ACC CH 18 C
: None 89. Roche Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug under development. Roche will receive $8,100,000 if the new drug receives FDA approval. Based on prior approval, Roche determines that it is 85% likely that the drug will gain approval. The transaction price of this arrangement should be a. $8,100,000. b. $6,885,000. c. $1,215,000. d. $0 until approval is received.
A, LO: 2, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
86. Marle Construction enters into a contract with a customer to build a warehouse for $950,000 on March 30, 2018 with a performance bonus of $50,000 if the building is completed by July 31, 2018. The bonus is reduced by $10,000 each week that completion is delayed. Marle commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability July 31, 2018 65% August 7, 2018 25% August 14, 2018 5% August 21, 2018 5% The transaction price for this transaction is a. $995,000 b. $950,000 c. $652,500 d. $685,000
A, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 92. Bella Pool Company sells prefabricated pools that cost $80,000 to customers for $144,000. The sales price includes an installation fee, which is valued at $20,000. The fair value of the pool is $128,000. The installation is considered a separate performance obligation and is expected to take 3 months to complete. The transaction price allocated to the pool and the installation is a. $124,541 and $19,459 respectively b. $144,000 and $20,000 respectively c. $128,000 and $20,000 respectively d. $110,702 and $17,298 respectively
A, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 98. On November 1, 2018, Green Valley Farm entered into a contract to buy a $150,000 harvester from John Deere. The contract required Green Valley Farm to pay $150,000 in advance on November 1, 2018. The harvester (cost of $110,000) was delivered on November 30, 2018. The journal entry to record the delivery of the equipment includes a a. debit to Unearned Sales Revenue for $150,000. b. credit to Unearned Sales Revenue for $150,000. c. credit to Cost of Goods Sold for $110,000. d. debit to Inventory for $110,000.
A, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *115. Horner Construction Co. uses the percentage-of-completion method. In 2018, Horner began work on a contract for $22,000,000; it was completed in 2019. The following cost data pertain to this contract: Year Ended December 31 2018 2019 Cost incurred during the year $7,800,000 $5,600,000 Estimated costs to complete at the end of year 5,200,000 — The amount of gross profit to be recognized on the income statement for the year ended December 31, 2019 is a. $3,200,000. b. $3,440,000. c. $3,600,000. d. $8,600,000.
A, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Eilert Construction Company had a contract starting April 2018, to construct a $42,000,000 building that is expected to be completed in September 2019, at an estimated cost of $38,500,000. At the end of 2018, the costs to date were $17,710,000 and the estimated total costs to complete had not changed. The progress billings during 2018 were $8,400,000 and the cash collected during 2018 was $5,600,000. Eilert uses the percentage-of-completion method. *119. At December 31, 2018, Eilert would report Construction in Process in the amount of a. $19,320,000. b. $17,710,000. c. $16,520,000. d. $ 1,610,000.
A, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Kiner, Inc. began work in 2018 on a contract for $21,000,000. Other data are as follows: 2018 2019 Costs incurred to date $9,000,000 $14,000,000 Estimated costs to complete 6,000,000 — Billings to date 7,000,000 21,000,000 Collections to date 5,000,000 18,000,000 *113. If Kiner uses the percentage-of-completion method, the gross profit to be recognized in 2018 is a. $3,600,000. b. $4,000,000. c. $5,400,000. d. $6,000,000.
A, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *121. Douglas Diners Inc. charges an initial franchise fee of $180,000 broken down as follows: Rights to trade name, market area, and proprietary know-how $ 80,000 Training services 23,000 Equipment (cost of $21,600) 77,000 Total initial franchise fee $180,000 Upon signing of the agreement, a payment of $80,000 is due. Thereafter, two annual payments of $50,000 are required. The credit rating of the franchisee is such that it would have to pay interest of 8% to borrow money. The franchise agreement is signed on August 1, 2018, and the franchise commences operation on November 1, 2018. Assume that the total training fees includes training services for the period leading up to the franchise opening ($11,000 value) and for 3 months following opening. The journal entry on August 1, 2018 would include a. a credit to Unearned Service Revenue for $23,000. b. a credit to Unearned Service Revenue for $12,000. c. a debit to Sales Revenue for $77,000. d. a debit to Unearned Franchise Revenue for $80,000.
A, LO: 8, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 96. On August 5, 2018, Famous Furniture shipped 40 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was $350 each. The cost of shipping the dining sets amounted to $1,800 and was paid for by Famous Furniture. On December 30, 2018, the consignee reported the sale of 30 dining sets at $850 each. The consignee remitted payment for the amount due after deducting a 6% commission, advertising expense of $600, and installation and setup costs of $780. The total profit on units sold for the consignor is a. $22,590 b. $10,290 c. $12,090 d. $19,890
B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 93. Botanic Choice sells natural supplements to customers with an unconditional sales return if they are not satisfied. The sales returns extends 60 days. On February 10, 2018, a customer purchases $4,000 of products (cost $2,000). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the expected sales return and cost of goods sold includes a a. debit to Cash and a credit to Sales Revenue of $4,000. b. debit to Allowance for Sales Returns of $800 and a credit to Cost of Goods sold of $400. c. debt to Cost of Goods Sold and credit to Inventory for $2,000. d. credit to Estimated Inventory Returns of $400
B, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 99. Arizona Communications contracted to set up a call center for the City of Phoenix. Under the terms of the contract, Arizona Communications will design and set-up a call center with the following costs: Design of call center $20,000 Computers, servers, telephone equipment $550,000 Software $170,000 Installation and testing of equipment $30,000 Selling commission $50,000 Annual service contract $100,000 In addition, Arizona Communications will maintain and service the equipment and software to ensure smooth operations of the call center for an annual fee of $180,000. Ownership of equipment installed remains with the City of Phoenix. The contract costs that should be capitalized is a. $920,000 b. $820,000 c. $720,000 d. $740,000
B, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Gomez, Inc. began work in 2018 on contract #3814, which provided for a contract price of $19,200,000. Other details follow: 2018 2019 Costs incurred during the year $3,200,000 $9,800,000 Estimated costs to complete, as of December 31 9,600,000 0 Billings during the year 3,600,000 14,400,000 Collections during the year 2,400,000 15,600,000 *111. Assume that Gomez uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2018 is a. $1,200,000. b. $1,600,000. c. $4,800,000. d. $6,400,000.
B, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 88. P & G Auto Parts sells parts to AAA Car Repair during 2018. P&G offers rebates of 2% on purchases up to $60,000 and 3% on purchases above $60,000 if the customer's purchases for the year exceed $200,000. In the past, AAA normally purchases $300,000 in parts during a calendar year. On March 25, 2018, AAA Car Repair purchased $74,000 of parts. The journal entry to record the purchase includes a a. debit to Accounts Receivable for $74,000. b. debit to Accounts Receivable for $72,800. c. credit to Sales Revenue for $72,380. d. credit to Sales Revenue for $72,800.
C, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None In 2018, Fargo Corporation began construction work under a three-year contract. The contract price is $7,200,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2018, follow: Balance Sheet Accounts receivable—construction contract billings $300,000 Construction in progress $900,000 Less contract billings 720,000 Costs and recognized profit in excess of billings 180,000 Income Statement Income (before tax) on the contract recognized in 2018 $180,000 *108. How much cash was collected in 2018 on this contract? a. $300,000 b. $420,000 c. $ 60,000 d. $720,000
B, LO: 5, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Cooper Construction Company had a contract starting April 2018, to construct a $24,000,000 building that is expected to be completed in September 2020, at an estimated cost of $22,000,000. At the end of 2018, the costs to date were $10,120,000 and the estimated total costs to complete had not changed. The progress billings during 2018 were $4,800,000 and the cash collected during 2018 was 3,200,000. Cooper uses the percentage-of-completion method. *104. For the year ended December 31, 2018, Cooper would recognize gross profit on the building of: a. $ 843,333 b. $ 920,000 c. $1,080,000 d. $0
B, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *117. Remington Construction Company uses the percentage-of-completion method. During 2018, the company entered into a fixed-price contract to construct a building for Sherman Company for $36,000,000. The following details pertain to the contract: At December 31, 2018 At December 31, 2019 Percentage of completion 25% 60% Estimated total cost of contract $27,000,000 $30,000,000 Gross profit recognized to date 2,250,000 3,600,000 The amount of construction costs incurred during 2019 was a. $18,000,000. b. $11,250,000. c. $6,750,000. d. $3,000,000.
B, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2018. *102. At December 31, 2019, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $18,000,000 due to unanticipated price increases. What is reported in the balance sheet at December 31, 2019 for Seasons as the difference between the Construction in Process and the Billings on Construction in Process accounts, and is it a debit or a credit? Difference between the accounts Debit/Credit a. $4,225,000 Credit b. $1,550,000 Debit c. $1,100,000 Debit d. $1,550,000 Credit
B, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Kiner, Inc. began work in 2018 on a contract for $21,000,000. Other data are as follows: 2018 2019 Costs incurred to date $9,000,000 $14,000,000 Estimated costs to complete 6,000,000 — Billings to date 7,000,000 21,000,000 Collections to date 5,000,000 18,000,000 *114. If Kiner uses the completed-contract method, the gross profit to be recognized in 2019 is a. $3,400,000. b. $7,000,000. c. $3,500,000. d. $14,000,000.
B, LO: 6, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *123. Wynne Inc. charges an initial franchise fee of $2,300,000, with $500,000 paid when the agreement is signed and the balance in five annual payments. The present value of the future payments, discounted at 10%, is $1,364,680. The franchisee has the option to purchase $300,000 of equipment for $240,000. Wynne has substantially provided all initial services required and collectibility of the payments is reasonably assured. The amount of revenue from franchise fees is a. $ 500,000. b. $1,804,680. c. $1,864,680. d. $2,300,000.
B, LO: 8, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 91. Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2018. Estimated standalone fair values of the equipment, installation and training are $90,000, $60,000 and $30,000 respectively. The journal entry to record the transaction on March 15, 2018 will include a a. credit to Sales Revenue for $144,000. b. debit to Unearned Service Revenue of $30,000. c. credit to Unearned Service Revenue of $24,000. d. credit to Service Revenue of $60,000.
C, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 94. Botanic Choice sells natural supplements to customers with an unconditional sales return if they are not satisfied. The sales returns period extends 60 days. On February 10, 2018, a customer purchases $4,000 of products (cost $2,000). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the actual return of $250 of merchandise includes a a. credit to Allowance for Sales Returns for $250. b. credit to Returned Inventory for $125. c. debit to Returned Inventory for $125. d. debit to Estimated Inventory Returns for $125.
C, LO: 3, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 95. On August 5, 2018, Famous Furniture shipped 40 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was $350 each. The cost of shipping the dining sets amounted to $3,600 and was paid for by Famous Furniture. On December 30, 2018, the consignee reported the sale of 30 dining sets at $850 each. The consignee remitted payment for the amount due after deducting a 6% commission, advertising expense of $600, and installation and setup costs of $780. The amount cash received by Famous furniture is a. $25,500 b. $23,970 c. $22,590 d. $23,370
C, LO: 3, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 97. On November 1, 2018, Green Valley Farm entered into a contract to buy a $150,000 harvester from John Deere. The contract required Green Valley Farm to pay $150,000 in advance on November 1, 2018. The harvester (cost of $110,000) was delivered on November 30, 2018. The journal entry to record the contract on November 1, 2018 includes a a. credit to Accounts Receivable for $150,000. b. credit to Sales Revenue for $150,000. c. credit to Unearned Sales Revenue for $150,000. d. debit to Unearned Sales Revenue for $150,000.
C, LO: 4, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *107. Monroe Construction Company uses the percentage-of-completion method of accounting. In 2018, Monroe began work on a contract it had received which provided for a contract price of $37,500,000. Other details follow: 2018 Costs incurred during the year $18,000,000 Estimated costs to complete as of December 31 12,000,000 Billings during the year 16,500,000 Collections during the year 9,500,000 What should be the gross profit recognized in 2018? a. $ 1,500,000 b. $19,500,000 c. $ 4,500,000 d. $ 7,500,000
C, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *106. Hayes Construction Corporation contracted to construct a building for $7,500,000. Construction began in 2018 and was completed in 2019. Data relating to the contract are summarized below: Year ended December 31, 2018 2019 Costs incurred $3,000,000 $2,250,000 Estimated costs to complete 2,000,000 — Hayes uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2018, and 2019, respectively, Hayes should report gross profit of a. $1,350,000 and $900,000. b. $4,500,000 and $3,000,000. c. $1,500,000 and $750,000. d. $0 and $2,250,000.
C, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *110. Adler Construction Co. uses the percentage-of-completion method. In 2018, Adler began work on a contract for $11,000,000 and it was completed in 2019. Data on the costs are: Year Ended December 31 2018 2019 Costs incurred $3,900,000 $2,800,000 Estimated costs to complete 2,600,000 — For the years 2018 and 2019, Adler should recognize gross profit of 2018 2019 a. $0 $4,300,000 b. $2,580,000 $1,720,000 c. $2,700,000 $1,600,000 d. $2,700,000 $4,300,000
C, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2018. * 100. At December 31, 2018, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2018 and what is the balance in the Accounts Receivable account assuming Cannon Company has not yet made its last quarterly payment? Revenue Accounts Receivable a. $6,200,000 $6,200,000 b. $5,325,000 $1,550,000 c. $5,580,000 $1,550,000 d. $5,325,000 $6,200,000
C, LO: 5, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Eilert Construction Company had a contract starting April 2018, to construct a $42,000,000 building that is expected to be completed in September 2019, at an estimated cost of $38,500,000. At the end of 2018, the costs to date were $17,710,000 and the estimated total costs to complete had not changed. The progress billings during 2018 were $8,400,000 and the cash collected during 2018 was $5,600,000. Eilert uses the percentage-of-completion method. *118. For the year ended December 31, 2018, Eilert would recognize gross profit on the building of a. $0. b. $1,475,833. c. $1,610,000. d. $1,890,000.
C, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Cooper Construction Company had a contract starting April 2018, to construct a $24,000,000 building that is expected to be completed in September 2020, at an estimated cost of $22,000,000. At the end of 2018, the costs to date were $10,120,000 and the estimated total costs to complete had not changed. The progress billings during 2018 were $4,800,000 and the cash collected during 2018 was 3,200,000. Cooper uses the percentage-of-completion method. *105. At December 31, 2018 Cooper would report Construction in Process in the amount of: a. $ 920,000 b. $10,120,000 c. $11,040,000 d. $ 9,440,000
C, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2018. *103. Seasons Construction completes the remaining 25% of the building construction on December 31, 2020, as scheduled. At that time the total costs of construction are $18,750,000. What is the total amount of Revenue from Long-Term Contracts and Construction Expenses that Seasons will recognize for the year ended December 31, 2020? Revenue Expenses a. $18,600,000 $18,750,000 b. $4,650,000 $ 4,687,500 c. $4,650,000 $ 5,250,000 d. $4,687,500 $ 4,687,500
C, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Gomez, Inc. began work in 2018 on contract #3814, which provided for a contract price of $19,200,000. Other details follow: 2018 2019 Costs incurred during the year $3,200,000 $9,800,000 Estimated costs to complete, as of December 31 9,600,000 0 Billings during the year 3,600,000 14,400,000 Collections during the year 2,400,000 15,600,000 *112. Assume that Gomez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2019 is a. $2,400,000. b. $3,600,000. c. $6,200,000. d. $19,200,000.
C, LO: 6, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *116. Horner Construction Co. uses the percentage-of-completion method. In 2018, Horner began work on a contract for $22,000,000; it was completed in 2019. The following cost data pertain to this contract: Year Ended December 31 2018 2019 Cost incurred during the year $7,800,000 $5,600,000 Estimated costs to complete at the end of year 5,200,000 — If the completed-contract method of accounting was used, the amount of gross profit to be recognized for years 2018 and 2019 would be 2018 2019 a. $9,000,000. $0. b. $8,600,000. $(400,000). c. $0. $8,600,000. d. $0. $9,000,000.
C, LO: 6, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *122. On January 1, 2018 Dairy Treats, Inc. entered into a franchise agreement with a company allowing the company to do business under Dairy Treats' name. Dairy Treats had performed substantially all required services by January 1, 2018, and the franchisee paid the initial franchise fee of $980,000 in full on that date. The franchise agreement specifies that the franchisee must pay a continuing franchise fee of $84,000 annually, of which 20% must be spent on advertising by Dairy Treats. What entry should Dairy Treats make on January 1, 2018 to record receipt of the initial franchise fee and the continuing franchise fee for 2018? a. Cash 1,064,000 Franchise Fee Revenue 980,000 Franchise Revenue 84,000 b. Cash 1,064,000 Unearned Franchise Revenue 1,064,000 c. Cash 1,064,000 Franchise Fee Revenue 980,000 Franchise Revenue 67,200 Unearned Franchise Revenue 16,800 d. Prepaid Advertising 16,800 Cash 1,064,000 Franchise Fee Revenue 980,000 Franchise Revenue 84,000 Unearned Franchise Revenue 16,800
C, LO: 8, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 87. On June 1, 2018, Johnson & Sons sold equipment to James Landscaping Service in exchange for a zero-interest bearing note with a face value of $110,000, with payment due in 12 months. The fair value of the equipment on the date of sale was $100,000. The amount of revenue to be recognized on this transaction in 2018 is a. $110,000. b. $10,000 c. $100,000 d. $100,000 sales revenue and $5,833 interest revenue.
D, LO: 2, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None 90. Meyer & Smith is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package. Container Corporation purchased computer equipment, installation and training for a total cost of $144,000 on March 15, 2018. Estimated standalone fair values of the equipment, installation, and training are $90,000, $60,000, and $30,000 respectively. The transaction price allocated to equipment, installation and training is a. $90,000, $60,000, $30,000 respectively b. $48,000, $48,000, $48,000 respectively c. $144,000 for the entire bundle. d. $72,000, $48,000 and $24,000 respectively.
D, LO: 2, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None In 2018, Fargo Corporation began construction work under a three-year contract. The contract price is $7,200,000. Fargo uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of costs incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2018, follow: Balance Sheet Accounts receivable—construction contract billings $300,000 Construction in progress $900,000 Less contract billings 720,000 Costs and recognized profit in excess of billings 180,000 Income Statement Income (before tax) on the contract recognized in 2018 $180,000 *109. What was the initial estimated total income before tax on this contract? a. $900,000 b. $960,000 c. $1,200,000 d. $1,440,000
D, LO: 5, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None Seasons Construction is constructing an office building under contract for Cannon Company and uses the percentage-of-completion method. The contract calls for progress billings and payments of $1,550,000 each quarter. The total contract price is $18,600,000 and Seasons estimates total costs of $17,750,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2018. *101. At December 31, 2019, Seasons Construction estimates that it is 75% complete with the building; however, the estimate of total costs to be incurred has risen to $18,000,000 due to unanticipated price increases. What is the total amount of Construction Expenses that Seasons will recognize for the year ended December 31, 2019? a. $13,500,000 b. $7,875,000 c. $7,987,500 d. $8,175,000
D, LO: 5, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,
: None *120. Douglas Diners Inc. charges an initial franchise fee of $180,000 broken down as follows: Rights to trade name, market area, and proprietary know-how $ 80,000 Training services 23,000 Equipment (cost of $21,600) 77,000 Total initial franchise fee $180,000 Upon signing of the agreement, a payment of $80,000 is due. Thereafter, two annual payments of $50,000 are required. The credit rating of the franchisee is such that it would have to pay interest of 8% to borrow money. The franchise agreement is signed on August 1, 2018, and the franchise commences operation on November 1, 2018. Assuming that no future services are required by the franchisor once the franchise begins operations, the entry on November 1, 2018 would include a. a credit to Unearned Franchise Revenue for $80,000. b. a credit to Service Revenue for $23,000. c. a credit to Sales Revenue for $77,000. d. a debit to Unearned Franchise Revenue for $80,000.
D, LO: 8, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None, IMA: Reporting,