Allocate Transaction Price, Discounts, Time Value. Master Grill Company sells ou
ID: 2427988 • Letter: A
Question
Allocate Transaction Price, Discounts, Time Value.
Master Grill Company sells outdoor grilling products, providing gas and charcoal grills, accessories, and installation services for custom patio grilling stations. Instructions Respond to the requirements related to the following independent revenue arrangements for Master Grill products and services.
(a) Master Grill offers contract MG100 which is comprised of a free-standing gas grill for small patio use plus installation to a customer’s gas line for a total price $700. On a standalone basis, the grill sells for $600 (cost $350), and Master Grill estimates that the fair value of the installation service (based on cost-plus estimation) is $150. Master Grill signed 15 MG100 contracts on May 30, 2014, and customers paid the contract price in cash. The grills were delivered and installed on June 15, 2014. Prepare journal entries for Master Grill for MG100 in May and June 2014.
(b) Master Grill sells its specialty combination gas/wood-fired grills to local restaurants. Each grill is sold for $900 (cost $500) on credit with terms 2/20, net/60. Prepare the journal entries for the sale of 20 grills on August 1, 2014, and upon payment, assuming the customer paid on (1) August 20, 2014, and (2) September 29, 2014. Assume the company records sales net.
2) Long-term construction project accounting. Dobson Construction specializes in the construction of commercial and industrial buildings. The contractor is experienced in bidding long-term construction projects of this type, with the typical project lasting fifteen to twenty-four months. The contractor uses the percentage-of-completion method of revenue recognition since, given the characteristics of the contractor's business and contracts, it is the most appropriate method. Progress toward completion is measured on a costto-cost basis. Dobson began work on a lump-sum contract at the beginning of 2015. As bid, the statistics were as follows:
Lump-sum price (contract price) $4,000,000
Estimated costs
Labor $ 850,000
Materials and subcontractor 1,750,000
Indirect costs 400,000 3,000,000
$1,000,000
At the end of the first year, the following was the status of the contract:
Billings to date $2,250,000
Costs incurred to date
Labor $ 464,000
Materials and subcontractor 648,000
Indirect costs 193,000 1,305,000
Latest forecast total cost 3,000,000
It should be noted that included in the above costs incurred to date were standard electrical and mechanical materials stored on the job site, but not yet installed, costing $105,000. These costs should not be considered in the costs incurred to date.
Instructions
(a) Compute the percentage of completion on the contract at the end of 2015.
(b) Indicate the amount of gross profit that would be reported on this contract at the end of 2015.
(c) Make the journal entry to record the income (loss) for 2015 on Dobson's books.
(d) Indicate the account(s) and the amount(s) that would be shown on the balance sheet of Dobson Construction at the end of 2015 related to its construction accounts. Also indicate where these items would be classified on the balance sheet. Billings collected during the year amounted to $1,900,000.
(e) Assume the latest forecast on total costs at the end of 2015 was $4,060,000. How much income (loss) would Dobson report for the year 2015?
Accounting for long-term construction contracts.
The board of directors of Ogle Construction Company is meeting to choose between the completed-contract method and the percentage-of-completion method of accounting for long-term contracts in the company's financial statements. You have been engaged to assist Ogle's controller in the preparation of a presentation to be given at the board meeting. The controller provides you with the following information:
1. Ogle commenced doing business on January 1, 2015.
2. Construction activities for the year ended December 31, 2015, were as follows:
Total Contract Billings Through Cash Collections
Project Price 12/31/15 Through 12/31/15
A $ 500,000 $ 340,000 $ 310,000
B 720,000 210,000 210,000
C 475,000 475,000 390,000
D 200,000 100,000 65,000
E 450,000 400,000 400,000
$2,345,000 $1,525,000 $1,375,000
Contract Costs Estimated Incurred
Through Additional Costs to
Project 12/31/15 Complete Contracts
A $ 424,000 $101,000
B 195,000 455,000
C 350,000 -0-
D 123,000 97,000
E 320,000 80,000
$1,412,000 $733,000
3. Each contract is with a different customer.
4. Any work remaining to be done on the contracts is expected to be completed in 2016.
Instructions
(a) Prepare a schedule by project, computing the amount of income (or loss) before selling, general, and administrative expenses for the year ended December 31, 2015, which would be reported under:
(1) The completed-contract method.
(2) The percentage-of-completion method (based on estimated costs).
(b) Prepare the general journal entry(is) to record revenue and gross profit on project B (second project) for 2015, assuming that the percentage-of-completion method is used.
(c) Indicate the balances that would appear in the balance sheet at December 31, 2015 for the following accounts for Project D (fourth project), assuming that the percentage-of completion method is used.
Accounts Receivable
Billings on Construction in Process
Construction in Process
(d) How would the balances in the accounts discussed in part (c) change (if at all) for Project D (fourth project), if the completed-contract method is used?
Computation of taxable income.
The records for Bosch Co. show this data for 2015:
Gross profit on installment sales recorded on the books was $420,000. Gross profit from collections of installment receivables was $280,000.
Life insurance on officers was $3,800.
Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Bosch may deduct 14% for 2015.
Interest received on tax exempt Iowa State bonds was $9,000.
· The estimated warranty liability related to 2015 sales was $21,600. Repair costs under warranties during 2015 were $13,600. The remainder will be incurred in 2016.
· Pretax financial income is $600,000. The tax rate is 30%.
Instructions
(a) Prepare a schedule starting with pretax financial income and compute taxable income.
(b) Prepare the journal entry to record income taxes for 2015.
Deferred income taxes.
Pole Co. at the end of 2015, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
Pretax financial income $ 420,000
Extra depreciation taken for tax purposes (1,050,000)
Estimated expenses deductible for taxes when paid 890,000
Taxable income $ 260,000
Use of the depreciable assets will result in taxable amounts of $350,000 in each of the next three years. The estimated litigation expenses of $890,000 will be deductible in 2018 when settlement is expected.
(a) Prepare a schedule of future taxable and deductible amounts.
(b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2015, assuming a tax rate of 40% for all years.
Explanation / Answer
Date
Account Titles and Explanation
Debit
Credit
May 30,
2014
No journal entry required
Date
Account Titles and Explanation
Debit
Credit
June 15,
2014
Cash (15 contracts × $700)
$ 10,500
Sales revenue
$ 10,500
(Recorded sale of products for cash)
Date
Account Titles and Explanation
Debit
Credit
Aug 1,
2014
Accounts receivable
$ 18,000
Sales revenue ($900 *20)
$ 18,000
(Recorded sale on account)
Date
Account Titles and Explanation
Debit
Credit
Aug 20,
2014
Cash
$ 17,640
Discounts and allowances
($18,000 *2%)
$ 360
Accounts receivable ($900 *20)
$ 18,000
(Recorded sale of products on discounts)
(2) September 29, 2014:
Date
Account Titles and Explanation
Debit
Credit
Sep 29,
2014
Accounts receivable
$ 18,000
Sales revenue ($900 *20)
$ 18,000
(Recorded sale on account)
Date
Account Titles and Explanation
Debit
Credit
May 30,
2014
No journal entry required
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