Van Hatten Industries has three operating divisions—Depp Construction Division,
ID: 2469816 • Letter: V
Question
Van Hatten Industries has three operating divisions—Depp Construction Division, DeMent Publishing Division, and Ankiel Securities Division. Each division maintains its own accounting system and method of revenue recognition.
Problem 18-1 Van Hatten Industries has three operating divisions-Depp Construction Division, DeMent Publishing Division, and Ankiel Securities Division. Each division maintains its own accounting system and method of revenue recognition Depp Construction Division During the fiscal year ended November 30, 2014, Depp Construction Division had one construction project in process. A $30,000,000 contract for construction of a civic center was granted on June 19, 2014, and construction began on August 1, 2014. Estimated costs of completion at the contract date were $25,000,000 over a 2-year time period from the date of the contract. On November 30, 2014, construction costs of $7,200,000 had been incurred and progress billings of $9,500,000 had been made. The construction costs to complete the remainder of the project were reviewed on November 30, 2014, and were estimated to amount to only $16,800,000 because of an expected decline in raw materials costs. Revenue recognition is based upon a percentage-of-completion method. DeMent Publishing Division The DeMent Publishing Division sells large volumes of novels to a few book distributors, which in turn sell to several national chains of bookstores. DeMent allows distributors to return up to 30% of sales, and distributors give the same terms to bookstores, while returns from individual titles fluctuate greatly, the returns from distributors have averaged 20% in each of the past 5 years. A total of $7,000,000 of paperback novel sales were made to distributors during fiscal 2014, On November 30, 2014 (the end of the fiscal year), $1,500,000 of fiscal 2014 sales were still subject to return privileges over the next 6 months. The remaining $5,500,000 of fiscal 2014 sales had actual returns of 21%. Sales from fiscal 2013 totaling $2,000,000 were collected in fiscal 2014 less 18% returns. This division records revenue according to the method referred to as revenue recognition when the right of return exists.Explanation / Answer
b)
Compute the revenue to be recognized in fiscal year 2014 for each of the three operating divisions of Van hatten industries in accordance with GAAP:
Deep Construction:
Revenue recognition under percentage of completion method:
= (Cost incurred / Project cost) *100
= ($7,200,000 / $30,000,000)*100
= 24%
Dement publishing division:
Revenue recognition:
Details
Amount
Amount
Sales to A in 2014
$ 7,000,000
Less: Returns
$ 1,500,000
$ 5,500,000
Sales in 2013
$ 2,000,000
Less: Returns @18%
$ 360,000
$ 1,640,000
Total sales
$ 7,140,000
Revenue recognition of DeMent publishing division is in completion of sales amount of $7,140,000.
Ankiel Securities division:
Details
Amount
Amount
Sales
$ 6,000,000
Less: Warranty returns
1% on $6000000
$ 60,000
Net sales
$ 5,940,000
Revenue recognized on sale of $5,940,000.
Details
Amount
Amount
Sales to A in 2014
$ 7,000,000
Less: Returns
$ 1,500,000
$ 5,500,000
Sales in 2013
$ 2,000,000
Less: Returns @18%
$ 360,000
$ 1,640,000
Total sales
$ 7,140,000
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