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Exam 5: Income Measurement and Profitability Analysis

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Question 31

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

A) Recognized $15 million gross profit on the project in 2014.
B) Recognized $13.5 million gross profit on the project in 2014.
C) Recognized $6 million gross profit on the project in 2014.
D) Recognized $1.5 million gross profit on the project in 2014.

E) A) and B)
F) B) and C)

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Question 32

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Merchandise sold FOB destination indicates that:

A) The seller holds the title until the merchandise is received at the buyer's location.
B) The buyer is responsible for delivery of the merchandise to the destination.
C) The full order is back-ordered to its destination.
D) The buyer pays the freight to the destination.

E) C) and D)
F) A) and C)

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Question 33

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

In 2014, Reliable would recognize gross profit of:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hulkster's 2013 profit margin is (rounded) :

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