Intermediate Accounting III Chapter 6 HW

Saar Associates sells two licenses to Kim & Company on September 1, 2021. First, in exchange for $118,000, Saar provides Kim with a copy of its proprietary investment management software, which Saar does not anticipate updating and which Kim can use permanently. Second, in exchange for $106,200, Saar provides Kim with a four-year right to market Kim's financial advisory services under the name of Saar Associates, which Saar advertises on an ongoing basis. The trade name "Saar Associates" is not well known in the marketplace and the owner provides no advertising or other benefits to a licensee of the Saar Associates trade name during the license period. How much revenue will Saar recognize in 2021 under this arrangement if Saar reports under U.S. GAAP?

$126,850

Furtastic manufactures imitation fur garments. On June 1, 2021, Furtastic made a sale to Willett's Department Store under terms that require Willett to pay $150,000 to Furtastic on June 30, 2021. In a separate transaction on June 15, 2021, Furtastic purchased brand advertising services from Willett for $12,000. The fair value of those advertising services is $5,000. Furtastic expects that 3% of all sales will prove uncollectible. June 01

(DR) Accounts Receivable 150,000 (CR) Sales revenue 150,000

Rocky Guide Service provides guided 1-5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $1,000 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $100 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of "excellent" by Wilderness customers. The $1,000 per day and any bonus due are paid in one lump payment shortly after the end of each month. On July 1, based on prior experience, Rocky estimated there is a 30% chance it will earn the bonus for July tours. It guided a total of 10 days from July 1-July 15. On July 16, based on Rocky's view that it had provided excellent service during the first part of the month, Rocky revised its estimate to an 80% chance it would earn the bonus for July tours. Rocky also guided customers for 15 days from July 16-July 31. On August 5 Rocky learned it did not receive an average evaluation of "excellent" for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours. Rocky bases estimates of variable consideration on the expected value it expects to receive. July 15

(DR) Accounts receivable - 10,000 (DR) Bonus receivable - 300 (CR) Service revenue - 10,300

Rocky Guide Service provides guided 1-5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $1,000 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $100 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of "excellent" by Wilderness customers. The $1,000 per day and any bonus due are paid in one lump payment shortly after the end of each month. On July 1, based on prior experience, Rocky estimated there is a 30% chance it will earn the bonus for July tours. It guided a total of 10 days from July 1-July 15. On July 16, based on Rocky's view that it had provided excellent service during the first part of the month, Rocky revised its estimate to an 80% chance it would earn the bonus for July tours. Rocky also guided customers for 15 days from July 16-July 31. On August 5 Rocky learned it did not receive an average evaluation of "excellent" for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours. Rocky bases estimates of variable consideration on the expected value it expects to receive. July 31

(DR) Accounts receivable - 15,000 (DR) Bonus receivable - 1,700 (CR) Service revenue - 16,700

Furtastic manufactures imitation fur garments. On June 1, 2021, Furtastic made a sale to Willett's Department Store under terms that require Willett to pay $150,000 to Furtastic on June 30, 2021. In a separate transaction on June 15, 2021, Furtastic purchased brand advertising services from Willett for $12,000. The fair value of those advertising services is $5,000. Furtastic expects that 3% of all sales will prove uncollectible. June 15

(DR) Advertising Expense 5,000 (DR) Sales revenue 7,000 (CR) Cash 12,000

Rocky Guide Service provides guided 1-5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $1,000 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $100 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of "excellent" by Wilderness customers. The $1,000 per day and any bonus due are paid in one lump payment shortly after the end of each month. On July 1, based on prior experience, Rocky estimated there is a 30% chance it will earn the bonus for July tours. It guided a total of 10 days from July 1-July 15. On July 16, based on Rocky's view that it had provided excellent service during the first part of the month, Rocky revised its estimate to an 80% chance it would earn the bonus for July tours. Rocky also guided customers for 15 days from July 16-July 31. On August 5 Rocky learned it did not receive an average evaluation of "excellent" for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours. Rocky bases estimates of variable consideration on the expected value it expects to receive. August 5

(DR) Cash - 25,000 (CR) Accounts receivable - 25,000

Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles. The snowmobiles were delivered on January 1, 2021, and Arctic received a note from Seneca indicating that Seneca will pay Arctic $30,700 on a future date. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant and that the relevant interest rate is 12% Assume the same facts as in requirement 1, and prepare the journal entry for Arctic to record collection of the payment on December 31, 2021.

(DR) Cash - 30,700 (DR) Discount on notes receivable - 3,289 (CR) Interest revenue - 3,289 (CR) Notes receivable - 30,700

Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts selling "SunBoots" to customers for $60 per pair. When a customer purchases a pair of SunBoots, Clarks also gives the customer a 20% discount coupon for any additional future purchases made in the next 30 days. Customers can't obtain the discount coupon otherwise. Clarks anticipates that approximately 10% of customers will utilize the coupon, and that on average those customers will purchase additional goods that normally sell for $110. Assume Clarks cannot estimate the standalone selling price of a pair of SunBoots sold without a coupon. Prepare a journal entry to record revenue for the sale of 1,500 pairs of SunBoots.

(DR) Cash - 90,000 (CR) Deferred revenue - coupons - 3,300 (CR) Sales revenue - 86,700

On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 5,500 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $94,600, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2021. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $44,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.20 per unit. Prepare the journal entry that Meta would record on May 1, 2021.

(DR) Cash - 94,600 (CR) Deferred revenue - 90,816 (CR) Deferred revenue-coupons - 3,784

On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 5,500 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $94,600, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2021. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $44,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.20 per unit. Assume the same facts and circumstances as above, except that Meta gives a 5% discount option to Bionics instead of 25%. In this case, what journal entry would Meta record on May 1, 2021?

(DR) Cash - 94,600 (CR) Deferred revenue - 94,600

Furtastic manufactures imitation fur garments. On June 1, 2021, Furtastic made a sale to Willett's Department Store under terms that require Willett to pay $150,000 to Furtastic on June 30, 2021. In a separate transaction on June 15, 2021, Furtastic purchased brand advertising services from Willett for $12,000. The fair value of those advertising services is $5,000. Furtastic expects that 3% of all sales will prove uncollectible. June 30

(DR) Cash 150,000 (CR) Accounts Receivable 150,000

On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 5,700 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $96,900, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2021. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $57,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.00 per unit. Assume the same facts and circumstances as above, except that Meta gives a 5% discount option to Bionics instead of 25%. In this case, what journal entry would Meta record on May 1, 2021?

(DR) Cash 96,900 (CR) Deferred Revenue 96,900

On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 5,700 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $96,900, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2021. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $57,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.00 per unit. Prepare the journal entry that Meta would record on May 1, 2021.

(DR) Cash 96,900 (CR) Deferred revenue 92,055 (CR) Deferred revenue-coupons 4,845

Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles. The snowmobiles were delivered on January 1, 2021, and Arctic received a note from Seneca indicating that Seneca will pay Arctic $30,700 on a future date. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant and that the relevant interest rate is 12%. Assume the note indicates that Seneca is to pay Arctic the $30,700 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

(DR) Notes receivable - 30,700 (CR) Discount on notes receivable - 3,289 (CR) Sales revenue - 27,411

Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles. The snowmobiles were delivered on January 1, 2021, and Arctic received a note from Seneca indicating that Seneca will pay Arctic $30,700 on a future date. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant and that the relevant interest rate is 12% Assume instead that Seneca is to pay Arctic the $30,700 due on the note on December 31, 2022. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

(DR) Notes receivable - 30,700 (CR) Discount on notes receivable - 6,227 (CR) Sales revenue - 24,473

Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles. The snowmobiles were delivered on January 1, 2021, and Arctic received a note from Seneca indicating that Seneca will pay Arctic $30,700 on a future date. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant and that the relevant interest rate is 12%. Assume instead that Arctic does not view the time value of money component of this arrangement to be significant, and that the note indicates that Seneca is to pay Arctic the $30,700 due on the note on December 31, 2021. Prepare the journal entry for Arctic to record the sale on January 1, 2021.

(DR) Notes receivable - 30,700 (CR) Sales revenue - 30,700

Rocky Guide Service provides guided 1-5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $1,000 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $100 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of "excellent" by Wilderness customers. The $1,000 per day and any bonus due are paid in one lump payment shortly after the end of each month. On July 1, based on prior experience, Rocky estimated there is a 30% chance it will earn the bonus for July tours. It guided a total of 10 days from July 1-July 15. On July 16, based on Rocky's view that it had provided excellent service during the first part of the month, Rocky revised its estimate to an 80% chance it would earn the bonus for July tours. Rocky also guided customers for 15 days from July 16-July 31. On August 5 Rocky learned it did not receive an average evaluation of "excellent" for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours. Rocky bases estimates of variable consideration on the expected value it expects to receive. August 05

(DR) Service revenue - 2,000 (CR) Bonus receivable - 2,000

Dowell Fishing Supply, Inc., sold $50,000 of Dowell Rods on December 15, 2021, to Bassadrome. Because of a shipping backlog, Dowell held the inventory in Dowell's warehouse until January 12, 2022 (having assured Bassadrome that it would deliver sooner if necessary). How much revenue should Dowell recognize in 2021 for the sale to Bassadrome?

0

Finerly Corporation sells cosmetics through a network of independent distributors. Finerly shipped cosmetics to its distributors and is considering whether it should record $740,000 of revenue upon shipment of a new line of cosmetics. Finerly expects the distributors to be able to sell the cosmetics, but is uncertain because it has little experience with selling cosmetics of this type. Finerly is committed to accepting the cosmetics back from the distributors if the cosmetics are not sold. How much revenue should Finerly recognize upon delivery to its distributors?

0

Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles that have a fair market value of $39,500. Seneca paid for the snowmobiles on January 1, 2021, with delivery to occur subsequently. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant, and that the relevant interest rate is 5%. Assume instead that delivery is to occur on December 31, 2022. Prepare the journal entry for Arctic to record collection on January 1, 2021, assuming Seneca prepays the present value of the snowmobiles.

01/01/2021 (DR) Cash 35,828 (CR) Deferred revenue 35,828

Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles that have a fair market value of $39,500. Seneca paid for the snowmobiles on January 1, 2021, with delivery to occur subsequently. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant, and that the relevant interest rate is 5%. Assume instead that Arctic does not view the time value of money component of this arrangement to be significant. Also assume that, on January 1, 2021, Seneca prepays Arctic for a December 31, 2021 delivery of the snowmobiles, and that Seneca prepays the present value of the snowmobiles. Prepare the journal entry for Arctic to record collection on January 1, 2021.

01/01/2021 (DR) Cash 37,619 (CR) Deferred revenue 37,619

Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles that have a fair market value of $39,500. Seneca paid for the snowmobiles on January 1, 2021, with delivery to occur subsequently. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant, and that the relevant interest rate is 5%. Assume that, on January 1, 2021, Seneca prepays Arctic for a December 31, 2021 delivery of the snowmobiles. Prepare the journal entry for Arctic to record collection on January 1, 2021, assuming Seneca prepays the present value of the snowmobiles.

01/01/2021 (DR) Cash 37,619 (CR) Deferred revenue 37,619

eLean is an online fitness community, offering access to workout routines, nutrition advice, and eLean coaches. Customers pay a $50 fee to become registered on the website, and then pay $5 per month for access to all eLean services. How many performance obligations exist in the implied contract when a customer registers for the services?

1 (access to eLearn services)

A New York City daily newspaper called "Manhattan Today" charges an annual subscription fee of $138. Customers prepay their subscriptions and receive 230 issues over the year. To attract more subscribers, the company offered new subscribers the ability to pay $125 for an annual subscription that also would include a coupon to receive a 40% discount on a one-hour ride through Central Park in a horse-drawn carriage. The list price of a carriage ride is $100 per hour. The company estimates that approximately 30% of the coupons will be redeemed. How much revenue should Manhattan Today recognize upon receipt of the $125 subscription price? How many performance obligations exist in this contract? Prepare the journal entry to recognize sale of 12 new subscriptions, clearly identifying the revenue or deferred revenue associated with each performance obligation.

1. 0 2. 2 3. (DR) Cash 1,500 (CR) Deferred subscription revenue 1,380 (CR) Deferred revenue - coupons 120

In 2021, Long Construction Corporation began construction work under a three-year contract. The contract price is $2,100,000. Long recognizes revenue over time according to percentage of completion for financial reporting purposes. The financial statement presentation relating to this contract at December 31, 2021, is as follows: Balance Sheet Accounts receivable (from construction progress billings) $ 35,000 Construction in progress $ 150,000 Less: Billings on construction contract (143,000 ) Cost and profit of uncompleted contracts in excess of billings 7,000 Income Statement Income (before tax) on the contract recognized in 2021 $ 25,000 1. What was the cost of construction actually incurred in 2021? 2. How much cash was collected in 2021 on this contract? 3. What was the estimated cost to complete as of the end of 2021? 4. What was the estimated percentage of completion used to calculate revenue in 2021?

1. 125,000 2. 108,000 3. 1,625,000 4. 7.14%

Monitor Muffler sells franchise arrangements throughout the United States and Canada. Under a franchise agreement, Monitor receives $600,000 in exchange for satisfying the following separate performance obligations: (1) franchisees have a five-year right to operate as a Monitor Muffler retail establishment in an exclusive sales territory, (2) franchisees receive initial training and certification as a Monitor Mechanic, and (3) franchisees receive a Monitor Muffler building and necessary equipment. The stand-alone selling price of the initial training and certification is $15,000, and $450,000 for the building and equipment. Monitor estimates the stand-alone selling price of the five-year right to operate as a Monitor Muffler establishment using the residual approach. Monitor received $75,000 on July 1, 2021, from Perkins and accepted a note receivable for the rest of the franchise price. Monitor will construct and equip Perkins's building and train and certify Perkins by September 1, and Perkins's five-year right to operate as a Monitor Muffler establishment will commence on September 1 as well. What amount would Monitor calculate as the stand-alone selling price of the five-year right to operate as a Monitor Muffler retail establishment? What journal entry would Monitor record on July 1, 2021, to reflect the sale of a franchise to Dan Perkins? How much revenue would Monitor recognize in the year ended December 31, 2021, with respect to its franchise arrangement with Perkins? (Ignore any interest on the note receivable.)

1. 135,000 2. (DR) Cash 75,000 (CR) Notes receivable 525,000 (CR) Deferred revenue 600,000 3. 474,000

Determine the specific nine-digit Codification citation (XXX-XX-XX-XX) for accounting for each of the following items: 1. What are the five key steps to applying the revenue recognition principle? 2. What are indicators that control has passed from the seller to the buyer, such that it is appropriate to recognize revenue at a point in time? 3. Under what circumstances can sellers recognize revenue over time?

1. 606-10-05-04 2. 606-10-25-30 3. 606-10-25-27

In January 2021, Continental Fund Services, Inc., enters into a one-year contract with a client to provide investment advisory services. The company will receive a management fee, prepaid at the beginning of the contract, that is calculated as 1% of the client's $150 million total assets being managed. In addition, the contract specifies that Continental will receive a performance bonus of 20% of any returns in excess of the return on the Dow Jones Industrial Average market index. Continental estimates that it will earn a $2 million performance bonus, but is very uncertain of that estimate, given that the bonus depends on a highly volatile stock market. On what transaction price should Continental base revenue recognition?

1.5 million

Saar Associates sells two licenses to Kim & Company on September 1, 2021. First, in exchange for $100,000, Saar provides Kim with a copy of its proprietary investment management software, which Saar does not anticipate updating and which Kim can use permanently. Second, in exchange for $90,000, Saar provides Kim with a three-year right to market Kim's financial advisory services under the name of Saar Associates, which Saar advertises on an ongoing basis. How much revenue will Saar recognize in 2021 under this arrangement?

110,000

Saar Associates sells two licenses to Kim & Company on September 1, 2021. First, in exchange for $100,000, Saar provides Kim with a copy of its proprietary investment management software, which Saar does not anticipate updating and which Kim can use permanently. Second, in exchange for $90,000, Saar provides Kim with a three-year right to market Kim's financial advisory services under the name of Saar Associates, which Saar advertises on an ongoing basis. The trade name "Saar Associates" is not well known in the marketplace and the owner provides no advertising or other benefits to a licensee of the Saar Associates trade name during the license period. How much revenue will Saar recognize in 2021 under this arrangement if Saar reports under U.S. GAAP?

110,000

Arctic Cat sold Seneca Motor Sports a shipment of snowmobiles that have a fair market value of $39,500. Seneca paid for the snowmobiles on January 1, 2021, with delivery to occur subsequently. Unless informed otherwise, assume that Arctic views the time value of money component of this arrangement to be significant, and that the relevant interest rate is 5%. Prepare the journal entry for Arctic to record delivery of the snowmobiles on December 31, 2021.

12/31/2021 (DR) Interest expense 1,881 (DR) Deferred revenue 37,619 (CR) Sales revenue 39,500

O'Hara Associates sells golf clubs, and with each sale of a full set of clubs provides complementary club-fitting services. A full set of clubs with the fitting services sells for $1,500. Similar club-fitting services are offered by other vendors for $110, and O'Hara generally charges approximately 10% more than do other vendors for similar services. Estimate the stand-alone selling price of the club-fitting services using the adjusted market assessment approach.

121

On January 1, 2021, Hodge Beanery received $14,300 from the Kennedy Company in exchange for a coffee roaster that it will deliver to Kennedy on December 31, 2021. Assuming that Hodge views the time value of money to be a significant component of this transaction, and that a 5% interest rate is applicable How much deferred revenue would Hodge recognize on January 1, 2021?

14,300

Assume that Amazon.com sells the MacBook Pro, a computer produced by Apple, for a retail price of $1,500. Amazon arranges its operations such that customers receive products directly from Apple Stores rather than Amazon. Customers purchase from Amazon using credit cards, and Amazon forwards cash to Apple equal to the retail price minus a $150 commission that Amazon keeps. In this arrangement, how much revenue will Amazon recognize for the sale of one MacBook Pro?

150

Clarks Inc., a shoe retailer, sells boots in different styles. In early November the company starts selling "SunBoots" to customers for $60 per pair. When a customer purchases a pair of SunBoots, Clarks also gives the customer a 20% discount coupon for any additional future purchases made in the next 30 days. Customers can't obtain the discount coupon otherwise. Clarks anticipates that approximately 10% of customers will utilize the coupon, and that on average those customers will purchase additional goods that normally sell for $110. How many performance obligations are in a contract to buy a pair of SunBoots?

2

On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 5,500 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $94,600, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2021. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $44,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.20 per unit. How many performance obligations are in this contract?

2

On May 1, 2021, Meta Computer, Inc., enters into a contract to sell 5,700 units of Comfort Office Keyboard to one of its clients, Bionics, Inc., at a fixed price of $96,900, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2021. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher, and that the coupon will be applied to $57,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.00 per unit. How many performance obligations are in this contract?

2

Kerianne paints landscapes, and in late 2021 placed four paintings with a retail price of $250 each in the Holmstrom Gallery. Kerianne's arrangement with Holmstrom is that Holmstrom will earn a 20% commission on paintings sold to gallery patrons. As of December 31, 2021, one painting had been sold by Holmstrom to gallery patrons. How much revenue with respect to these four paintings should Kerianne recognize in 2021?

250

Kerianne paints landscapes, and in late 2021 placed four paintings with a retail price of $360 each in the Holmstrom Gallery. Kerianne's arrangement with Holmstrom is that Holmstrom will earn a 25% commission on paintings sold to gallery patrons. As of December 31, 2021, one painting had been sold by Holmstrom to gallery patrons. How much revenue with respect to these four paintings should Kerianne recognize in 2021?

360

TopChop sells hairstyling franchises. TopChop receives $50,000 from a new franchisee for providing initial training, equipment, and furnishings that have a stand-alone selling price of $50,000. TopChop also receives $30,000 per year for use of the TopChop name and for ongoing consulting services (starting on the date the franchise is purchased). Carlos became a TopChop franchisee on July 1, 2021, and on August 1, 2021, had completed training and was open for business. How much revenue in 2021 will TopChop recognize for its arrangement with Carlos?

65,000

On January 1, 2021, Wooten Technology Associates sold computer equipment to the Denison Company. Delivery was made on January 1, 2021, but payment for the equipment of $10,000 is not due until December 31, 2021. Assuming that Wooten views the time value of money to be a significant component of this transaction and that an 8% interest rate is applicable. How much sales revenue would Wooten recognize on January 1, 2021?

9,259

Video Planet (VP) sells a big screen TV package consisting of a 60-inch plasma TV, a universal remote, and on-site installation by VP staff. The installation includes programming the remote to have the TV interface with other parts of the customer's home entertainment system. VP concludes that the TV, remote, and installation service are separate performance obligations. VP sells the 60-inch TV separately for $2,090 and sells the remote separately for $270, and offers the entire package for $2,580. VP does not sell the installation service separately. VP is aware that other similar vendors charge $320 for the installation service. VP also estimates that it incurs approximately $270 of compensation and other costs for VP staff to provide the installation service. VP typically charges 50% above cost on similar sales. 1. to 3. Calculate the stand-alone selling price of the installation service using each of the following approaches.

Adjusted market assessment: 320 Expected cost plus margin - 405 Residual - 220

Estate Construction is constructing a building for CyberB, an online retailing company. Under the construction agreement, if for any reason Estate can't complete construction, CyberB would own the partially completed building and could hire another construction company to complete the job. When should Estate recognize revenue: as the building is constructed, or after construction is completed?

As the building is constructed

A construction company entered into a fixed-price contract to build an office building for $16 million. Construction costs incurred during the first year were $3 million and estimated costs to complete at the end of the year were $7 million. During the first year the company billed its customer $3 million, of which $1 million was collected before year-end. What would appear in the year-end balance sheet related to this contract using the percentage-of-completion method?

Assets: Accounts receivable - 2,000,000 Costs plus profit in excess of billings - 1,800,000

Holt Industries received a $1,800 prepayment from the Ramirez Company for the sale of new office furniture. Holt will bill Ramirez an additional $2,900 upon delivery of the furniture to Ramirez. Upon receipt of the $1,800 prepayment, how much should Holt recognize for a contract asset, a contract liability, and accounts receivable?

Contract asset 0 Contract liability 1,800 Accounts receivable 0

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2021 and was completed in 2022. Data relating to the contract are summarized below: 2021 2022 Costs incurred during the year $ 300,000 $ 1,575,000 Estimated costs to complete as of 12/31 1,200,000 0 Billings during the year 380,000 1,620,000 Cash collections during the year 250,000 1,750,000 Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming Nortel recognizes revenue over time according to percentage of completion.

Current Assets: Accounts Receivable - 130,000 Costs and profit in excess of billings - 20,000

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2021 and was completed in 2022. Data relating to the contract are summarized below: 2021 2022 Costs incurred during the year $ 300,000 $ 1,575,000 Estimated costs to complete as of 12/31 1,200,000 0 Billings during the year 380,000 1,620,000 Cash collections during the year 250,000 1,750,000 Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming this project does not qualify for revenue recognition over time.

Current assets: Accounts Receivable - 130,000 Current liabilities: Billings in excess of costs and profit - 80,000

Franklin Construction entered into a fixed-price contract to build a freeway-connecting ramp for $30 million. Construction costs incurred in the first year were $16 million and estimated remaining costs to complete at the end of the year were $17 million. How much gross profit or loss will Franklin recognize in the first year if it recognizes revenue over time according to percentage of completion method?

Gross Loss 3 million

Franklin Construction entered into a fixed-price contract to build a freeway-connecting ramp for $52 million. Construction costs incurred in the first year were $42 million and estimated remaining costs to complete at the end of the year were $26 million. How much gross profit or loss will Franklin recognize in the first year applying the completed contract method?

Gross loss 16 million

Franklin Construction entered into a fixed-price contract to build a freeway-connecting ramp for $52 million. Construction costs incurred in the first year were $42 million and estimated remaining costs to complete at the end of the year were $26 million. How much gross profit or loss will Franklin recognize in the first year if it recognizes revenue over time according to percentage of completion method?

Gross loss 16 million

Franklin Construction entered into a fixed-price contract to build a freeway-connecting ramp for $30 million. Construction costs incurred in the first year were $16 million and estimated remaining costs to complete at the end of the year were $17 million. How much gross profit or loss will Franklin recognize in the first year applying the completed contract method?

Gross loss 3 million

Aria Perfume, Inc., sold 3,210 boxes of white musk soap during January of 2021 at the price of $90 per box. The company offers a full refund to unsatisfied customers for any product returned within 30 days from the date of purchase. Based on historical experience, Aria expects that 3% of sales will be returned. How many performance obligations are there in each sale of a box of soap? How much revenue should Aria recognize in January?

Number of performance obligations in the contract: 1 January revenue: 280,233

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,450,000. The project began in 2021 and was completed in 2022. Data relating to the contract are summarized below: 2021 2022 Costs incurred during the year $ 336,000 $ 1,870,000 Estimated costs to complete as of 12/31 1,344,000 0 Billings during the year 446,000 1,710,000 Cash collections during the year 361,000 1,795,000 1. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming Nortel recognizes revenue over time according to percentage of completion. 2. Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming this project does not qualify for revenue recognition over time. 3. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming Nortel recognizes revenue over time according to percentage of completion. 4. Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2021 assuming this project does not qualify for revenue recognition over time.

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On February 1, 2021, Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8,570,000. During 2021, costs of $2,190,000 were incurred with estimated costs of $4,190,000 yet to be incurred. Billings of $2,690,000 were sent, and cash collected was $2,440,000. In 2022, costs incurred were $2,690,000 with remaining costs estimated to be $3,885,000. 2022 billings were $2,940,000 and $2,665,000 cash was collected. The project was completed in 2023 after additional costs of $3,990,000 were incurred. The company's fiscal year-end is December 31. Arrow recognizes revenue over time according to percentage of completion. 1. Compute the amount of revenue and gross profit or loss to be recognized in 2021, 2022, and 2023 using the percentage of completion method.2a. Prepare journal entries for 2021 to record the transactions described (credit "various accounts" for construction costs incurred).2b. Prepare journal entries for 2022 to record the transactions described (credit "various accounts" for construction costs incurred).3a. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2021.3b. Prepare a partial balance sheet to show the presentation of the project as of December 31, 2022.

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A construction company entered into a fixed-price contract to build an office building for $20 million. Construction costs incurred during the first year were $6 million and estimated costs to complete at the end of the year were $9 million. The company recognizes revenue over time according to percentage of completion. How much revenue and gross profit or loss will appear in the company's income statement in the first year of the contract?

Revenue - 8,000,000 Gross profit - 2,000,000

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2021 and was completed in 2022. Data relating to the contract are summarized below: 2021 2022 Costs incurred during the year $ 300,000 $ 1,575,000 Estimated costs to complete as of 12/31 1,200,000 0 Billings during the year 380,000 1,620,000 Cash collections during the year 250,000 1,750,000 Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming this project does not qualify for revenue recognition over time.

Revenue 2021: 0 Gross Profit 2021: 0 Revenue 2022: 2,000,000 Gross Profit 2022: 125,000

A construction company entered into a fixed-price contract to build an office building for $26 million. Construction costs incurred during the first year were $6 million and estimated costs to complete at the end of the year were $9 million. The building was completed during the second year. Construction costs incurred during the second year were $10 million. How much revenue and gross profit or loss will the company recognize in the first and second year if it recognizes revenue upon contract completion?

Revenue year 1: 0 Revenue year 2: 26,000,000 Gross profit year 1: 0 Gross profit year 2: 10,000,000

Assume Nortel Networks contracted to provide a customer with Internet infrastructure for $2,000,000. The project began in 2021 and was completed in 2022. Data relating to the contract are summarized below: 2021 2022 Costs incurred during the year $ 300,000 $ 1,575,000 Estimated costs to complete as of 12/31 1,200,000 0 Billings during the year 380,000 1,620,000 Cash collections during the year 250,000 1,750,000 Compute the amount of revenue and gross profit or loss to be recognized in 2021 and 2022 assuming Nortel recognizes revenue over time according to percentage of completion.

chapter 6 HW 6