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Chapter 18: Question BE18-23 (page 1034)

Guillen, Inc. began work on a \(7,000,000 contract in 2017 to construct an office building. Guillen uses the completed-contract method. At December 31, 2017, the balances in certain accounts were Construction in Process \)1,715,000, Accounts Receivable \(240,000, and Billings on Construction in Process \)1,000,000. Indicate how these accounts would be reported in Guillen鈥檚 December 31, 2017, balance sheet.

Short Answer

Expert verified

Costs in excess of billings is $715,000

Step by step solution

01

Meaning of Balance Sheet

Balance sheet is one of the three fundamentalfinancial statements used to analyze a corporation. It shows the financial position of the company as of the publishing date. It shows the assets, liabilities, and funds of shareholders of the company.

02

Balance Sheet December 31, 2017, of Guillen Inc.

Current Assets:

Amount ($)

Total Amount ($)

Accounts Receivables

240,000

240,000

Inventories

Construction in Process

1,715,000

Less: Billings

(1,000,000)

Costs in excess of billings

715,000

715,000

Total:

955,000

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Most popular questions from this chapter

Talarczyk Company sold 10,000 Super-Spreaders on December 31, 2017, at a total price of \(1,000,000, with a warranty guarantee that the product was free of any defects. The cost of the spreaders sold is \)550,000. The assurance warranties extend for a 2-year period and are estimated to cost \(40,000. Talarczyk also sold extended warranties (service-type warranties) related to 2,000 spreaders for 2 years beyond the 2-year period for \)12,000. Given this information, determine the amounts to report for the following at December 31, 2017: sales revenue, warranty expense, unearned warranty revenue, warranty liability, and cash.

On January 2, 2017, Grando Company sells production equipment to Fargo Inc. for \(50,000. Grando includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2017. During 2017, Grando incurs costs related to warranties of \)900. At December 31, 2017, Grando estimates that \(650 of warranty costs will be incurred in the second year of the warranty.

Instructions

(a) Prepare the journal entry to record this transaction on January 2, 2017, and on December 31, 2017 (assuming financial statements are prepared on December 31, 2017).

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Organic Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Organic Growth estimates returns of 20%. Organic Growth sells these seeds on account for \(1,500,000 (cost \)750,000) on January 2, 2017. Customers are required to pay the full amount due by March 15, 2017.

Instructions

(a) Prepare the journal entry for Organic Growth at January 2, 2017.

(b) Assume that one customer returns the seeds on March 1, 2017, due to unsatisfactory performance. Prepare the journal entry to record this transaction, assuming this customer purchased \(100,000 of seeds from Organic Growth.

(c) Assume Organic Growth prepares financial statements quarterly. Prepare the necessary entries (if any) to adjust Organic Growth鈥檚 financial results for the above transactions on March 31, 2017, assuming remaining expected returns of \)200,000.

Wood-Mode Company is involved in the design, manufacture, and installation of various types of wood products for large construction projects. Wood-Mode recently completed a large contract for Stadium Inc., which consisted of building 35 different types of concession counters for a new soccer arena under construction. The terms of the contract are that upon completion of the counters, Stadium would pay \(2,000,000. Unfortunately, due to the depressed economy, the completion of the new soccer arena is now delayed. Stadium has therefore asked Wood-Mode to hold the counters for 2 months at its manufacturing plant until the arena is completed. Stadium acknowledges in writing that it ordered the counters and that they now have ownership. The time that Wood-Mode Company must hold the counters is totally dependent on when the arena is completed. Because Wood-Mode has not received additional progress payments for the counters due to the delay, Stadium has provided a deposit of \)300,000.

Instructions

(a) Explain this type of revenue recognition transaction.

(b) What factors should be considered in determining when to recognize revenue in this transaction?

(c) Prepare the journal entry(ies) that Wood-Mode should make, assuming it signed a valid sales contract to sell the counters and received at the time the $300,000 deposit.

Explain a principal-agent relationship and its significance to revenue recognition.
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