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Chapter 18: Q18-17E (page 1037)

Refer to the revenue arrangement in E18-16. Assume that instead of selling the tool sets on credit, that Steele sold them for cash.

Instructions

(a) Prepare journal entries for Steele to record (1) the sale on March 10, 2017, (2) the return on March 25, 2017, and (c) any adjusting entries required on March 31, 2017 (when Steele prepares financial statements). Steele believes the original estimate of returns is correct.

(b) Indicate the income statement and balance sheet reporting by Steele at March 31, 2017, of the information related to the Barr sale.

Short Answer

Expert verified

Answer

The gross profit of the company is$3,800.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Financial Reporting

Financial reporting refers to communicatingfinancial reports of a business entity with itsstakeholders and other concerned users. Such users include banks, the public, taxation authorities, government, and other financial institutions.

02

Preparation of journal entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

2017

Mar 10

Accounts receivable (200*50)

10,000

Sales revenue

10,000

(To record the sales)

Mar 10

Cost of goods sold (200*30)

6,000

Merchandise inventory

6,000

(To record the cost of goods sold)

Mar 25

Sales returns and allowance (6*50)

300

Accounts receivable

300

(To record the returns)

Mar 25

Merchandise inventory (30*6)

180

Cost of goods sold

180

(To adjust the cogs)

Preparation of adjusting entries:

Date

Accounts and Explanation

Debit ($)

Credit ($)

2017

Mar 31

Sales returns and allowance (4*50)

200

Accounts receivable

200

(To record the estimated sales returns)

Mar 31

Estimated inventory returns (4*30)

120

Cost of goods sold

120

(To record the estimated reversal)

03

Reporting on income statement and balance sheet

Income Statement (Partial)

Particulars

Amount ($)

Sales (200*50)

10,000

Less: Sales returns and allowance [(50*6)+(50*4)]

(500)

Net sales

9,500

Less: Cost of goods sold (6000-180-120)

(5,700)

Gross Profit

3,800

Balance Sheet (Partial)

Particulars

Amount ($)

Current Assets

Accounts receivables (10,000-300)

9,700

Less: Sales returns and allowance

(180)

Accounts receivables, Net

9,520

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Most popular questions from this chapter

Turner, Inc. began work on a \(7,000,000 contract in 2017 to construct an office building. During 2017, Turner, Inc. incurred costs of \)1,700,000, billed its customers for \(1,200,000, and collected \)960,000. At December 31, 2017, the estimated additional costs to complete the project total $3,300,000. Prepare Turner鈥檚 2017 journal entries using the percentage-of-completion method.

Referring to the revenue arrangement in BE18-6, determine the transaction price for the contract, assuming (a) Nair is only able to estimate whether the building can be completed by August 1, 2018, or not (Nair estimates that there is a 70% chance that the building will be completed by August 1, 2018), and (b) Nair has limited information with which to develop a reliable estimate of completion by the August 1, 2018, deadline.

Refer to the revenue arrangement in E18-10. Repeat the requirements, assuming (a) Geraths estimates the standalone selling price of the installation based on an estimated cost of $400 plus a margin of 20% on cost, and (b) given uncertainty of finding skilled labor, Geraths is unable to develop a reliable estimate for the standalone selling price of the installation. (Round amounts to nearest dollar.)

E18-37 (LO5,6) (Recognition of Profit and Balance Sheet Amounts for Long-Term Contracts) Yanmei Construction Company began operations on January 1, 2017. During the year, Yanmei Construction entered into a contract with Lundquist Corp. to construct a manufacturing facility. At that time, Yanmei estimated that it would take 5 years to complete the facility at a total cost of \(4,500,000. The total contract price for construction of the facility is \)6,000,000. During the year, Yanmei incurred \(1,185,800 in construction costs related to the construction project. The estimated cost to complete the contract is \)4,204,200. Lundquist Corp. was billed and paid 25% of the contract price.

Instructions

Prepare schedules to compute the amount of gross profit to be recognized for the year ended December 31, 2017, and the amount to be shown as 鈥渃osts and recognized profit in excess of billings鈥� or 鈥渂illings in excess of costs and recognized profit鈥� at December 31, 2017, under each of the following methods. Show supporting computations in good form.

(a) Completed-contract method.

(b) Percentage-of-completion method.

Fuhremann Co. is a full-service manufacturer of surveillance equipment. Customers can purchase any combination of equipment, installation services, and training as part of Fuhremann鈥檚 security services. Thus, each of these performance obligations is separate from individual standalone selling prices. Laplante Inc. purchased cameras, installation, and training at a total price of \(80,000. Estimated standalone selling prices of the equipment, installation, and training are \)90,000, \(7,000, and \)3,000, respectively. How should the transaction price be allocated to the equipment, installation, and training?
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