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.
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
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
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.
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
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
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.
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.
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
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
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
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
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
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
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
*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.
*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
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
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
*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
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.
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.
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.
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.
*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.
*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.
*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.
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.
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.
