Custom Home Building Contract by aet98414

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									Instructions for the Microsoft Excel Templates

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Extensive detail and information is contained within the manual.

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Place the proper account title in the cell where the word "Account title" appears on the template.

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Write a formula into cells where the word "Formula" appears. In these cells, an amount calculated can be
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                                  Instructions, Page 1 of 5, 2/14/2011, 11:58 AM
Consider using "Split" panes to assist in copy and paste of data.

Much of the exercises and problems can have data entered by the "look to" or "=A34" type formula where cell
A34 contains the data to be entered. This precludes typing and data entry errors.




                                 Instructions, Page 2 of 5, 2/14/2011, 11:58 AM
Name:
Problem:         P18-5, Completed Contract and Percentage of
                        Completion with Interim Loss
Course:
Date:
Reynolds Custom Builders (RCB) was established in 1985 by Avery Conway and initially built high-quality
customized homes under contract with specific buyers. In the 1990s, Conway’s two sons joined the
company and expanded RCB’s activities into the high-rise apartment and industrial plant markets. Upon
the retirement of RCB’s long-time financial manager, Conway’s sons recently hired Ed Borke as controller
for RCB. Borke, a former college friend of Conway’s sons, has been associated with a public accounting
firm for the last 6 years.
Upon reviewing RCB’s accounting practices, Borke observed that RCB followed the completed contract
method of revenue recognition, a carryover from the years when individual home building was the majority
of RCB’s operations. Several years ago, the predominant portion of RCB’s activities shifted to the high-rise
and industrial building areas. From land acquisition to the completion of construction, most building
contracts cover several years. Under the circumstances, Borke believes that RCB should follow the
percentage-of-completion method of accounting. From a typical building contract, Borke developed the
following data.
                                      BLUESTEM TRACTOR PLANT
                    Contract price                             $8,000,000
                                                    2010            2011           2012
                    Estimated costs               $1,600,000 $2,880,000 $1,920,000
                    Progress billings              1,000,000     2,500,000       4,500,000
                    Cash collections                  800,000    2,300,000       4,900,000

Instructions:
(a) Explain the difference between completed-contract revenue recognition and percentage-
    of-completion revenue recognition.

Enter text answer here as appropriate.




(b) Using the data provided for the Bluestem Tractor Plant and assuming the percentage-of-completion
    method of revenue recognition is used, calculate RCB’s revenue and gross profit for 2010, 2011, and
    2012, under each of the following circumstances.
(1) Assume that all costs are incurred, all billings to customers are made, and all collections from
   customers are received within 30 days of billing, as planned.




                                Problem 18-5, Page 3 of 5, 2/14/2011, 11:58 AM
Name:
Problem:         P18-5, Completed Contract and Percentage of
                        Completion with Interim Loss
Course:
Date:
                    Percentage-of-Completion (Cost-to-Cost Basis)
                                    ($000 omitted)
                                                            Estimated
                   Contract       Costs       Estimated                     Percent
     Year                                                     Gross
                    Price        to Date     Total Costs                   Complete
                                                              Profit
     2010            Amount         Amount         Formula      Formula         Formula
     2011            Amount         Amount         Formula      Formula         Formula
     2012            Amount         Amount         Formula      Formula         Formula

                                Revenue recognition
                   Contract      Percent    Revenue          Less Prior     Current
     Year
                    Price       Complete Recognizable         Year(s)        Year
     2010            Amount        Formula       Formula        Formula      Formula
     2011            Amount        Formula       Formula        Formula      Formula
     2012            Amount        Formula       Formula        Formula      Formula

                                  Profit recognition
                  Estimated      Percent          Profit     Less Prior     Current
     Year
                    Profit      Complete Recognizable         Year(s)        Year
     2010             Amount       Formula         Formula      Formula      Formula
     2011             Amount       Formula         Formula      Formula      Formula
     2012             Amount       Formula         Formula      Formula      Formula

(2) Further assume that, as a result of unforeseen local ordinances and the fact that the building site
    was in a wetlands area, RCB experienced cost overruns of                  $800,000 in 2010 to bring
the site into compliance with the ordinances and to overcome wetlands barriers to construction.

                    Percentage-of-Completion (Cost-to-Cost Basis)
                                    ($000 omitted)
                                                            Estimated
                   Contract       Costs       Estimated                     Percent
     Year                                                     Gross
                    Price        to Date     Total Costs                   Complete
                                                              Profit
     2010            Amount           2,400         7,200       Formula         Formula
     2011            Amount           5,280         7,200       Formula         Formula
     2012            Amount           7,200         7,200       Formula         Formula

                                Revenue recognition
                   Contract      Percent    Revenue          Less Prior     Current
     Year
                    Price       Complete Recognizable         Year(s)        Year
     2010            Amount        Formula       Formula        Formula      Formula
     2011            Amount        Formula       Formula        Formula      Formula
     2012            Amount        Formula       Formula        Formula      Formula




                               Problem 18-5, Page 4 of 5, 2/14/2011, 11:58 AM
Name:
Problem:          P18-5, Completed Contract and Percentage of
                         Completion with Interim Loss
Course:
Date:
                                    Profit recognition
                   Estimated       Percent          Profit      Less Prior      Current
      Year
                     Profit       Complete Recognizable          Year(s)         Year
      2010             Amount        Formula         Formula       Formula       Formula
      2011             Amount        Formula         Formula       Formula       Formula
      2012             Amount        Formula         Formula       Formula       Formula

(3) Further assume that, in addition to the cost overruns of      $800,000 for this contract incurred
    under part (b)2, inflationary factors over and above those anticipated in the development of the
    original contract cost have caused an additional cost overrun of              $850,000 in 2011. It is
    not anticipated that any cost overruns will occur in 2012.

                     Percentage-of-Completion (Cost-to-Cost Basis)
                                     ($000 omitted)
                                                             Estimated
                    Contract       Costs       Estimated                        Percent
      Year                                                     Gross
                     Price        to Date     Total Costs                      Complete
                                                               Profit
      2010            Amount           2,400         7,200       Formula           Formula
      2011            Amount         Amount         Amount       Formula           Formula
      2012            Amount         Amount         Amount       Formula           Formula

                                  Revenue recognition
                    Contract       Percent    Revenue           Less Prior      Current
      Year
                     Price        Complete Recognizable          Year(s)         Year
      2010            Amount         Formula       Formula         Formula       Formula
      2011            Amount         Formula       Formula         Formula       Formula
      2012            Amount         Formula       Formula         Formula       Formula

                                    Profit recognition
                   Estimated       Percent          Profit      Less Prior      Current
      Year
                     Profit       Complete Recognizable          Year(s)         Year
      2010             Amount        Formula         Formula       Formula       Formula
      2011             Amount        Formula         Formula       Formula       Formula
      2012             Amount        Formula         Formula       Formula       Formula

                 Enter text answer as appropriate.




                                 Problem 18-5, Page 5 of 5, 2/14/2011, 11:58 AM

								
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