Brief Exercise 18-3
Travel Inc. sells tickets for a Caribbean cruise to Carmel Company employees. The total cruise package costs Carmel $85,200 from ShipAway cruise liner. Travel Inc. receives a commission of 7% of the total price. Travel Inc. therefore remits $79,236 to ShipAway.
Prepare the entry to record the revenue recognized by Travel Inc. on this transaction.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
[removed]
[removed]
[removed]
[removed]
[removed]
[removed]
Brief Exercise 18-6
Telephone Sellers Inc. sells prepaid telephone cards to customers. Telephone Sellers then pays the telecommunications company, TeleExpress, for the actual use of its telephone lines. Assume that Telephone Sellers sells $5,600 of prepaid cards in January 2014. It then pays TeleExpress based on usage, which turns out to be 49% in February, 31% in March, and 20% in April. The total payment by Telephone Sellers for TeleExpress lines over the 3 months is $3,100.
Indicate how much income Telephone Sellers should recognize in January, February, March, and April.
January income
$
[removed]
February income
$
[removed]
March income
$
[removed]
April income
$
[removed]
Brief Exercise 18-10
Guillen, Inc. began work on a $6,973,000 contract in 2014 to construct an office building. Guillen uses the completed-contract method. At December 31, 2014, the balances in certain accounts were Construction in Process $1,738,000; Accounts Receivable $368,000; and Billings on Construction in Process $1,163,000.
Indicate how these accounts would be reported in Guillen’s December 31, 2014, balance sheet.
Guillen, Inc.
Balance Sheet
December 31, 2014
[removed]
[removed]
$
[removed]
[removed]
[removed]
$
[removed]
[removed]
:
[removed]
[removed]
[removed]
$
[removed]
Exercise 18-1
Jupiter Company sells goods that have a cost of $490,000 to Danone Inc. for $740,000, with payment due in 1 year. The cash price for these goods is $604,000, with payment due in 30 days. If Danone paid immediately upon delivery, it would receive a cash discount of $7,000.
Jupiter Company accepts a note receivable from Danone Inc. to pay for the goods
.
(a)
Prepare the journal entry to record this transaction at the date of sale.
(Jupiter records sales discounts using the net method)
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
[removed]
[removed]
[removed]
[removed]
[removed]
[removed]
(b)
How much revenue should Jupiter report for the entire year?
Total revenue
$
[removed]
Exercise 18-8
Taylor Marina has 300 available slips that rent for $860 per season. Payments must be made in full at the start of the boating season, April 1, 2015. Slips for the next season may be reserved if paid for by December 31, 2014. Under a new policy, if payment is made by December ...
Brief Exercise 18-3Travel Inc. sells tickets for a Caribbean cruis.docx
1. Brief Exercise 18-3
Travel Inc. sells tickets for a Caribbean cruise to Carmel
Company employees. The total cruise package costs Carmel
$85,200 from ShipAway cruise liner. Travel Inc. receives a
commission of 7% of the total price. Travel Inc. therefore
remits $79,236 to ShipAway.
Prepare the entry to record the revenue recognized by Travel
Inc. on this transaction.
(Credit account titles are automatically indented when amount
is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
[removed]
[removed]
[removed]
[removed]
[removed]
[removed]
Brief Exercise 18-6
Telephone Sellers Inc. sells prepaid telephone cards to
customers. Telephone Sellers then pays the telecommunications
company, TeleExpress, for the actual use of its telephone lines.
Assume that Telephone Sellers sells $5,600 of prepaid cards in
January 2014. It then pays TeleExpress based on usage, which
turns out to be 49% in February, 31% in March, and 20% in
April. The total payment by Telephone Sellers for TeleExpress
lines over the 3 months is $3,100.
Indicate how much income Telephone Sellers should recognize
in January, February, March, and April.
January income
2. $
[removed]
February income
$
[removed]
March income
$
[removed]
April income
$
[removed]
Brief Exercise 18-10
Guillen, Inc. began work on a $6,973,000 contract in 2014 to
construct an office building. Guillen uses the completed-
contract method. At December 31, 2014, the balances in certain
accounts were Construction in Process $1,738,000; Accounts
Receivable $368,000; and Billings on Construction in Process
$1,163,000.
Indicate how these accounts would be reported in Guillen’s
December 31, 2014, balance sheet.
Guillen, Inc.
Balance Sheet
December 31, 2014
[removed]
4. $
[removed]
Exercise 18-1
Jupiter Company sells goods that have a cost of $490,000 to
Danone Inc. for $740,000, with payment due in 1 year. The cash
price for these goods is $604,000, with payment due in 30 days.
If Danone paid immediately upon delivery, it would receive a
cash discount of $7,000.
Jupiter Company accepts a note receivable from Danone Inc. to
pay for the goods
.
(a)
Prepare the journal entry to record this transaction at the date
of sale.
(Jupiter records sales discounts using the net method)
(Credit account titles are automatically indented when amount
is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
[removed]
[removed]
[removed]
[removed]
[removed]
[removed]
(b)
5. How much revenue should Jupiter report for the entire year?
Total revenue
$
[removed]
Exercise 18-8
Taylor Marina has 300 available slips that rent for $860 per
season. Payments must be made in full at the start of the boating
season, April 1, 2015. Slips for the next season may be reserved
if paid for by December 31, 2014. Under a new policy, if
payment is made by December 31, 2014, a 6% discount is
allowed. The boating season ends October 31, and the marina
has a December 31 year-end. To provide cash flow for major
dock repairs, the marina operator is also offering a 21%
discount to slip renters who pay for the 2016 season.
For the fiscal year ended December 31, 2014, all 300 slips were
rented at full price. 203 slips were reserved and paid for the
2015 boating season, and 78 slips for the 2016 boating season
were reserved and paid for.
(a)
Prepare the appropriate journal entries for fiscal 2014.
(Round answers to 0 decimal places, e.g. 5,275. Credit account
titles are automatically indented when amount is entered. Do
not indent manually.)
Account Titles and Explanation
Debit
Credit
[removed]
[removed]
[removed]
[removed]
[removed]
6. [removed]
(To record 2014 revenue.)
[removed]
[removed]
[removed]
[removed]
[removed]
[removed]
(To record 2015 revenue.)
[removed]
[removed]
[removed]
[removed]
[removed]
[removed]
(To record 2016 revenue.)
Exercise 18-12 (Part Level Submission)
During 2014, Nilsen Company started a construction job with a
contract price of $1,784,000. The job was completed in 2016.
The following information is available.
2014
2015
7. 2016
Costs incurred to date
$342,720
$871,260
$1,063,000
Estimated costs to complete
609,280
245,740
–0–
Billings to date
316,100
858,900
1,784,000
Collections to date
256,900
832,300
1,376,000
(a)
Compute the amount of gross profit to be recognized each year,
assuming the percentage-of-completion method is used.
Gross profit recognized in 2014
8. $
[removed]
Gross profit recognized in 2015
$
[removed]
Gross profit recognized in 2016
$
[removed]
(b)
Prepare all necessary journal entries for 2015.
(Credit account titles are automatically indented when amount
is entered. Do not indent manually. For costs incurred use
account Materials, Cash, Payables.)
Account Titles and Explanation
Debit
Credit
[removed]
[removed]
[removed]
[removed]
[removed]
[removed]
(To record cost of of construction.)
[removed]
[removed]
[removed]
[removed]
[removed]
[removed]
(To record progress billings.)
10. $
[removed]
$
[removed]
$
[removed]
Problem 18-5
Reynolds Custom Builders (RCB) was established in 1987 by
Avery Conway and initially built high-quality customized
homes under contract with specific buyers. In the 2002s,
Conway’s two sons joined the company and expanded RCB’s
activities into the high-rise apartment and industrial plant
markets. Upon the retirement of RCB’s long-time financial
manager, Conway’s sons recently hired Ed Borke as controller
for RCB. Borke, a former college friend of Conway’s sons, has
been associated with a public accounting firm for the last 6
years.
Upon reviewing RCB’s accounting practices, Borke observed
that RCB followed the completed-contract method of revenue
recognition, a carryover from the years when individual home
building was the majority of RCB’s operations. Several years
ago, the predominant portion of RCB’s activities shifted to the
high-rise and industrial building areas. From land acquisition to
the completion of construction, most building contracts cover
several years. Under the circumstances, Borke believes that
RCB should follow the percentage-of-completion method of
accounting. From a typical building contract, Borke developed
the following data.
BLUESTEM TRACTOR PLANT
11. Contract price: $8,111,000
2014
2015
2016
Estimated costs
$1,924,730
$2,853,910
$1,858,360
Progress billings
1,728,000
3,006,000
3,377,000
Cash collections
1,618,000
2,803,000
3,272,000
(b)
Using the data provided for the Bluestem Tractor Plant and
assuming the percentage-of-completion method of revenue
recognition is used, calculate RCB’s revenue and gross profit
for 2014, 2015, and 2016, under
each
of the following circumstances.
12. (1)
Assume that all costs are incurred, all billings to customers are
made, and all collections from customers are received within 30
days of billing, as planned.
(Round percentage of completion to 2 decimal places, e.g.
34.35% and final answers to 0 decimal places, e.g. 1,525.)
Revenue
Gross profit / (Loss)
2014
$
[removed]
$
[removed]
2015
$
[removed]
$
[removed]
2016
$
[removed]
$
[removed]
(2)
Further assume that, as a result of unforeseen local ordinances
and the fact that the building site was in a wetlands area, RCB
experienced cost overruns of $898,000 in 2014 to bring the site
13. into compliance with the ordinances and to overcome wetlands
barriers to construction.
(Round percentage of completion to 2 decimal places, e.g.
34.35% and final answers to 0 decimal places, e.g. 1,525.)
Revenue
Gross profit / (Loss)
2014
$
[removed]
$
[removed]
2015
$
[removed]
$
[removed]
2016
$
[removed]
$
[removed]
(3)
Further assume that, in addition to the cost overruns of
$898,000 for this contract incurred under part (b)(2),
inflationary factors over and above those anticipated in the
development of the original contract cost have caused an
additional cost overrun of $1,082,000 in 2015. It is not
14. anticipated that any cost overruns will occur in 2016.
(Round percentage of completion to 2 decimal places, e.g.
34.35% and final answers to 0 decimal places, e.g. 1,525. Enter
negative amounts using either a negative sign preceding the
number e.g. -45 or parentheses e.g. (45).)
Revenue
Gross profit / (Loss)
2014
$
[removed]
$
[removed]
2015
$
[removed]
$
[removed]
2016
$
[removed]
$
[removed]
IFRS Multiple Choice Question 06
15. The joint project of the Financial Accounting Standards Board
(FASB) and the International Accounting Standards Board
(IASB) related to revenue recognition includes
Evaluating a "customer-consideration" model.
Eliminating inconsistencies in the existing conceptual guidance.
Establishing a single, comprehensive standard.
a.
I and II only.
b.
Neither I, II, nor III are currently included in the joint project
of the FASB and IASB.
c.
I, II, and III.
d.
II and III only.
Answer:
IFRS Multiple Choice Question 07
Belgium Co. is constructing a tunnel for $600 million.
Construction began in 2013 and is estimated to be completed in
2018. At December 31, 2015, Belgium has incurred costs
totaling $267 million with $64 million of that incurred in 2015,
$107 million in 2014, and the remainder during 2013. Belgium
believes that it completed 30% of the tunnel during 2015,
although that may change based on future activity. Belgium Co.
uses IFRS for its accounting and regards its cost numbers as
very uncertain. What amount of revenue should Belgium Co.
recognize for the year ended December 31, 2016?
a.
$64 million
b.
16. $267 million
c.
No revenue should be recognized until the contract is completed
in 2018
d.
$180 million
Answer:
IFRS Multiple Choice Question 08
Portugal, Inc. has the following amounts related to its activities
for the year ended December 31, 2015:
Sales to customers
$6,250,000
Gain on sale of equipment
$ 450,000
Gain on sale of investments
$ 950,000
Loss on sale of land
$ 300,000
Portugal, Inc. uses IFRS for its external financial reporting.
How much revenue should Portugal, Inc. report on its income
statement for the year ended December 31, 2015?
a.
$7,350,000
b.
$6,250,000
c.
17. $7,200,000
d.
$7,650,000
Answer:
IFRS Multiple Choice Question 09
Under IFRS, the standard for revenue recognition states that the
Revenue be realized or realizable.
Economic benefits associated with the transaction will flow to
the company selling the goods.
Costs must be capable of being reliably measured.
a.
II and III only.
b.
I, II, and III.
c.
I and III only.
d.
II only.
Answer:
IFRS Multiple Choice Question 10
IFRS for revenue recognition
a.
bases revenue recognition on the concepts of “earned” and
“realized or realizable”.
18. b.
permits use of the completed-contract method when costs are
difficult to estimate.
c.
contains limited industry-specific guidance.
d.
is enforced by an international enforcement body, the IASB,
which is comparable to the U.S. SEC.
Answer: