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Exam 5: Income Measurement and Profitability Analysis

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Question 31

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a. Note: The most likely amount to be received under the contract is 4 x $25,000 + $20,000 = $120,000 (since there is a 75% chance that the $20,000 payment will be received). Therefore, each month Wiggins would recognize $30,000 ($120,000 ÷ 4) of revenue, using the following journal entry:

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b. After six months, the expected bonus...

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Question 32

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Under the percentage-of-completion method, amounts billed and the cash actually received affect income recognition.

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Question 33

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Hulkster's 2013 profit margin is (rounded) :

In 2012, JRE2 would report (rounded to the nearest thousand) gross profit (loss) of:

Under the percentage-of-completion method, the percent complete is often estimated by comparing the cost incurred to date with the total estimated cost to complete.

Briefly explain how you can determine if a company is effectively using leverage.

Which of the following is not an indicator that the seller is a principal with respect to a transaction?

When accounting for multiple-element software arrangements, the revenue for each element is based on the separate prices stated for each element in the software contract.

In 2014, Reliable would recognize gross profit of:

The Rink membership is one separate performance obligation, as it could be sold separately. Since the discount coupon provides a material right to the customer that the customer would not receive otherwise (a 20% discount rather than a 5% discount), the discount voucher also is a separate performance obligation. 2. To allocate the contract price to the performance obligation, we should first consider that the Rink would offer a 5% discount on $5 meals sold to all customers. So, a 20% discount provides a customer with an incremental value of 15% (20% - 5%). Thus, the estimated stand-alone selling price of the meal coupons is $6 (= 10 coupons x $5 base price of meal x 15% savings x 80% redeemed). Since the stand-alone selling price of the annual membership fee is $200, the Rink would allocate $5.83 {= $200 × [6 ÷ (6 + 200)]} of the $200 transaction price to the discount coupon. 3. Since the discount coupon would be a separate performance obligation, the Rink would recognize unearned revenue for the sale of the annual membership fee and unearned revenue for the sale of the discount coupon.

Z-Mart appropriately uses the installment sales method of accounting for its installment sales. During 2013, Z-Mart made installments sales of $300,000 and received payments of $135,000 on those sales. Z-Mart's gross profit margin is 30%. Required: Prepare journal entries to record the sale, collection, and recognition of gross profit.

If the seller is a principal, the seller should recognize gross revenue and cost of sales associated with the transaction.

In 2014, Indiana incurred costs of $58.5 million and estimated an additional $40.5 million in costs to complete the project. Using the percentage-of-completion method, Indiana:

When using the completed contract method of accounting for long-term contracts:

Briefly explain how gross profit is recorded under the percentage-of-completion method of accounting for long-term construction projects. Also explain when this method should be used.

Its return on assets for 2013. Round your answer to one decimal place, e.g., .1234 as 12.3%.

Merchandise sold FOB destination indicates that:

Assume a payment is made 15 months prior to delivery of a product. The seller is likely to do which of the following with respect to the time value of money over the life of the contract?

Assume that Beavis uses the percentage-of-completion method for revenue recognition. Required: Compute the amount of gross profit recognized during 2012 and 2013.

Its average days in inventory for 2013. Round your final answer to one decimal place.