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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

Question: (Allocate Transaction Price) Refer to the revenue arrangement in E18-13.

Instructions

Repeat requirements (a) and (b) assuming Crankshaft does not have market data with which to determine the standalone selling price of the installation services. As a result, an expected cost plus margin approach is used. The cost of installation is $36,000; Crankshaft prices these services with a 25% margin relative to cost.

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(Determine Transaction Price) Jeff Heun, president of Concrete Always, agrees to construct a concrete cart path at Dakota Golf Club. Concrete Always enters into a contract with Dakota to construct the path for \(200,000. In addition, as part of the contract, a performance bonus of \)40,000 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $10,000 per week for every week beyond the agreed-upon completion date. Jeff has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. Jeff estimates, given the constraints of his schedule related to other jobs , that there is 55% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 15% probability that he will be 2 weeks late.

Instructions

(a) Determine the transaction price that Concrete Always should compute for this agreement.

(b) Assume that Jeff Heun has reviewed his work schedule and decided that it makes sense to complete this project on time. Assuming that he now believes that the probability for completing the project on time is 90% and otherwise it will be finished 1 week late, determine the transaction price.

(Determine Transaction Price) Bill Amends, owner of Real Estate Inc., buys and sells commercial properties. Recently, he sold land for \(3,000,000 to the Blackhawk Group, a developer that plans to build a new shopping mall. In addition to the \)3,000,000 sales price, Blackhawk Group agrees to pay Real Estate Inc. 1% of the retail sales of the mall for 10 years. Blackhawk estimates that retail sales in a typical mall project is \(1,000,000 a year. Given the substantial increase in online sales that are occurring in the retail market, Bill had originally indicated that he would prefer a higher price for the land instead of the 1% royalty arrangement and suggested a price of \)3,250,000. However, Blackhawk would not agree to those terms.

Instructions

What is the transaction price for the land and related royalty payment that Real Estate Inc. should record?

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