E18-2. (Revenue Recognition—Point of Sale)
Shaw Company sells goods that cost $300,000 to Ricard Company for $410,000 on January 2, 2014. The sales price includes an installation fee, which is valued at $40,000. The fair value of the goods is $370,000. The installation is expected to take 6 months.
Instructions (a) Prepare the journal entry (if any) to record the sale on January 2, 2014. statement for the first quarter of 2014, ending on March 31, (b) Shaw prepares an income statement
2014. How much revenue should Shaw recognize related to its sale to Ricard? E18-4. (Revenue Recognition—Point of Sale)
Wood-Mode Company is involved in the design, manufacture, manufacture, and installation of various types of wood products for large construction projects. Wood-Mode recently completed completed a large contract for Stadium Inc., which consisted of building 35 different types of concession counters for a new soccer arena under construction. The terms of the contract are that upon completion of the counters, Stadium would pay $2,000,000. Unfortunately, due to the depressed economy, the completion of the new soccer arena is now delayed. Stadium has therefore asked Wood-Mode to hold the counters at its manufacturing plant until the arena is completed. Stadium Stadium acknowledges in writing that it ordered the counters and that they now have ownership. The time that Wood-Mode Company must hold the counters is totally dependent on when the arena is completed. Because Because Wood-Mode has not received additional progress payments for the arena due to the delay, Stadium has provided a deposit of $300,000.
Instructions recognition transaction. (a) Explain this type of revenue recognition (b) What factors should be considered in determining when to recognize revenue in this
transaction? (c) Prepare the journal entry(ies) that Wood-Mode should make, assuming it signed a valid sales contract to sell the counters and received at the time of sale the $300,000 payment. E18-5. (Right of Return)
Organic Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Organic Growth sells these seeds on account for $1,500,000 on January 2, 2014. Companies are required to pay the full amount due by March 15, 2014.
Instructions (a) Prepare the journal entry for Organic Growth at January 2, 2014, assuming Organic
Growth estimates returns of 20% based on prior experience. (Ignore cost of goods sold.) unsatisfactory (b) Assume that one customer returns the seeds on March 1, 2014, due to unsatisfactory performance. Prepare Prepare the journal entry to record this transaction, assuming assuming this customer purchased $100,000 of seeds from Organic Growth. (c) Briefly describe the accounting for these sales, if Organic Growth is unable to reliably estimate returns.
E18-8. (Revenue Recognition on Marina Sales with Discounts)
Taylor Marina has 300 available slips that rent for $800 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 5% 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 20% 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. Two hundred slips were reserved and paid for the 2015 boating season, and 60 slips for the 2016 boating season were reserved and paid for.
Instructions (a) Prepare the appropriate journal entries for fiscal 2014. (b) Assume the marina operator is unsophisticated in business. Explain the managerial
significance of the accounting above to this person. E18-9. (Consignment Computations)
On May 3, 2014, Eisler Company consigned 80 freezers, costing $500 each, to Remmers Company. The cost of shipping the freezers amounted to $840 and was paid by Eisler Company. On December 30, 2014, a report was received from the consignee, indicating that 40 freezers had been sold for $750 each. Remittance was made by the consignee for the amount due, after deducting a commission of 6%, advertising of $200, and total installation costs of $320 on the freezers sold.
Instructions (a) Compute the inventory value of the units unsold in the hands of the consignee. (b) Compute the profit for the consignor for the units sold. (c) Compute the amount of cash that will be remitted by the consignee. E18-10. (Multiple-Deliverable rrangement)
Appliance Center is an experienced home appliance dealer. Appliance Center also offers a number of services together with the home appliances that it sells. Assume that Appliance Center sells ovens on a standalone basis. Appliance Center also sells installation services and maintenance services for ovens. However, Appliance Center does not offer installation or maintenance services to customers who buy ovens from other vendors. Pricing for ovens is as follows. Oven only $ 800 Oven with installation service 850 Oven with maintenance services 975 Oven with installation and maintenance services 1,000 In each instance in which maintenance services are provided, the maintenance service is separately priced within the arrangement at $175. Additionally, the incremental amount charged by Appliance Center for installation approximates the amount charged by independent third parties. Ovens are sold subject to a general right of return. If a customer purchases an oven with installation and/or maintenance services, in the event Appliance Center does not complete the service satisfactorily, the customer is only entitled to a refund
of the portion of the fee that exceeds $800.
Instructions (a) Assume that a customer purchases an oven with both installation and maintenance
services for $1,000. Based on its experience, Appliance Center believes that it is probable that the installation of the equipment will be performed satisfactorily to the customer. Assume that the maintenance services are priced separately. Explain whether the conditions for a multiple-deliverable arrangement exist in this situation. (b) Indicate the amount of revenues that should be allocated to the oven, the installation, and to the maintenance contract. E18-12. (Recognition of Profit on ! ong-"erm Contracts)
During 2014, Nilsen Company started a construction job with a contract price of $1,600,000. The job was completed in 2016. The following information is available. 2014 2015 2016 Costs incurred to date $400,000 $825,000 $1,070,000 Estimated costs to complete 600,000 275,000 -0Billings to date 300,000 900,000 1,600,000 Collections to date 270,000 810,000 1,425,000
Instructions (a) Compute the amount of gross profit to be recognized each year, assuming the
percentage-of-completion method is used. (b) Prepare all necessary journal entries for 2015. (c) Compute the amount of gross profit to be recognized each year, assuming the completedcontract method is used. E18-19. (Installment-Sales Metho# Calculations$ %ntries)
Coffin Corporation appropriately uses the installment-sales method of accounting to recognize income in its financial statements. The following information is available for 2014 and 2015. 2014 2015 Installment sales $900,000 $1,000,000 Cost of installment sales 594,000 680,000 Cash collections on 2014 sales 370,000 350,000 Cash collections on 2015 sales -0450,000
Instructions (a) Compute the amount of realized gross profit recognized in each year. (b) Prepare all journal entries required in 2015. E18-23. (Installment-Sales Metho# an# Cost-Recover& Metho#)
Swift Corp., a capital goods manufacturing business that started on January 4, 2014, and operates on a calendar-year basis, uses the installment-sales method of profit recognition in accounting for all its sales. The following data were taken from the 2014 and 2015 records.
2014 2015 Installment sales $480,000 $620,000 Gross profit as a percent of costs 25% 28% Cash collections on sales of 2014 $130,000 $240,000 Cash collections on sales of 2015 -0$160,000 The amounts given for cash collections exclude amounts collected for interest charges.
Instructions (a) Compute the amount of realized gross profit to be recognized on the 2015 income
statement, prepared using the installment-sales method. (Round percentages to three decimal places.) (b) State where the balance of Deferred Gross Profit would be reported on the financial statements for 2015. Compute the amount of realized gross profit to be recognized on the income statement, (c) prepared using the cost-recovery method. (CIA adapted)
