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Exam 5: Income Measurement

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Question 161

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Horowitz Paint Shop sold $3,000 of paint to a local construction company for cash on June 25,2016.Because of a flood in the area,the customer requested that Horowitz not ship the items from its warehouse until July 3,2016,so Horowitz set aside the paint on June 25,packaged and ready to ship on July 3. Required: For the second quarter ending on June 30,how much revenue should Horowitz recognize for the sale to the local construction company? Explain your answer.

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$3,000.In a bill-and-hold arrangement,th...

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Question 162

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When recognizing revenue over time on a long-term contract,amounts billed and the cash actually received affect income recognition.

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B) False

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Question 163

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Omni-Resistor,Inc.specializes in waterproofing homes,office buildings and other structures.Recently it completed a waterproofing renovation for a building at a local university.The contract specifies that Omni-Resistor will receive a flat lump sum of $100,000 for the renovation,and an additional $2,500 if there is no roof leaking through the roof within the first year after the renovation.The seller estimates that there is an 85% chance that no leakage will occur within the first year. Required: (a)Assuming Omni-Resistor uses the most likely value to estimate the variable consideration,calculate the transaction price.(b)Assuming Omni-Resistor determines transaction price as the "expected value" of the variable consideration,calculate the transaction price.(c)Assume Omni-Resistor uses the "expected value" approach,but is very uncertain of that estimate due to a lack of experience with similar renovations.Calculate the transaction price.

Briefly explain the circumstances that indicate the seller has a bill-and-hold sale and a consignment sale,and how that affects the timing of revenue recognition for each.

Beck Construction Company began work on a new building project on January 1,2015.The project is to be completed by December 31,2017,for a fixed price of $108 million.The following are the actual costs incurred and estimates of remaining costs to complete the project that were made by Beck's accounting staff: Required: What amount of gross profit (or loss)would Beck record on this project in each year,assuming that Beck recognizes revenue for this project upon completion of the project? Place answers in the spaces provided below and show supporting computations.

Antonio's Car Services provides maintenance services for motorized vehicles.In March 2016,Rick placed an order for a new set of tires for $350.When a customer purchases goods and services in excess of $300,Antonio's gives the customer a 25% discount coupon for future purchases made in the next three months.Antonio's estimates that approximately 80% of customers utilize the coupon and that on average those customers will purchase goods and services that typically sell for $75. Required: (a)How many performance obligations are in Rick's contract? Explain the reasons for your answer. (b)Prepare a journal entry to record revenue for this transaction,assuming that Antonio's uses the residual method to estimate the stand-alone selling price of new tires sold without the discount coupon.

Silica Corporation constructs highly specialized communication satellites.A customer in Hong Kong recently placed an order for a cable TV satellite at a price of $20 million.The order was placed in April 2016,and the satellite is to be delivered in one year.The customer has guaranteed to pay in full at the end of 2016,regardless of progress or cancellation.Silica uses "proportion of time" as its measure of progress toward completion. Required: When should Silica recognize revenue: at completion,or as the construction is performed?

On November 1,2016,Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates,with the contract to start immediately.King agreed to pay Taylor $4,800 for the one-year period.Taylor is confident that King will pay that amount,but payment is not scheduled to occur until 2017.Taylor should recognize revenue in 2016 in the amount of

Explain the differences between how a principal and agent would show a sale of a product that has gross revenues of $1,000,cost of goods sold of $750,and a commission paid by the principle of 10% of gross sales on their respective income statements.

In 2016,JRE2 would report (rounded to the nearest thousand) gross profit (loss) of:

Lux Hotels,Inc.has signed a service outsourcing contract with Deluxe Rooms,Inc.for $3 million,which was received in cash at contract inception.Under the agreement,Deluxe Rooms is obligated to clean and prepare over 5,000 hotels rooms managed by Lux Hotel on a daily basis from August 1,2016 to July 31,2017. Required: Prepare any journal entry that Delux would record: (1)at inception of the contract and (2)at the end of 2016 to recognize all revenue associated with this contract that should be recognized in 2016.

DGA Associates,Inc.sells computer workstations designed for architects.In 2016,it sold 120 workstations for $360,000.For each workstation sold,DGA distributed a 40% discount coupon for any additional future purchases made in the next 12 months.Based on historical experience,DGA expects that approximately 30% of the coupons will be utilized,and the goods purchased with the coupons would normally sell for $350. Required: (a)How many performance obligations are in a contract to purchase a computer workstation? Explain the reasons for your answer. (b)Prepare a journal entry to record revenue for the sale of 120 computer workstations,assuming that DGA uses the residual method to estimate the stand-alone selling price of the workstations sold without the discount coupon.

Which of the following is not true about accounting for revenue from franchise arrangements?

Assume that a customer enrolls in AAA's Premier Membership,which provides 12 months of roadside assistance for $120.On August 1,2016,a customer purchases a contract that runs from that date through July 31,2017.Given that roadside assistance requests occur equally throughout the contract period,AAA uses "proportion of time" as its measure of progress toward completion. Required: 1)Prepare the journal entries that AAA would record on August 1 and on December 31,2016,with respect to this transaction. 2)State the amounts included in relevant accounts in AAA's 2016 income statement and balance sheet.

In 2016,Rigsby would recognize realized gross profit of:

Estimate the stand-alone selling price of the software using the expected cost plus margin approach.

Assume Brunetti uses the "expected value" approach,but is very uncertain of that estimate due to a lack of experience with similar arrangements.What would be the appropriate transaction price?

IFRS provides detailed guidance concerning accounting for revenue with respect to multiple-element contracts.

How much cash remains to be collected by CCC on the project?

Use the following to answer questions The following partial income statement and balance sheet information (in $ millions)comes from the Annual Report of Saratoga Springs Co.for the year ending 12/31/2016: Required: Compute the following amounts for Saratoga Springs Co. -Its return on assets for 2016.Round your answer to one decimal place,e.g. ,.1234 as 12.3%.