6. Lawson sells luxury pens to customers with an unconditional sales return if t

Question

6.         Lawson sells luxury pens to customers with an unconditional sales return if they are not satisfied. The sales returns extend 60 days. On February 10, 2018, a customer purchases $4,000 of products (cost $2,000). Assuming that based on prior experience, estimated returns are 20%. The journal entry to record the actual return of $250 of merchandise includes a

a.   credit to Allowance for Sales Returns for $250.

b.   credit to Returned Inventory for $125.

c.   debit to Returned Inventory for $125.

d.   debit to Estimated Inventory Returns for $125.

Glenn Construction Corporation contracted to construct a building for $7,500,000. Construction began in 2018 and was completed in 2019. Data relating to the contract are summarized below:

                                                                                               Year ended

                                                                                            December 31,       

                                                                                        2018                2019  

Costs incurred                                                         $3,000,000      $2,250,000

Estimated costs to complete                                     2,000,000                 —

Glenn uses the percentage-of-completion method as the basis for income recognition. For the years ended December 31, 2018, and 2019, respectively, Glenn should report gross profit of

a.   $1,350,000 and $900,000.

b.   $4,500,000 and $3,000,000.

c.   $1,500,000 and $750,000.

d.   $0 and $2,250,000.

During 2018, Carolina Corp. started a construction job with a total contract price of $21,000,000. The job was completed on December 15, 2019. Additional data are as follows:

                                                                                                 2018                   2019     

Actual costs incurred during the year                                 $8,100,000         $9,150,000

Estimated remaining costs                                                    8,100,000                   —

Billed to customer                                                                  7,200,000         13,800,000

Received from customer                                                       6,000,000         14,400,000

Under the completed-contract method, what amount should Carolina recognize as gross profit for 2019?

a.   $1,350,000

b.   $1,875,000

c.   $2,850,000

d.   $3,750,000

Explanation / Answer

6. answer is option C   debit to Returned Inventory for $125.

The journal entry to record the actual return of $250 of merchandise is

Returned Inventory Dr. 125

Estimated Inventory Returns Cr. 125

125 is cost price of inventory returned of 250.

7. answer is option c.   $1,500,000 and $750,000.

income for 2018 = (7500000*3000000/5000000) = 4500000

therefor gross profit = 4500000-3000000 = 1500000

income for 2019 = ((7500000-4500000)*2250000/2250000) = 3000000

therefore gross profit = 3000000-2250000=750000

8. answer is option d.   $3,750,000

gross profit for 2018 = 21000000-8100000 = 12900000

gross profit for 2019 = 12900000-9150000 = 3750000

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