BE18.22 (LO5) Ting Group began work on a ¥7,000,000 contract in 2019 to construct an office building. During 2019, Ting Group incurred costs of ¥1.700,000, billed its customers for ¥1,200,000, and collected ¥960,000. At December 31, 2019, the estimated additional costs to complete the project total ¥3,300,000. Prepare Ting's 2019 journal entries using the percentage-ofcompletion method. 1.700.00 Construction in process 0 1.700.00 Material,Cash.payable.ete 0 1.200.00 Account receivable 0 Ting group construction in 1.200.00 process 0 Cash 960.000 ‘Account receivable 960.000BRIEF EXERCISE 18.6 ‘The transaction price should include management's estimate of the amount of consideration to which the entity will be entitled, Given the multiple outcomes and probabilities available based on prior experience, the probability- weighted method is the most predictive approach for estimating the variable consideration in this situation: Completion Date Probability Expected Value August 1 70% chance of €1,150,000 = € 805,000 August 8 20% chance of €2,100,000= 220,000 ‘August 15, '5% chance of €1,050,000 = 52,500 After August 15 5% chance of €1,000,000 50,000 €1,127,500 ‘Thus, the total transaction price is € 1,127,500 based on the probability-weighted estimate. BRIEF EXERECISE 18.7 (a) In this situation, Nair uses the most likely amount as the estimate - €2,150,000. (b) When there is limited information with which to develop a reliable estimate of completion, then no revenue related to the incentive should be recognized until the uncertainty is resolved. Therefore, the gross profit is recognized at the completion of the contract. Jeary 2,2019| ‘oes Receivable (11 000—€1,000) 2.000 ‘Sales Reverie 10,000 Costof Goode Sold ‘6000 Inventory 5000) Revenue Recognized in 2015 Sales reveme € 10600 Interet revere (€1,000 ~€10,000) 1,000 Total eveane 11,000Completed by Probability August 1, 2020 70% August 8, 2020 20 August 15, 2020 5 Aller August 15, 2020 5 Determine the transaction price for this contract Answers to Question 1 ‘Completion by Contract | Bonus | Total(X) | Probability(¥) | Transaction Price (S) | (8) price (X multiplied by Y) August 1, 2020 $1,000,000 | $150,000 | $1,150,000 70% ‘$805,000 ‘August 8, 2020 $1,000,000 | $100,000 | $1,100,000 20% ‘$220,000 ‘August 15,2020 | $1,000,000 | $50,000 | $1,050,000 5% $52,500 After August 15, [$1,000,000] $0 —_| $1,000,000 5% ‘$50,000 2020 I 100% $1.127.500.00_|Solution : (a) The journal entry to record the sale and related cost of goods sold are as follows: January 2, 2019 Notes Receivabl 600,000 Sales Revenue ($610,000 — $10,000). Cost of Goods Sold. 500,000 Inventory The journal entry to record the collection of the note is as follows: January 28, 2019 610,000 Notes Receivable.. Sales Discounted Fort 600,000 500,000 600,000 10,000Jawab: a. Ayat jumnal atau ayat jurnal untuk meneatat penjualan dan harga pokok penjualan Perusahaan Jupiter pada tanggal 2 Januari 2022 dan pembayaran pada tanggal 28 Januari 2022. Asumsikan Perusahaan Jupiter mencatat tansaksi tanggal 2 Jannati 2022 dengan mengeunakan metode neto. = Ayat jurnal untuk mencatat penjuslan dan harga pokok penjualan yang terkait pada tanggal 2 Januari 2022 sebagai berikut, Wesel Tagih, $600,000 Pendapatan Penjualan ($610,000 ~ $10.00) $600.00 Harge Pokok Penjualan (HPP) $500,000 Persediaan Barang Dagang $500,000 + Ayat jurual untuk mencatat pembayaran pada tanggal 28 Januari 2022 sebagai berikut Kas $610,000Wesel Tagih Diskon Penjualan yang Hangus $600.000 $10.000 b. Ayat jumal atau ayat jumal untuk mencatat penjualan dan harga pokok penjualan Perusahaan Jupiter pada tanggal 2 Januari 2022 dan pembayaran pada tanggal 28 Januari 2022. Asumsikan Perusahaan Jupiter mencatat tansaksi tanggal 2 Januari 2022 dengan menggunakan metode bruto. = Ayat jumnal untuk meneatat penjualan dan haga pokok penjualan yang terkait pada tanggal 2 Januari 2022 sebagai berikut. ‘Wesel Tagih Pendapatan Penjualan Harga Pokok Penjualan (HPP) Persediaan Barang Dagang '$610.000 $500.000 $610.000 '$500.000 berikut. Kas Wesel Tagih = Ayat jumal untuk meneatat pembayaran pada tanggal 28 Januari 2022 sebagai $610.000 $610.000 Pethatikan balwa uilai waktu uang Gdak dipertimbangkan Karena koutiak Kuang dai satu tahun. Selain itu, jika pembayaran terjadi dalam waktu 5 hari, di bawah metodesatu tahun. Selain itu. a pembayaran terjadi dalam waktu § hari, di bawah metode bersih (net method), akan dientri menjadi: Kas $600.000 Wesel Tagih $600.000 Jika pembayaran terjadi dalam 5 hati, di bawah metode Kotor/metode bruto (gross method), akan dientri menjadi: Kas. '$600.000 Diskon Penjualan $10.000 Wesel Tagih $610.000July 1 2017 ---> no entry because no one has completed anything Mad September 1 2017 (there are 2 performance obligations- deliver windows and install) -stand alone costs windows 2000 installation 600 = 2600 -allocation windows (2000/2600) * 2400 = 1846installation (600/2600) * 2400= 554 = 2400 Cash 2000 Acct. Rec. 400 Unearned Service Revenue 554 Sales Revenue 1846 COGS 1100 Inventory 1100October 15 Cash 400 Unearned Service Revenue 554 Service Revenue 554 Acct. Rec. 400(a) The journal entry to record the sale and related cost of goods sold are as follows: January 2, 2019 Notes Receivable. Sales Revenue ($610,000 — $10,000) .. Cost of Goods Sold Inventory The journal entry to record the collection of the note is as follows: January 28, 2019 Cash Notes Receivable .. Sales Discounted Forfeited (b) January 2, 2019 Notes Receivable Sales Revenue... Cost of Goods Sold Inventory January 28, 2019 Notes Receivable .. 600,000 500,000 610,000 610,000 500,000 610,000 600,000. 500,000 600,000. 10,000 610,000 500,000 610,000.Note that the time value of money is not considered because the contract is less than a year. Also, if payment occurs within 5 days, under the net method, the entry would be: Cash. 600,000 Notes Receivable ... 600,000 If payment occurs within 5 days, under the gross method, the entry would be Cash eset . a 600,000 Sales Discounts 10,000 Notes Reg 610,000July 1, 2019 No entry — neither party has performed under the contract. On September 1, 2019, Geraths has two performance obligations: (1) the delivery of the windows and (2) the installation of the windows. Windows $2,000 Installation 600 Total 2.60 Allocation Windows ($2,000 + $2,600) X $2,400 = $1,846 Installation ($600 + $2,600) X $2,400 = Revenue recognized (rounded to nearest dollar)Geraths makes the following entries for delivery and installation. September 1, 2019 2,000 400 Unearmed Service Revenue .. 554 Sales Revenue 1,846 Cost of Goods Sold 1,100 Inventory... se se 1,100 (Windows delivered, performance obligation for installation recorded) October 15, 2019 Cash. 400 Unearned Service Revenue 554 Service Revenue (Installation) 554 Accounts Receivabl 400 The sale of the windows is recognized once delivered. The installation fee is recognized when the windows are installed. 4g Jaly 1.2019 No etry — nether party us performed under the contact.(a) (b) (c) Tnventoriable costs: 80 units shipped at cost of $500 each Freight Total inventoriable cost. 40 units sold (40/80 X $40,840) .... Computation of consignment profit: Consignment sales (40 X $750)... Cost of units sold (40/80 X $40,840)... Commission charged by consignee (6% X $30,000)..... Advertising cost Installation c Profit on consignment sales... Remittance of consignee: Consignment sales $40,000 840 $40,840 $20,420 $30,000 (20,420) (1,800) (200) 320) $.7.260 $30,000$1,800, 200 20 2.320 $27.680 Less: Commissions Advertising Tnstallation Remittance from consignee..... Note: Since the installation costs related only to goods sold, the installation costs are not part of the inventory cost, but are a selling expense.E18.10 (LO2, 3) (Allocate Transaction Price) Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Geraths enters into the following contract on July 1, 2019, with a local homeowner. The customer purchases windows for a price of $2,400 and chooses Geraths to do the installation. Geraths charges the same price for the windows irrespective of whether it does the installation or not. The installation service is estimated to have a standalone selling price of $600. The customer pays Geraths $2,000 (which equals the standalone selli price of the windows, which have a cost of $1,100) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2019, Geraths completes installation on October 15, 2019, and the customer pays the balance due. Instructions Prepare the journal entries for Geraths in 2019. (Round amounts to nearest dollar.) July 1, 2019 No entry ~ neither party has performed under the contract. On September 1, 2019, Geraths has two performance obligations: (1) the delivery of the windows and (2) the installation of the windows. Windows $2,000 Installation 600 Total Allocation Windows ($2,000 + $2,600) X $2,400 = $1,846 Installation ($600 + $2,600) X $2,400 = 554 Revenue recognized (rounded to nearest dollar)Geraths makes the following entries for delivery and installation. September 1, 2019 Cash... 2,000 Accounts Receivable 400 Uneamed Service Revenue 554 Sales Revenue ... 1,846 Cost of Goods Sold . 1,100 Inventory . 1.100 (Windows delivered, performance obligation for installation recorded) October 15, 2019 400 Unearned Service Revenue 554 Service Revenue (Installation). 554 Accounts Receivable. : 400 The sale of the windows is recognized once delivered. The installation fee is recognized when the windows are installed. E18.16 (LO3) (Sales with Returns) On March 10, 2019, Steele Company sold to Barr Hardware 200 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.0.b. shipping point. Steele allows Barr to return any unused tool sets within 60 days of purchase. Steele estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2019, Barr returned six tool sets and received a credit to its account. Instructions a. Prepare journal entries for Steele to record (1) the sale on March 10, 2019, (2) the return on March 25, 2019, and (3) any adjusting entries required on March 31, 2019 (when Steele prepares financial statements). Steele believes the original estimate of returns is correct. b. Indicate the income statement and statement of financial po: 31, 2019, of the information related to the Barr sales transaction. ion reporting by Steele at March (a) 1. The journal entries to record sales and related cost of goods sold are as follows. March 10, 2019 Accounts Receivable (200 X $50)... 10,000, Sales Revenue... 10.000, Cost of Goods Sold (200 X $30) 6,000 Inventory... 6.000 2. The journal entries to record sales returns are as follows. March 25, 2019Sales Returns and Allowances (6 X $50) 300, Accounts Receivable 300 Returned Inventory (6 x $30) 180 Cost of Goods Sold. 180 3. The adjusting journal entries required to record estimated remaining returns are as follows. March 31, 2019 Sales Retums and Allowances (4X $50) 200 Allowance for Sales Returns and Allowance: 200 Estimated Inventory Returns (4 X $30) 120 Cost of Goods Sold... 120 (b) Financial Statement Presentation Income Statement (partial) For the quarter ended March 31, 2019 Sales revenue (200 x $50) $10,000 Less: Sales returns and allowances ($300 + $200) 500 Net sales 9,500 Cost of goods sold ($6,000 — $180 ~ $120) 5.200 Gross profit Statement of Financial Position (partial) At March 31, 2019 Accounts receivable ($10,000 — $300) $9,700 Less: Allowance for sales returns and allowances 200 Accounts receivable (net) 39,500 Returned inventory (including estimated) (10 x $30) $ 300 NOTE TO INSTRUCTOR: Some companies may choose to record sales revenue net. If sales are recorded net, the entries are as follows. (a) March 10,2019 Accounts Receivable (200 X $50). 10,000Allowance for Sales Returns and Allowances (10 X $50).. Sales Revenue.. Cost of Goods Sold Inventory Estimated Inventory Returns (10 X $30). Cost of Goods Sold. ‘The journal entries to record the return are as follows. March 25, 2019 Allowance for Sales Returns and Allowances (6 X $50) Accounts Receivable... Returned Inventory (6 X $30) .. Estimated Inventory Returns... March 31, 2019 No entries required. (b) Financial Statement Presentation Income Statement (partial) For the quarter ended March 31, 2019 Net sales revenue Cost of goods sold ($6,000 - $180 - $120) Gross profit Statement of Financial Position (partial) At March 31, 2019 Accounts receivable ($10,000 — $300) Less: Allowance for sales returns and allowances Accounts receivable (net) Returned inventory (including estimated) (10 x $30) 6,000, 300 300 180 $ 9,500 $9,700 200 $9,500 $ 300 500 9,500 6,000 300 300 180E18.22 (LOS) (Sales with Repurchase) Cramer AG sells idle machinery to Enyart SE on July 1, 2019, for €40,000. Cramer agrees to repurchase this equipment from En for a price of €42,400 (an imputed interest rate of 6%). Instructions ton June 30, 20, a, Prepare the journal entry for Cramer for the transfer of the asset to Enyart on July 1, 2019. b. Prepare any other necessary journal entries for Cramer in 2019. c. Prepare the journal entry for Cramer when the machinery is repurchased on June 30, 2020. (a) Inthis case, due to the agreement to repurchase the equipment, Cramer continues to have the control of the asset and therefore this agreement is a financing transaction and nota sale. ‘That is, if the company has an unconditional obligation (forward) or unconditional right (call option) for an amount greater than or equal to its selling price, the transaction is a financing transaction by the company. Thus the entries to record to financing are as follows. July 1, 2019 40,000 Liability to Enyart Company .. (b) December 31, 2019 Interest Expense . Liability to Enyart Company (€40,000 X 6%* X 1/2), *An interest rate of 6% is imputed from the agreement (€2,400 = €40,000). () June 30, 2020 Interest Expense Liability to Enyart Company (€40,000 X 6% X 1/2 Liability to Enyart Company .. Cash (€40,000 + €1,200 + €1,200) «csi sset is not removed from the books of Cramer. The 40,000 1,200 1,200 42.400 E18.23 (103) (Repurchase Agreement) Zagat Ltd. enters into an agreement on March 1, 2019, to sell Werner Metal aluminum ingots. As part of the agreement, Zagat also agrees to repurchase the ingots on May 1, 2019, at the original sales price of €200,000 plus 2%. Instructionsa, Prepare Zagat's journal entry necessary on March 1, 2019. b. Prepare Zagat's journal entry for the repurchase of the ingots on May 1, 2019. Because Zagat has an unconditional obligation (forward) to repurchase the ingots at an amount greater than the selling price, the trans: c a financing. (a) March 1, 2019 The selling price of the ingots is $200,000. Zagat would record the following entry when it receives the consideration from the customer: Cash 200,000, Liability to Werner Metal Company. 200,000 (b) May 1, 2019 Interest Expense (€200,000 X 2% 4,000 Liability to Werner Metal Company 200,000 Cash. 204,000 18.24 (LO3) (Bill and Hold) 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 Ltd., which consisted of building 35 different types of concession counters for a new soccer arena under construction. The terms of the contract upon completion of the counters, Stadium would pay £2,000,000. Unfortunately, due to are tha 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 haye 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. (a) This transaction isa bill-and-hold situation. Delivery of the countersis delayed at the buyer's request, but the buyer takes title and accepts billing. Thus, the agreement must be evaluated to determine if revenue can be recognized before delivery.(b) Revenue is reported at the time title passes if the following conditions are met: (1) The reason for the bill-and-hold arrangement must be substantive. (2) The product must be identified separately as belonging to the customer. (3) The product currently must be ready for physical transfer to the customer, and (4) The seller cannot have the ability to use the product or to direct it to another customer. (c) Cash Accounts Receivable. Sales Revenue 300,000 1,700,000 2,000,000 £18.25 (LO3) (Consignment Sales) On May 3, 2019, Eisler Company consigned 80 freezers. costing $500 each, to Remmers Company. The cost of shipping the freezers amounted to $840 and was paid by Eisler Company. On December 30), 2019, a report was received from the consignee, indicating that 40 freezers had been sold for $750 each. Remittance was made by the consignee for the amount due after deducting a commission of 6%, advertising of $200, and total lation costs of $320 on the freezers sold. ins Instructions a. Compute the inventory value of the units unsold in the hands of the consignee. b. Compute the profit for the consignor for the units sold. c. Compute the amount of cash that will be remitted by the consignee. (a) Inventoriable costs: 80 units shipped at cost of $500 each Freight Total inventoriable cost 40 units sold (40/80 X $40,840) ... (b) Computation of consignment profit: Consignment sales (40 X $750)... $30,000 Cost of units sold (40/80 X $40,840), (20,420) Commission charged by consignee (6% X $30,000) (1,800) Advertising cost... (200) Installation costs.... 320) Profit on consignment sale: $7,260 (c) Remittance of consignee: Consignment sales .. $30,000Less: Commissions .. $1,800 Advertising 200 Installation. 320 Remittance from consignee. Note: Since the installation costs related only to goods sold, the installation costs are not part of the inventory cost, but are a selling exper Se. E18.27 (LO3) (Warranties) Celic SA manufactures and sells computers that include an assurance- type warranty for the first 90 days. Celic offers an optional extended coverage plan under which it will repair or replace any defective part for 3 years from the expiration of the assurance-type warranty. Because the optional extended coverage plan is sold separately, Celic determines that the 3 years of extended coverage represents a separate performance obligation. The total transaction price for the sale of a computer and the extended warranty is €3,600 on October 1, 2019, and Celic determines the standalone selling price of each is €3,200 and €400, respectively. Further, Celic estimates, based on historical experience, it will incur €200 in costs to repair defects that arise within the 90-day coverage period for the assurance-type warranty. The cost of the computer is €1,440, Assume that the €200 in costs to repair defects in the computer occurred on October 25, 2019. Instructions a. Prepare the journal entry(ies) to record the October transactions related to sale of the computer. b. Briefly describe the accounting for the service-type warranty after the 90- day assurance-type varranty period. (a) October 1, 2019 To record sales revenue, warranties, and related cost of goods sold Cash (or Accounts Receivable). 3,600 Sales Revenue 3.200 Unearned Warranty Revenue (Service-type) .. 400 Cost of Goods Sold 1,440 Inventory 1,440 To record warranty expense on October 25, 2019 Warranty Expense... 200 Cash, Parts, Labor 200 (b) — Celic recognizes warranty expenses associated with the assurance-type warranty as actual warranty costs are incurred during the first 90 days after the customer receives the computer.Celie recognizes the Unearned Service Revenue associated with the service-type warranty as revenue during the extended warranty period and recognizes the costs associated with providing the service-type warranty as they are incurred. 18.33 (LOS, 6) (Recognition of Profit on Long-Term Contracts) During 2019, Nilsen Company started a construction job with a contract price of $1,600,000. The job was completed in 2021. ‘The following information is available, 2019 2020 2021 Costs incurred to date $400,000 $825,000 $1,070,000 Estimated costs to complete 600,000 275,000 -0- Billings to date 300,000 900,000 1,600,000 Collections to date 270,000 810,000 1,425,000 Instructions a, Compute the amount of gross pro completion method is used. b. Prepare all necessary journal entries for 2020. c. Compute the amount of gross profit to be recognized each year, assum method is used. ‘0 be recognized each year, assuming the percentage-of- the cost-recovery (a) Gross profit recognized in: 2019 2020 2021 Contract price $1,600,000 $1,600,000 $1,600,000 to date $400,000 $825,000 $1,070,000 Estimated costs to complete 600,000 _1,000,000 275,000 _1.100,000 0 4 Total estimated profit 600,000 500,000 Percentage completed to date 40%" X__ 15% X__100% Total gross profit recognized 240,000 375,000 530,000 Less: Gross profit recognized in previous year 0 240,000 375,000 Gross profit recognized in current year $240,000 $135,000 8 $400,000 + $1,000,000 *®*§825,000 + $1,100,000 (b) 2020 Construction in Process ($825,000 — $400,000). Materials, Cash, Payables...... 425,000 425,000(c) Accounts Receivable ($900,000 — $300,000). Billings on Construction in Process... Cash ($810,000 — $270,000).....-csssseecesssssesecesesseeeeee Accounts Receivable... Construction Expenses. Construction in Process. Revenue from Long-Term Contracts. *$1,600,000 X (75% — 40%) Gross profit recognized in: 2019 Gross profit $-0- *$1,600,000 — $1,070,000 es 600,000 sessseesneecesneenneeen 600,000, sessseesneecesneenneeen 540,000 540,000 425,000 135,000 560,000* 2020 2021 $-0- $530,000*