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ASSIGNMENT

                     ASSIGNMENT NO. (5)
By: Khalil M. Safi
To: Mr. Tariq Abu Al-Ageen
                                                                                               ASSIGNMENT
ASSIGNMENT                                                                                     (5)

1- Which method recognizes revenues and gross profit each
period based upon the progress of construction?
c. Percentage-of-completion

2- The revenue recognition principle states that revenue is
recognized when it is
c. Realized and earned

BE 18-9 :-
Construction in Process.................. 1,700,000
Materials, Cash, Payables, etc.................................. 1,700,000
Accounts Receivable ..........................1,200,000
Billings on Construction in Process............................ 1,200,000
Cash............................................. 960,000
Accounts Receivable ................................................... 960,000                Intermediate
                                                                                               Accounting II
BE 18-10 :-
Current Assets
Accounts Receivable ................................................... $240,000               By: Khalil Safi
Inventories
Construction in process ...................... $1,715,000
Less: Billings......................................... 1,000,000                              To: Mr. Tariq
Costs and recognized profit in excess                                                          Abu Al-Ageen
of billings......................................................................... 715,000


BE 18-11:-
(a) Construction Expenses.................. 278,000
Construction in Process (Loss) ................................. 20,000*
Revenue from Long-Term Contracts......................... 258,000

(b)completed contract
 Loss from Long-Term Contracts............. 20,000*
Construction in Process (Loss) ...................................... 20,000

*[$420,000 – ($278,000 + $162,000)]

BE 18-14 :-                                                                                     2011 - 2012
Solution/
2010        $0
2011        $2,000 ($15,000 – $13,000)
2012        $5,000
                                                                                                            1
E 18-14:-
DOUGHERTY INC.
Computation of Gross Profit to be
Recognized on Uncompleted Contract
Year Ended December 31, 2010
Total contract price
  Estimated contract cost at completion
($800,000 + $1,200,000) .............................. $2,000,000
Fixed fee ........................................................ 450,000
Total.............................................................................. 2,450,000
Total estimated cost ................................................. 2,000,000
Gross profit.................................................................. 450,000
Percentage of completion ($800,000 ÷ $2,000,000) .... 40%

Gross profit to be recognized ($450,000 X 40%) ............... $ 180,000


E 18-15 :-
(a) 1. Gross profit recognized in 2012:
Contract price ........................................................   $1,200,000
Costs:
Costs to date .......................................... $280,000
Estimated additional costs .................... 520,000                   800,000
Total estimated profit ..........................................         400,000
Percentage completion to date
($280,000/$800,000) .........................................              35%
Gross profit recognized in 2012.......................                  $ 140,000

Gross profit recognized in 2013:
Contract price ........................................................         $1,200,000
Costs:
Costs to date ........................................... $600,000
Estimated additional costs .................... 200,000                          800,000
Total estimated profit ..........................................                400,000
Percentage completion to date
($600,000/$800,000) .........................................                    75%
Total gross profit recognized ...........................                       300,000
Less: Gross profit recognized in 2010 .........                                140,000
Gross profit recognized in 2011.......................                         $ 160,000
                                                                                                2
2. Construction in Process……….320,000
 ($600,000 – $280,000)....
Materials, Cash, Payables, etc................................. 320,000
Accounts Receivable………………350000
 ($500,000 – $150,000) .
Billings on Construction in Process..................... 350,000
Cash ($320,000 – $120,000)............. 200,000
Accounts Receivable .................................................. 200,000
Construction in Process............................ 160,000
Construction Expenses.............................. 320,000
Revenues from Long-Term Contracts.......................... 480,000*
*$1,200,000 X [($600,000 – $280,000) ÷ $800,000]

(b) Income Statement (2011)—
Gross profit on long-term construction contract..........$160,000
Balance Sheet (12/31/11)—
Current assets:
Receivables—construction in process...................... $180,000*
Inventories—construction in process totaling
$900,000** less billings of $500,000............................. $400,000
*
*$180,000 = $500,000 – $320,000
**Total cost to date        $600,000
2010 Gross profit         140,000
2011 Gross profit         160,000
                          $900,000
E 18-19:-
Computation of gross profit recognized:
                          2012                2013
$370,000 X 34%*          $125,800
$350,000 X 34%*                              $119,000
$450,000 X 32%**                                144,000
                          $125,800                263000

*($900,000 – $594,000) ÷ $900,000
**($1,000,000 – $680,000) ÷ $1,000,000

(b) Installment Accounts Receivable2012 ....... 1,000,000
Installment Sales............................................................ 1,000,000
Cost of Installment Sales ................. 680,000
Inventory................................................................. 680,000
Cash...................................... 800,000
Installment Accounts Receivable, 2012................ 350,000
Installment Accounts Receivable, 2013................ 450,000
Installment Sales............................... 1,000,000
Cost of Installment Sales....................................... 680,000
                                                                                          3
Deferred Gross Profit on Installment sales 2012…….320,000

Deferred Gross Profit on Installment Sales, 2012... 119,000
Deferred Gross Profit on Installment Sales, 2013.... 144,000
       Realized Gross Profit on Installment Sales........ 263,000
Realized Gross Profit on Installment sales 236,000
Income Summary ............................................................ 263,000




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