Problem 5-7
Requirement 1
Year
2011
2012
2013
Total gross profit
5-13
Requirement 2
Construction in progress
Various accounts
To record construction costs.
2011
2012
2013
2,400,000
3,600,000
2,200,000
2,400,000
3,600,000
2,200,000
Accounts receivable
Billings on construction
contract
To record progress billings.
2,000,000
4,000,000
4,000,000
2,000,000
4,000,000
4,000,000
Cash
Accounts receivable
To record cash collections.
1,800,000
3,600,000
4,600,000
1,800,000
3,600,000
4,600,000
Construction in progress
(gross profit)
Cost of construction
(costs incurred)
Revenue from long-term
contracts (contract price)
To record gross profit.
1,800,000
2,400,000
2,400,000
5-14
3,600,000
3,600,000
2,200,000
4,000,000
2011
2012
$ 200,000
$ 600,000
$2,400,000
(2,000,000)
$6,000,000
(6,000,000)
400,000
-0-
Requirement 4
Costs incurred during the year
Estimated costs to complete
as of year-end
2011
$2,400,000
2012
$3,800,000
5,600,000
3,100,000
Year
2011
2012
2013
Total gross profit
2013
$3,200,000
-
Requirement 5
Costs incurred during the year
Estimated costs to complete
as of year-end
2011
$2,400,000
2012
$3,800,000
5,600,000
4,100,000
Year
2011
2012
2013
Total project loss
2013
$3,900,000
-
5-15
2011
2012
600,000 900,000
(300,000) (300,000)
(200,000) (50,000)
100,000
550,000
x 30%
x 40%
30,000
220,000
5-16
5. c.
2011 actual costs
$20,000
Total estimated costs 60,000
Ratio
= 1/3
Contract Price
x 100,000
Revenue
33,333
2011 actual costs
-20,000
Gross profit
$13,333
6. d. Since the total cost of the contract, $3,100,000 ($930,000 + $2,170,000) is
projected to exceed the contract price of $3,000,000, the excess cost of
$100,000 must be recognized as a loss in 2011.
5-17