BE18-8 Correct.

Lazaro, Inc. sells goods on the installment basis and uses the installment-sales method. Due to a customer default, Lazaro repossessed merchandise that was originally sold for $800, resulting in a gross profit rate of 40%. At the time of repossession, the uncollected balance is $520, and the fair value of the repossessed merchandise is $275. Prepare Lazaro's entry to record the repossession. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.) Description/Account Repossessed Merchandise Deferred Gross Profit Loss on Repossession Installment Accounts Receivable Debit 275 208 37 Credit

520

E18-1 (c, d) Correct. (Revenue Recognition on Book Sales with High Returns) Uddin Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer's expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 12%, and the average collection period is 72 days. (c) In late July, Uddin shipped books invoiced at $15,000,000. Prepare the journal entries to record this event that best conforms to generally accepted accounting principles. Description/Account Debit Credit Accounts Receivable 15000000 Sales Revenue-Texts 15000000 Sales Returns 1800000 Allowance for Sales Returns 1800000 In October, $2 million of the invoiced July sales were returned according to the return (d) policy, and the remaining $13 million was paid. Prepare the entries recording the return and payment. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.) Description/Account Debit Credit Allowance for Sales Returns 1800000 Sales Returns 200000 Accounts Receivable 2000000 (To record the return.) Cash 13000000 Accounts Receivable 13000000 (To record the payment.)

AE18-2 Correct. (Sales Recorded Both Gross and Net) On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $7,900 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $700 contained flaws that rendered it worthless. The same day Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $32, paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.) (a) Prepare journal entries on Hunt Company books to record all the events noted above under each of the following bases. (1) Sales and receivables are entered at gross selling price. Date Description/Account Debit Credit 6/3 Accounts Receivable-Ann Mount 7900 Sales 7900 6/5 Sales Returns and Allowances 700 Accounts Receivable-Ann Mount 700 6/7 Transportation-Out 32 Cash 32 6/12 Cash 7056 Sales Discounts 144 Accounts Receivable-Ann Mount 7200 (2) Sales and receivables are entered net of cash discounts. Date Description/Account Debit Credit 6/3 Accounts Receivable-Ann Mount 7742 Sales 7742 6/5 Sales Returns and Allowances 686 Accounts Receivable-Ann Mount 686 6/7 Transportation-Out 32 Cash 32 6/12 Cash 7056 Accounts Receivable-Ann Mount 7056 (b) Prepare the journal entry under basis 2, assuming that Ann Mount did not remit payment until August 5. Date Description/Account Debit Credit 8/5 Cash 7200 Accounts Receivable-Ann Mount 7056

Sales Discounts Forfeited

144

AE18-5 Correct. (Analysis of Percentage-of-completion Financial Statements) In 2010, Steinrotter Construction Corp. began construction work under a 3-year contract. The contract price was $1,270,000. Steinrotter uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2010, follow. Balance Sheet Accounts receivable-construction contract billings Construction in progress Less: Contract billings Cost of uncompleted contract in excess of billings Income Statement Income (before tax) on the contract recognized in 2010 (a) How much cash was collected in 2010 on this contract? $ 55245 (b) What was the initial estimated total income before tax on this contract? $ 381000

$22,860 $82,550 78,105 4,445

$24,765

AE18-5 (a) $55,245 Contract billings to date Less: Accounts receivable 12/31/10 Portion of contract billings collected (b) $381,000 $24,765 $82,550 = 30%

$78,105 22,860 $55,245

(The ratio of gross profit to revenue recognized in 2010.) $1,270,000 30% = $381,000 (The initial estimated total gross profit before tax on the contract.)

E18-11 Correct. (Installment-Sales Method Calculations, Entries) Coffin Corporation appropriately uses the installment-sales method of accounting to recognize income in its financial statements. The following information is available for 2010 and 2011. 2010 2011 Installment sales $900,000 $1,000,000 Cost of installment sales 594,000 680,000 Cash collections on sales of 2010 370,000 350,000 Cash collections on sales of 2011 -0450,000 (a) Compute the amount of realized gross profit recognized in each year. 2010 Realized gross profit recognized $ 125800 (b) Prepare all journal entries required in 2011. Description/Account Debit Installment Accounts Receivable-2011 1000000 Installment Sales Cost of Installment Sales 680000 Inventory Cash 800000 Installment Accounts Receivable 2010 Installment Accounts Receivable 2011 Installment Sales 1000000 Cost of Installment Sales Defer. Gross Profit on Instal. Sales2011 Defer. Gross Profit on Instal. Sales -2010 119000 Defer. Gross Profit on Instal. Sales -2011 144000 Real. Gross Profit on Instal. Sales Real. Gross Profit on Instal. Sales 263000 Income Summary

2011 $ 263000 Credit 1000000 680000 350000 450000 680000 320000

263000 263000

AE18-16 Correct. (Installment-Sales Method and Cost-Recovery Method) On January 1, 2010, Wetzel Company sold property for $200,000. The note will be collected as follows: $100,700 in 2010, $63,900 in 2011, and $35,400 in 2012. The property had cost Wetzel $150,000 when it was purchased in 2008. (If answer is zero, please enter 0, do not leave any fields blank.) (a) Compute the amount of gross profit realized each year, assuming Wetzel uses the costrecovery method. Year Gross Profit Realized 2010 $0 2011 $ 14600 2012 $ 35400 (b) Compute the amount of gross profit realized each year, assuming Wetzel uses the installment-sales method. Year Gross Profit Realized 2010 $ 25175 2011 $ 15975 2012 $ 8850

AE18-16 (a) Year 2010 2011 2012 Gross Profit Realized $0 $14,600 $35,400

Computation of gross profit realizedcost-recovery method: Original Balance of Cash Cost Unrecovered Year Received Recovered Cost Beginning balance $150,000 2010 $100,700 $100,700 49,300 2011 63,900 49,300 0 2012 35,400 0 0 (b) Computation of gross profit realizedinstallment-sales method: Year Gross Profit Realized 2010 $25,175 Gross Profit Realized $0 14,600 35,400

2011 $15,975 2012 $8,850 Gross profit rate: ($200,000 $150,000) $200,000 = 25% 2010 Gross profit realized: $100,700 25% = $25,175 2011 Gross profit realized: $63,900 25% = $15,975 2012 Gross profit realized: $35,400 25% = $8,850

P18-2 (Recognition of Profit on Long-Term Contract) Shanahan Construction Company has entered into a contract beginning January 1, 2010, to build a parking complex. It has been estimated that the complex will cost $600,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $900,000. The following data pertain to the construction period. 2010 $270,000 330,000 270,000 240,000 2011 $450,000 150,000 550,000 500,000 2012 $610,000 -0900,000 900,000

Costs to date Estimated costs to complete Progress billings to date Cash collected to date

Correct. Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. 2010 $ 135000 2011 $ 90000 2012 $ 65000

Correct. Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is zero please enter 0, do not leave any fields blank.) 2010 $0 2011 $0 2012 $ 290000 P18-2 2010 $900,000 2011 $900,000 2012 $900,000

Contract price Less estimated cost:

Costs to date Estimated cost to complete Estimated total cost Estimated total gross profit Gross Profit recognized in 2010: $270,000 $300,000 = $600,000 $450,000 $300,000 = $600,000

270,000 330,000 600,000 $300,000

450,000 150,000 600,000 $300,000

610,000 610,000 $290,000

$135,000

2011:

$225,000 135,000 $90,000 225,000 $65,000

Less 2010 recognized gross profit Gross profit in 2011 2012: Less 2010 - 2011 recognized gross profit Gross profit in 2012

P18-2 In 2010 and 2011, no gross profit would be recognized. Total billings $900,000 610,000 Total cost Gross profit recognized in $290,000 2012

P18-6 (Long-Term Contract with Interim Loss) On March 1, 2010, Pechstein Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,400,000. The building was completed by October 31, 2012. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2010, 2011, and 2012 are given below. 2010 2011 2012 $2,880,000 $2,230,000 $2,190,000 3,520,000 3,200,000 2,190,000 3,500,000 -01,700,000

Contract costs incurred during the year Estimated costs to complete the contract at 12/31 Billings to Fabrik during the year

Correct. Using the percentage-of-completion method, complete the schedules below to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2010, 2011, and 2012. (Ignore income taxes.) (For negative numbers use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).) 2010 Costs to date (12/31/10) $ 2880000 3520000 Estimated costs to complete $ 6400000 Estimated total costs Percent complete Revenue recognized Costs incurred Profit recognized in 2010 2011 Costs to date (12/31/11) Estimated costs to complete Estimated total costs Percent complete Revenue recognized in 2011 Costs incurred in 2011 Loss recognized in 2011 $ 5110000 2190000 $ 7300000 70 % $ 2100000 2230000 $ (130000) 45 % $ 3780000 2880000 $ 900000

2012 Total revenue recognized Total costs incurred Total profit on contract Deduct profit previously recognized Profit recognized in 2012

$ 8400000 7300000 1100000 770000 $ 330000

Correct. Using the completed-contract method, complete the schedule below to compute the profit or loss to be recognized as a result of this contract for the years ended December 2010, 2011, and 2012. (Ignore incomes taxes.) (If answer is zero please enter 0, do not leave any fields blank.) 2010 $0 2011 $0 2012 $ 1100000 P18-6 Computation of Recognizable Profit/Loss Percentage-of-Completion Method 2010 Costs to date (12/31/10) $2,880,000 Estimated costs to complete 3,520,000 $6,400,000 Estimated total costs Percent complete ($2,880,000 $6,400,000) Revenue recognized ($8,400,000 45%) Costs incurred Profit recognized in 2010 2011 Costs to date (12/31/11) ($2,880,000 + $2,230,000) Estimated costs to complete Estimated total costs 45% $3,780,000 2,880,000 $900,000

$5,110,000 2,190,000 $7,300,000

Percent complete ($5,110,000 $7,300,000) Revenue recognized in 2011 ($8,400,000 70%) $3,780,000 Costs incurred in 2011 Loss recognized in 2011 2012 Total revenue recognized Total costs incurred Total profit on contract Deduct profit previously recognized ($900,000 - $130,000) Profit recognized in 2012 P18-6 Computation of Recognizable Profit/Loss Completed-Contract Method. 2010 $0 2011 $0 2012 Total revenue recognized $8,400,000 7,300,000 Total costs incurred $1,100,000 Profit recognized in 2012

70% $2,100,000 2,230,000 $(130,000)

$8,400,000 7,300,000 1,100,000 770,000 * $330,000