solution chapter 7

7/21/2019 Solution Chapter 7

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Chapter 7Problems

Problem I1. Entries in 20x4:

Cash…………………………………………………………………….……….. 3,500

Mortgage Notes Receivable ……………………………………………….. 20,500

Real Estate …………………………………………………………….,000

!ain on "ale o# Real Estate ………………………………………..15,000

Cash ……………………………………………………………………………… 500

Mortgage Notes Receivable ………………………………………. 500

Entr$ in 20x5:

Real Estate ………………………………………………………………………. 1%,500

&oss on Re'ossession o# Real Estate ……………………………………….. 3,500

Mortgage Notes Receivable ……………………………………… 20,000

2. Entries in 20x4Cash ……………………………………………………………………………… 3, 500

Mortgage Notes Receivable ……………………………………………….. 20,500

Real Estate ……………………………………………………………..,000

(e#erre) !ross *ro+t on nstall-ent "ales ………………............15,000Cash ………………………………………………………………………………. 500

Mortgage Notes Receivable …………………………………..….. 500

Recei't *500 cash in 20x4 a''licable to 'rinci'al o# note

(e#erre) !ross *ro+t on nstall-ent "ales ………………………………... 2,500

Realie) !ross *ro+t on nstall-ent "ales………………………...2,500

!ross *ro+t *ercentages

15,000/24,000, or %2.5

%.25 o# *4,000 collections in contract in 20x4



r *2,500

Entr$ in 20x5

Real Estate………………………………………………………………………... 1%,500

(e#erre) !ross *ro+t on nstall-ent "ales ………………………………….. 12,500

Mortgage Notes Receivable ……………………………………….. 20,000

!ain in Re'ossession o# Real Estate ………………………………..,000

Problem II1. 20x4: No *ro+t is recognie). *4,000 )on 'a$-ent is treate) as a retrn o# invest-ent.

20x5 *650 is 'ro+t. *250 is treate) as a retrn o# invest-ent.

7olloing $ears: Each annal install-ent # *1,000 is 'ro+t.

2. 20x4: *4,000 is 'ro+t.

20x5: *1,000 is 'ro+t.

20x%: *650 is 'ro+t, an) *250 is treate) as retrn o# invest-ent.

7olloing $ears: Each annal install-ent is *1,000 is treate) as a retrn o#invest-ent.

3. *ro+t *ercentage is 5,650 / *10,000, or 5.65 o# sales

20x4: *4,000 x 56.5, or *2,300, is 'ro+t8 *1,600 is treate) as a retrn o# invest-ent.

7olloing $ears: *1,000 x 56.5, or *565 'er $ear, is regar)e) as 'ro+t.

*425 'er $ear is treate) as retrn o# invest-ent.

Problem III

1.a. nstall-ent Contracts Receivable 19………………………………… 250,000

nstall-ent "ales ……………………………………………………250,000

b. Cash ………………………………………………………………………….. 120,000



nstall-ent Contracts Receivable 19 ………………………120,000

c. Cost o# nstall-ent "ales ………………………………………………….. 200,000

Merchan)ise nventor$ …………………………………………..200,000

). Merchan)ise Re'ossessions ……………………………………………… 14,500

(e#erre) !ross *ro+t on nstall-ent "ales 19 ……………..4,000

&oss on Re'ossession ……………………………………………...1,500

nstall-ent Contracts Receivable, 19 …………….20,000

!ross *ro+t *ercentages: 50,000/250,000, or 20

(e#erre) !ross *ro+t on Re'ossession: 20 o# *20,000 or *4,000

7air vale o# re'ossesse) -erchan)ise.. * 14,500

&ess: ;nrecovere) cost:

;n'ai) balance…………………………* 20,000

&ess: (e#erre) !ross *ro+t

20 x *20,000…………………… 4,000 1%,000

&oss on re'ossession……………………. * 1,500

e. Ex'enses ……………………………………………………………………… 1%,000

Cash …………………………………………………………………. 1%,000

2. <)=st-ent to Recognie !ross *ro+t on nstall-ents "ales:

a. >o set?' Cost o# nstall-ent "ales:

No entr$ since 'er'etal inventor$ -etho) is se)

b. >o set?' (e#erre) !ross *ro+t on nstall-ent "ales:



nstall-ent "ales ……………………………………………………… 250,000

Cost o# nstall-ent "ales ………………………………….200,000

(e#erre) !ross *ro+t on nstall-ent "ales?20x4.. ………50,000

c. <)=st-ent to Recognie !ross *ro+t on nstall-ent "ales:

(e#erre) !ross *ro+t on nstall-ent "ales @ 20x4…………..……. 24,000

Realie) !ross *ro+t on nstall-ent "ales @ 20x4 ……….24,000

Realie) !ross *ro+t: 20 o# *120,000 collections,

or *24,000

). Closing o# no-inal acconts.

Realie) !ross *ro+t on nstall-ent "ales @ 20x4………………… 24,000

Ex'enses ……………………………………………………….1%,000

&oss on Re'ossessions ……………………………………….1,500

nco-e "--ar$ …………………………………………….%,500

>o close the acconts #or 20x4.

Problem IV1.

Aanar$ to (ece-ber 31 20x4 20x5

1 >o recor) reglar sales:

<cconts receivable %00,0001,00,00

0

"ales %00,001,00,00

0

2 >o recor) install-ent sale: Cash %0,000 144,000 nstall-ent acconts receivable 300,000 33%,000 nstall-ent "ales 3%0,000 40,000

3 >o recor) cost o# sales: *erio)ic Metho): No entr$

*er'etal Metho):



Reglar "ales:Cost o# "ales 40,000 %4,000

Merchan)ise inventor$ 40,000 %4,000

nstall-ent "ales: Cost o# install-ent sales 252,000 312,000 Merchan)ise inventor$ 252,000 312,000

4 >o recor) collections: Reglar "ales:

Cash 144,000 3%0,000 <cconts receivable 144,000 3%0,000

nstall-ent "ales: Cash 10,000 204,000 nstall-ent <ccontsreceivable @ 20x2 62,000 62,000 nstall-ent <ccontsreceivable @

20x3 %0,000

nterest inco-e 3%,000 62,000

5 to recor) 'a$-ent o# o'erating ex'enses: 'erating ex'enses 0,000 102,000 Cash 0,000 102,000

2.

<)=sting entries en) o# the $ear:

% >o recognie accre) interest receivable

nterest receivable 1,440 2,0

nterest inco-e 1,440 2,0

6 >o set?' Cost o# "ales: *erio)ic Metho):

Cost o# sales 40,000 %4,000

Merchan)ise inventor$ 40,000 %4,000

*er'etal Metho): No entr$

6 >o set?' Cost o# nstall-ent "ales:

*erio)ic Metho):

Cost o# install-ent sales 252,000 312,000 "hi'-ent s on install-entsales 252,000 312,000

*er'etal Metho): No entr$

>o set?' (e#erre) !ross *ro+t

nstall-ent sales 3%0,000 40,000

Cost o# install-ent sales 252,000 312,000

(e#erre) gross 'ro+t @ 20x4 10,000

(e#erre) gross 'ro+t @ 20x5 1%,000



!ross 'ro+t rate @ 20x4: * 10,000 / *3%0,000 B 30. !ross 'ro+t rate @ 20x5: *1%,000 / *40,000 B 35.

>o recor) realie) gross 'ro+t oninstall-ent

sales:

(e#erre) gross 'ro+t @ 20x4 3,%00 21,%00

(e#erre) gross 'ro+t @ 20x5 61,400

Realie) gross 'ro+t 3,%00 3,000 *P72,000 x 30%

20x4: Realie) gross 'ro+t on install-ent sales: Collections a''l$ing as to 'rinci'al..……………………………*132,000

Mlti'lie) b$: !ross 'ro+t rate……………………………………. 30 Realie) gross 'ro+t…………………………………………………* 3,%00

20x5: Realie) gross 'ro+t on install-ent sales8

20x4 20x5Collections @'rinci'al……………

*62,000

*204,000

Mlti'lies b$: !ross 'ro+t

.......... DDDD30

DDDD35

Realie) gross'ro+t………………

*21,%00

*61,400

*3,000

*P144,000 + P60,000

Closing entries:

10 >o close realie) gross 'ro+t accont:

Realie) gross 'ro+t 3,%00 3,000

nco-e s--ar$ 3,%00 3,000

11 >o close other no-inal acconts

"ales %00,0001,00,00

0

nterest inco-e 36,440 64,0

Cost o# sales 40,000 %4,000

'erating ex'enses 0,000 102,000

nco-e s--ar$ %6,440 1,0

12 >o close reslts o# o'erations:

nco-e s--ar$ 106,040 21,0

Retaine) earnings 106,040 21,0

Problem V1.

>$'e o# "ale <-ontRatio to >otal

"ales <llocate) CostReglar "ales:

Cash sales * 225,000 * 14%,250 Cre)it sales DDD450,000 22,500 >otal reglar sales * %65,000 %65/1,00 * 43,650nstall-ent "ales D 1,125,000 1,125/1,00 DD631,250 >otal "ales * 1,00,000 * 1,160,000

*P225,000/P1,800,000 x P1,170,000 = P146,250 **P450,000/P1,800,000 x P1,170,000 = P292,500

>he allocation above as base) on the ass-'tions that the -ar' #or each t$'e o# sale is the sa-e. Nor-all$, the selling 'rices o# the -erchan)ise are not the sa-e #oreach t$'e o# sales.



2.

>$'e o# "ale <-ont

<-ont base) onCash "ales100

Ratio to >otal"ales <llocate) Cost

Cash sales * 225,000 * 225,000 225/1,500 * 165,500Cre)it sales 450,000 365,000 365/1,500 22,500

nstall-ent "ales

1,125,00

0 00,000 00/1,500 DD 602,000 >otal "ales * 1,500,000 * 1,250,000 * 1,160,000

*P450,000 / 120% = P375,000 **P1,125,000 / 125% = P900,000

3. >$'e o# "ale <-ont !ross 'ro+t rate Cost ratio <llocate) Cost

Cash sales * 225,000 30 60 * 156,500Cre)it sales 450,000 25 65 336,500

nstall-ent "ales 1,125,00

0 40 %0 D D%65,000 >otal "ales * 1,00,000 * 1,160,000

* Amount of sale x cost at!o"

Problem VI >he entries are reFire) n)er the 'erio)ic -etho):

Re'ossesse) -erchan)ise……………………………………...... %,400(e#erre) gross 'ro+t @ 20x4………………………………............ 4,000&oss on re'ossession………………………………………………... 3,%00 nstall-ent acconts receivable @ 20x4……………………. 120,000 #o eco$ eossesse$ mec&an$!se"

'eossesse$ mec&an$!se(((((((((((((("""""" 12,000

)as&, etc o a!ous ce$!ts(((((((("""""""""""""""" 12,000 #o eco$ econ$!t!on!n- costs

>he loss on re'ossession is co-'te) as #ollos:

Esti-ate) selling 'rice a#ter recon)itioningcosts.............. * 10,000

&ess: Recon)itioning costs……………………………………… * 12,000 Costs to sell an) )is'ose…………………………………. %,000 Nor-al 'ro+t 20 x 10,000…………………………….

DD21,%00 DD3,%00

Maret vale be#ore recon)itioning costs………………….. * %,400&ess: ;nrecovere) cost nstall-ent acconts receivable @ 20x4,

n'ai) balance……………………………………... *120,000 &ess: (e#erre) gross 'ro+t @ 20x4 *120,000 x40.....

DD4,000 DD62,000

&oss on re'ossession……………………………. * 3,%00Problem VII

>he entr$ to recor) the sale o# the ne vehicle n)er the 'erio)ic -etho): >ra)e?in Merchan)ise…………………………………............... 40,000ver?alloance on tra)e?in -erchan)ise…………………. 3%0,000Cash………………………………………………………………….. 2,400,00

0nstall-ent acconts receivable @ 20x4……………............ 3,3%0,00

0 nstall-ent sales………………………………………....... %,%0,00

0 #o eco$ !nstallment sales .!t& ta$e!n"



<lternativel$, the over?alloance on tra)e?in -erchan)ise -a$ also be treate) as net o# install-ent sales, the entr$ ol) be as #ollos:

>ra)e?in Merchan)ise…………………………………............... 40,000Cash………………………………………………………………….. 2,400,00

0nstall-ent acconts receivable @ 20x4……………............ 3,3%0,00

0 nstall-ent sales net o# over?alloance…….............. %,%00,00

0 #o eco$ !nstallment sales .!t& ta$e!n"

>he over?alloance is co-'te) as #ollos: >ra)e?in alloance………………………………….................. *1,200,00

0&ess: Maret vale be#ore recon)itioning costs: Esti-ate) resale 'rice a#ter recon)itioning costs. *1,%0,0

00 &ess: Recon)itioning costs……………………………….. 420,000 Costs to sell 5 x *1,%0,000…………………… 4,000 Nor-al 'ro+t 20 x *1,%0,000……………....... DD33%,00

0 DD40,000

ver?alloance…………………………………………………… *3%0,000

>he gross 'ro+t rate on install-ent sales is co-'te) as #ollos:nstall-ent sales……………………………………………………………...... *%,%0,000&ess: ver?alloance………………………………………………………… DDD3%0,000<)=ste) nstall-ent "ales…………………………………………………… *%,%00,000&ess: Cost o# install-ent sales………………………………………………. DD3,20,00

0!ross 'ro+t………………………………………………………………………. *2,%0,000!ross 'ro+t rate *2,%0,000/*%,%00,000……………………………….. 40.%0

7rther, the entr$ to recor) the recon)itioning costs is as #ollos: >ra)e?in Merchan)ise…………………………………............... 420,000 Cash, etc or varios cre)its…………………….............. 420,000 #o eco$ econ$!t!on!n- costs"

nci)entall$, the realized gross proft on installment sales o the new merchandise#or the $ear 20x4 is co-'te) as #ollos:

>ra)e?in -erchan)ise -aret vale be#ore recon)itioning costs……… * 40,000(on 'a$-ent…………………………………………………………………… 2,000,000nstall-ent collection March 31 @ (ece-ber 31: *0,000 x 10 -onths DDD00,000 >otal collections………………………………………………………………….. *3,%40,000Mlti'lie) b$: !ross 'ro+t rate in 20x4……………………………………….. DDD40.%0Realie) gross 'ro+t on install-ent sales o# ne -erchan)ise………… *1,466,40

Problem VIII1. Entries ass-ing that -onthl$ 'a$-ents consist o# *%00 'ls interest on the n'ai)balance:

ct. 31 Cash ……………………………………………………………………… 20,000

Mortgage Notes Receivable …………………………………………. 55,000

Real Estate ………………………………………………………. %0,000



(e#erre) !ross *ro+t on nstall-ent "ales ………………….15,000

Nov. 30 Cash ………………………………………………………………………. 1,150

Mortgage Notes Receivable ………………………………… %00

nterest nco-e ………………………………………………….550

nterest Receive): *55,00 at 12 #or 1 -onth, or *550

(ec. 31 Cash ………………………………………………………………………… 1,144

Mortgage Notes Receivable ………………………………….. %00

nterest nco-e …………………………………………………… 544

nterest receive): *54,400 *55,000?*%00 at 12 1 -onth, or *544

31 (e#erre) !ross *ro+t on nstall-ent "ales …………………………….. 4,240

Realie) !ross *ro+t on nstall-ent "ales ……………………4,240

!ross *ro+t *ercentage: 15,000/65,000, or 20

Realie) !ross *ro+t: 20 o# *21,200 collections a''licable to 'rinci'al in 193 or*4,240

2. Entries ass-ing -onthl$ 'a$-ents o# *%00 that incl)e interest on the n'ai) balanceo# the contract:

(ec. 31 Cash ……………………………………………………………………… 20,000.00

Mortgage Notes Receivable ………………………………………… 55,000.00

Real Estate ………………………………………………………%0,000.00

(e#erre) !ross *ro+t on nstall-ent "ales ………………..15,000.00

Nov. 30 Cash ……………………………………………………………………… %00

Mortgage Notes Receivable ………………………………..50.00

nterest nco-e …………………………………………………550.00



nterest Receive): *55,000 at 12 #or 1 -onth or *550. Galance *a$-ent, *%00?*550, or *50, is re)ction in 'rinci'al

(ec. 31 Cash ………………………………………………………………………. %00.00

Mortgage Notes Receivable …………………………………50.50

nterest Receive) ………………………………………………54.50

nterest Receive): *54,50. Galance *a$-ent, *%00.00?54.50, o *50.50, is re)ctionin 'rinci'al.

31 (e#erre) !ross *ro+t on nstall-ent "ales ………………………… 4,020.10

Realie) !ross *ro+t on nstall-ent "ales …………………4,020.10

!ross *ro+t *ercentage: 15,000/65,000, or 20

Realie) !ross *ro+t: 20 o# *20,100.50 collections a''licable to 'rinci'al in 193,or *4,020.10

Problem IX1. %/30x4: Cash……………………………………………………………………………. 25,000

Notes Receivable …………………………………………………………… 125,000

<cc-late) (e'reciation 3.1/2H2 o# *0,000I …………………… %,300

(e'reciation Ex'ense 1/2H2 o# *0,000I …………………………… 00

&an) …………………………………………………………………… 10,000

Gil)ing ……………………………………………………………….. 0,000

(e#erre) !ross *ro+t on "ale o# *ro'ert$ ……………………… 56,200

(e#erre) !ross *ro+t on "ale o# *ro'ert$ ………………………………… ,553

Realie) !ross *ro+t on "ale o# *ro'ert$ ………………………... ,553

<-ont realie): *25,000/150,000 x 56,200

2. %/30x5: Cash …………………………………………………………………………… 30,000 Notes Receivable …………………………………………………….. 30,000

(e#erre) !ross *ro+t on "ale o# *ro'ert$ ………………………………. 11,440Realie) !ross *ro+t on "ale o# *ro'ert$ …………………………

11,440 <-ont realie) *30,000/*150,000 x 56,200



%/30/x% Cash …………………………………………………………………………. 50,000Notes Receivable …………………………………………………… 50,000

(e#erre) !ross *ro+t on "ale o# *ro'ert$ ……………………………… 1,0%6Realie) !ross *ro+t on "ale o# *ro'ert$ …………………………

1,0%6

<-ont Realie): *50,000/*150,000 9 56,200

%/30/x6 Cash ………………………………………………………………………….. 15,000Notes Receivable …………………………………………………… 15,000

(e#erre) !ross *ro+t on "ale o# *ro'ert$ ………………………………. 5,620Realie) !ross *ro+t on "ale o# *ro'ert$ …………………………

5,620 <-ont Realie): *15,000/*150,000 9 56,200

Problem X nstall-ent Contracts Receivable ………………………………………… 200,000

nstall-ent "ales ………………………………………………………200,000

Cost o# nstall-ent "ales …………………………………………………….. 120,000

Merchan)ise nventor$ ……………………………………………… 120,000

Cost o# "ales: %0 o# *200,000

nstall-ent "ales ……………………………………………………………….. 200,000

Cost o# nstall-ent "ales ……………………………………………120,000

(e#erre) !ross *ro+t on nstall-ent "ales ………………………%0,000

Cash ………………………………………………………………………………. 124,000

nstall-ent on Contracts Receivable @ 20x4……………………...30,000

nstall-ent on Contracts Receivable @ 20x5……………………...34,000

nstall-ent on Contracts Receivable @ 20x%……………………...%0,000

(e#erre) !ross *ro+t on nstall-ent "ales ?20x4 …………………………… 13,00

(e#erre) !ross *ro+t on nstall-ent "ales?20x5 …………………………... 14,20

(e#erre) !ross *ro+t on nstall-ent "ales ?20x% …………………………... 24,000



Realie) !ross *ro+t on nstall-ent "ales ……………………….…………..52,00

Realie) !ross *ro+t

20x4: 4% o# *30,000 or *13,00

20x5: 42 o# *34,000 or *14,20

20x%: 40 o# *%0,000 or *24,000

Problem XI1. Calclation o# gross 'ro+t 'ercentage on install-ent sales

20x%: *,000 gross 'ro+t on install-ent sales, 20x%, /*320,000 install-ent

sales 20x% ………………………………………………………………………………….26.5

20x5: *45,000 )e#erre) gross 'ro+t, 20x5, /*150,000 install-ent acconts

receivable 20x5 ………………………………………………………………………….. 30

20x4: *,%00 )e#erre) gross 'ro+t, 20x4 , /30,000 install-ent acconts

receivable 20x4 …………………………………………………………………………..32

2.

JJ EK;*MEN>, nc.

Galance "heet

(ece-ber 31, 20x%

<ssets

Cash …………………………………………………………………………………....................*26,500

nstall-ent <cconts Receivable 20x% ………………………….. * 55,000

20x5 ………………………….. 12,000

20x4 ………………………….. 3,000

60,000

<cconts receivable ………………………………………………………………………….16,000

nventor$ ………………………………………………………………………………………....%0,000

ther <ssets ……………………………………………………………………………………...40,000



>otal <ssets ……………………………………………………………………………………… *214,500

&iabilities

<cconts 'a$able ……………………………………………………………… * 40,000

(e#erre) !ross *ro+t 20x% …………………………… * 15,125

20x5 …………………………… 3,%00

20x4 …………………………… %0 1,%5

>otal &iabilities *5,%5

Stockholders’ Equity

Ca'ital "toc …………………………………………………………………….. * 100,000

Retaine) Earnings ……………………………………………….. * %,400

Galance, Aan. 1, 20x% ………………………………………. 13,55

Galance, (ec. 31, 20x% ……………………………………………………. 54,15

>otal "tochol)erLs EFit$ ………………………………………………………*154,15

>otal &iabilities an) "tochol)erLs EFit$ ……………………………………. *214,500

JJ EK;*MEN>, nc.

nco-e "tate-ent

7or ear En)e) (ece-ber 31, 20x%

nstall-ent"ales

Reglar"ales

>otal

"ales ………………………………………………………............ *320,000 *125,000 *445,00

0Cost o# goo)s sol): Merchan)ise nventor$, Aan. 1 ………………*

52,000 *rchases …………………………..................350,000 Merchan)ise <vailable #or sale .................402,000 &ess: Merchan)ise nv. (ec. 31 …………%0,000

232,000 110,000 342,000



!ross *ro+t ……………………………………………………….. *,000 *15,000 *103,000

&ess: (e#erre) !ross *ro+t on 1934…………………………

15,125 15,125

Realie) !ross *ro+t on crrent $earLs sales……………….

*6,65 *15,000 *6,65

<)): realie) gross 'ro+t on 'rior $earsL sales on

nstall-ent basis see gross 'ro+t sche)le……………….

50,040

>otal Realie) !ross *ro+t ……………………………………. *136,15

'erating Ex'enses …………………………………………... 151,500

Net &oss ………………………………………………………….. *13,55

JJ EK;*MEN>, nc.

<nal$sis o# !ross *ro+t on nstall-ent "ales

"che)le to <cco-'an$ nco-e "tate-ent

7or ear En)e) (ece-ber 31, 20x%(e#erre) !ross 'ro+t on install-ent sales, 20x%

nstall-ent contracts receivable, *320,000 less collections *2%5,000

r *55,0008 *55,000 x 26.5 ………………………………………………………… *15,125

Realie) !ross *ro+t:

20x% 20x5 20x4

Collections on nstall-ent Contracts Receivable ………... *2%5,000 *13,000*26,000

nstall-ent sales gross 'ro+t 'ercentage ………………….. 26.5 3032

Realie) !ross *ro+t …………………………………………….. * 62,65 * 41,400* ,%40

nstall-ent "ales …………………………………………………… 320,000

Cost o# nstall-ent "ales …………………………………………. 232,000



(e#erre) !ross 'ro+t ?20x%……………………………………………… ,000

(e#erre) !ross *ro+t, 20x% ……………………………............... 62,65

(e#erre) !ross *ro+t, 20x5 ……………………………............... 41,400

(e#erre) !ross *ro+t, 20x4 ……………………………............... ,%40

Realie) !ross *ro+t on nstall-ent sales…………… 122,15

nco-e "--ar$ ………………………………………………… 160,000

"hi'-ent on nstall-ent o# "ales ……………………………… 232,000

Merchan)ise nventor$, Aan. 1, 20x% ……………….52,000

*rchases ……………………………………………… 350,000

Merchan)ise nventor$, (ec. 31, 20x% …………………….. %0,000

nco-e "--ar$ …………………………………… %0,000

"ales ………………………………………………………………. 125,000

nco-e "--ar$ ……………………………………. 125,000

Realie) !ross *ro+t on nstall-ent "ales………..………... 122,15

nco-e "--ar$ ……………………………………. 122,15

nco-e "--ar$ ……………………………………………… 151,500

'erating Ex'enses ………………………………... 151,500

Retaine) Earnings …………………………………………….. 13,55

nco-e "--ar$ …………………………………... 13,55

Problem XII1. Calclation o# gross 'ro+t 'ercentage on install-ent sales

20x%: *10,000 gross 'ro+t on install-ent sales, 20x%, /*500,000 install-ent

sales 20x% ……………………………………………………………………………………3

20x5: *%,000 )e#erre) gross 'ro+t, 20x5, /*240,000 install-ent

acconts receivable 20x5 ………………………………………………………………. 40



20x4: *22,500 )e#erre) gross 'ro+t, 20x4 , /50,000 install-ent

acconts receivable 20x4 ………………………………………………………………. 45

2.

(e#erre) !ross *ro+t, 20x%……………………………… 1,00

(e#erre) !ross 'ro+t, 20x5……………………………… 4,000

(e#erre) !ross *ro+t, 20x4……………………………… 3,%00

&oss on Re'ossessions………………………….. ,500

Cancellation o# )e#erre) gross 'ro+t,

balances 'on re'ossessions:

20x%: 3 o# *5,000, or *1,00

20x5: 40 o# *10,000, or *4,000

20x4: 45 o# *,000, or *3,%00

nstall-ent"ales

Reglar"ales

>otal

"ales ………………………………………………………............ *500,000 *12,000 *%2,000Cost o# goo)s sol): Merchan)ise nventor$, Aan. 1 …………… *

30,000 *rchases …………………………..................445,000 Re'ossesse) Merchan)ise ………………..10,000 Merchan)ise <vailable #or sale .................45,000 &ess: Merchan)ise nv. (ec. 31 …………35,000

310,000 150,000 4%0,000

!ross *ro+t ……………………………………………………….. *10,000 *42,000 *103,000&ess: (e#erre) !ross *ro+t on 20x% sales seesche)le

32,300 32,300

Realie) !ross *ro+t on crrent $earLs sales……………….

*156,600 *42,000 *1,600

<)): realie) gross 'ro+t on 'rior $earsL sales on

nstall-ent basis see gross 'ro+t sche)le……………….

(e)ct loss on re'ossession ………………………………….

100,%50*300,350 3,500

!! "<&E" CR*R<>N

nco-e "tate-ent



>otal Realie) !ross *ro+t ……………………………………. *2%,50'erating Ex'enses …………………………………………… 300,000

Net &oss ………………………………………………………….. * 3,150

Analysis of ross Pro!t on Installment Sales

Schedule to Accompany Income Statement

"or #ear Ended $ecember %&' ()*+

(e#erre) gross 'ro+t on nstall-ent sales @ be#ore )e#alts, 19:

nstall-ent contracts receivable, *500,00, less collections, *415,000, or

*5,0008 *5,000 x 3 ………………………………………………………. * 32,300

Realie) !ross *ro+t:

20x% 20x5 20x4

Collections o# nstall-ent contracts receivable.. *415,000 *210,000 * 36,000

nstall-ent sales gross 'ro+t 'ercentage ……….. 3 40 45

Realie) gross 'ro+t …………………………………..*156,600 * 4,000 * 1%,%50

SA,ES C-.P-.A/I-0

1alance Sheet

$ecember %&' ()*+

<ssets

Cash …………………………………………………………………………………... *25,000

nstall-ent <cconts Receivable 20x% …………………* 0,000

20x5 ………………… 20,000

20x4 ………………… 5,000105,000

<cconts receivable …………………………………………………………………..40,000

nventor$ ………………………………………………………………………………….35,000

ther <ssets ………………………………………………………………………………52,000

>otal <ssets ……………………………………………………………………………….*256,000



&iabilities

<cconts 'a$able ……………………………………………………. * 65,000

(e#erre) !ross *ro+t 20x% ………………………………. * 30,400

20x5 ………………………………. ,000

20x4 ………………………………. 2,250 40,%50

>otal &iabilities *115,%50

"tochol)ersL EFit$

Ca'ital "toc …………………………………………………………. *100,000

Retaine) Earnings ………………………………………. * 44,500

Galance, Aan. 1, 20x% ……………………………… 3,150

Galance, (ec. 31, 20x% …………………………… 41,350

>otal "tochol)erLs EFit$ ………………………………………….141,350

>otal &iabilities an) "tochol)erLs EFit$ ……………………….. *256,000

4. nstall-ent "ales ……………………………………………………………….. 500,000

Cost o# nstall-ent "ales ……………………………………………….. 310,000

(e#erre) !ross *ro+t, 20x% …………………………………………….. 10,000

(e#erre) !ross *ro+t, 20x% …………………………………………………… 156,500

(e#erre) !ross *ro+t, 20x5 …………………………………………………… 4,000

(e#erre) !ross *ro+t, 20x4 …………………………………………………… 1%,%50

Realie) !ross *ro+t on nstall-ent "ales… ………………………… 25,350

nco-e "--ar$ ……………………………………………………………… 15,000

"hi'-ent on nstall-ent "ales ……………………………………………… 310,000

Merchan)ise nv, Aanar$ 1, 20x% ……………………………………. 30,000

*rchases …………………………………………………………………. 455,000



Re'ossesse) Merchan)ise …………………………………………….. 10,000

Merchan)ise nv, (ece-ber 31, 20x%……..………………………………. 35,000

nco-e "--ar$ ……………………………………………………….. 35,000

"ales …………………………………………………………………………….... 12,000

nco-e "--ar$ ………………………………………………………… 12,000

Realie) !ross *ro+t on nstall-ent "ales…………………………………..25,350

nco-e "--ar$ ……………………………………………………….. 25,350

nco-e "--ar$ ……………………………………………………………… 3,500

&oss on Re'ossession ……………………………………………………. 3,500

nco-e "--ar$ ……………………………………………………………… 300,000

'erating Ex'enses …………………………………………………….. 300,000

Retaine) Earnings ……………………………………………………………… 3,150

nco-e "--ar$ …………………………………………………………. 3,150

Problem XIII

1. (e#erre) gross 'ro+t @ 20x4……….……………………………………. ,406.00(e#erre) gross 'ro+t @ 20x5……….……………………………………. 3,43.0(e#erre) gross 'ro+t @ 20x%……….……………………………………. 61,00%.60

Realie) !ross *ro+t on nstall-ent "ales 20x4 @ 20x%…..162,52.50Co-'tation o# !* rates:

20x4: *246,000/*30,000 B %5, cost rate8 !* rate B 100 ? %5 B 35

20x5: *25,120/*432,000 B %%, cost rate8 !* rate B 100 ? %% B 34

20x%: *36,2%0/*%02,000 B %3, cost rate8 !* rate B 100 ? %3 B 36

Calclation o# collections in 20x%:

20x4: Geginning balance * 24,020



20x5: *344,4%0 beginning balance @ *%6,440 en)ing balance @

*2,200 rite?os on )e#alt264,20

20x%: *%02,000 sales @ *410,00 en)ing balance11,10

Calclation o# realie) gross 'ro+t:

20x4: 35 x *24,020 * ,406.00

20x5: 34 x *264,203,43.0

20x%8 36 x *11,1061,00%.60

>otal *162,52.50

2. (e#erre) gross 'ro+t 20x5……………………………………………………… 64.00

nventor$ o# Re'ossesse) Merchan)ise………………………………. 64.00

#o e$uce 20x5 $efee$ -oss ot elate$ to $efaulte$ contact an$ eu!!n- cancellat!on, 34% of P2,200 P5,400 sales !ce P3,200collect!ons to $ate !nento no. eote$ at P2,200 alance of !nstallment contact, less P748 o P1,452"

&oss on re'ossession…………………………………………………………….. 31.00

nventor$ o# re'ossesse) -erchan)ise……………………………….. 31.00

#o e$uce !nento to maet as follo.s to eal!e a -oss ot of 37% on a esale est!mate$ at P1,700, t&e eossesse$ mec&an$!ses&oul$ e eote$ at a alue of 63% of P1,700, o P1,071 t&e !nento t&en eu!es a fut&e .!te$o.n of P381 P1,452 : P1,071

Re'ossesse) -erchan)ise col) be recor)e) at its resale vale less the sal gross 'ro+t-argin on sales. Recor)ing the -erchan)ise at *1,452 ill reslt in the realiation o# lessthan the nor-al 'ro+t -argin on the resale o# the goo)s in the sbseFent 'erio). i#

ex'enses o# the resale excee) *24 *1,600 @ *1,452, the later 'erio) ol) actall$have to absorb a loss as a reslt o# sch valation. Recor)ing the goo)s at resale valere)ce) b$ the co-'an$Ls sal 'ro+t -argin on sales is reco--en)e), #or sch 'racticeill charge the next 'erio) ith no -ore than the tilit$ o# the goo)s carrie) #orar).

Problem XIV 2 33 Instruments1. nstall-ent Contracts Receivable ……………………………………. 1,%00.00

Merchan)ise nventor$ *iano ……………………………… 1,000.00



(e#erre) !ross *ro+t on nstall-ent "ales …………………%00.00

Cash ……………………………………………………….......................... 1%0.00nstall-ent Contracts Receivable …………………………… 1%0.00

2. Cash …………………………………………………………........................ 1%0.00nterest nco-e …………………………………………………… 14.40nstall-ent Contracts Receivable ……………………………. 145.%0

Cash ……………………………………………………………...................... 1%0.00nterest nco-e ……………………………………………………. 11.46nstall-ent Contracts Receivable ……………………………… 14.53

3. (e#erre) !ross *ro+t on nstall-ent o# "ales ………………………….. 225.45Realie) !ross *ro+t on nstall-ent o# "ales …………………

225.45 !ross *ro+t *ercentage: 36.5 *%00/*1,%00 Realie) !ross *ro+t #or 20x4: 36.5 o# %01.1 s- o# 'a$-ents on install-ent contract

4. Merchan)ise nventor$ 'iano …………………………………………... 5%0.00(e#erre) !ross *ro+t on nstall-ent o# "ales ……………………........... 364.55&oss on Re'ossessions ………………………………………………………. %4.3%

nstall-ent Contracts Receivable ……………………………… .1 (e#erre) !ross 'ro+t cancelle) 'on re'ossession:

36.5 o# *.1 balance in install-ent contractsreceivable accont or * 364.55

Problem XV 2 1i4 1ear20x4:nstall-ent receivables 250,000 nventor$ 150,000 (e#erre) gross 'ro+t 100,000

Cash 0,000 nstall-ent receivables 0,000

20x5:Cash 120,000 nstall-ent receivables 120,000

(e#erre) gross 'ro+t 50,000 Realie) gross 'ro+t 50,000

20x%:Cash 50,000

nstall-ent receivables 50,000

nstall-ent receivables 300,000 nventor$ 210,000 (e#erre) gross 'ro+t 0,000

Cash 135,000 nstall-ent receivables 135,000



(e#erre) gross 'ro+t 40,500 Realie) gross 'ro+t 40,500

!ross 'ro+t )e#erre) at sale B 30 x *300,000 B *0,000.!ross 'ro+t earne) at collection B *135,000/*300,000 x *0,000 B *40,500r cash collecte) x !* B*135,000 x 30 B *40,500

Problem XVI 2 /appan Industrial1 Reasonabl$ assre) ? accral basis shol) be se): #ll gross 'ro+t recognie) in the $ear

o# the sale.(eter-ination o# selling 'rice:

*On B R*O<7n/i #ale ;< *On B *16,500 x 4.3553 n B %, i B 10 *On B *1%,%1 ron)e)

!ross 'ro+t on sale: "ales *1%,%1

Cost o# sales %36,500 !ross 'ro+t *16,11 nterest revene??4 -onths: *1%,%1 x 10 x 4/12 B D 26,221

>otal inco-e #or 20x5 B *16,11 P *26,221 B *20%,340

2 No reasonable assrance @ ass-e the se o# install-ent sales -etho)

nstall-ent sale: !ross 'ro+t *16,11/*1%,%1 B 22 ron)e)

!ross 'ro+t earne) in 20x5 *0 x 22 * 0

nterest revene 26,221

>otal inco-e #or 20x5 * 26,221

I".S &5 1ased ProblemsProblem XVII 2 56Step ProcessRecognie revene in the acconting 'erio) hen the 'er#or-ance obligation is satis+e).

Step & Identify the contract 8ith customers9< contract is an agree-ent beteen to 'arties that creates en#orceable rights or obligations. nthis case, Mariti-e "hi' Man#actrers contract to )eliver cargo shi's to Qi- an) (reic$ "hi''ing&ines.

Step ( Identify the separate performance obli4ations in the contract9Mariti-e "hi' Man#actrers has onl$ one 'er#or-ance obligationto )eliver cargo shi's to Qi-an) (reic$ "hi''ing &ines. # Mariti-e "hi' Man#actrers also agree) to -aintain the cargo shi's,a se'arate 'er#or-ance obligation is recor)e) #or this 'ro-ise.

Step % $etermine the transaction price9 >ransaction 'rice is the a-ont o# consi)eration that a co-'an$ ex'ects to receive #ro- acsto-er in exchange #or trans#erring a goo) or service. n this case, the transaction 'rice isstraight #orar)it is *620,000,000.

Step : Allocate the transaction price to the separate performance obli4ations9n this case, Mariti-e "hi' Man#actrers has onl$ one 'er#or-ance obligationto )eliver cargoshi's to Qi- an) (reic$ "hi''ing &ines.



Step 5 .eco4ni;e re<enue 8hen each performance obli4ation is satis!ed9Mariti-e "hi' Man#actrers recognies revene o# *00 -illion #or the sale o# the cargo shi's toQi- an) (reic$ "hi''ing &ines hen it satis+es its 'er#or-ance obligationthe )eliver$ o# thecargo shi's to Qi- an) (reic$ "hi''ing &ines.

Problem XVIII 2 Contracts and .eco4nition >he entr$ on Al$ 31, 20x6, to recor) the sale an) relate) cost o# goo)s sol) is as #ollos:

<cconts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 56,000 "ales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

56,000

Cost o# sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34,200

nventor$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

34,200

>he entr$ to recor) the recei't o# cash on <gst 31, 20x6 is a #ollos:Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .

56,000

<cconts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .

56,000

< e$ attribte o# the revene arrange-ent is that the signing o# the contract b$ the to 'arties is notrecor)e) ntil one or both o# the 'arties 'er#or- n)er the contract. Until perormance occurs, nonet asset or net liability occurs.

Problem XIX 2 Contracts and .eco4nition >he above ne contract, <G recognies a))itional total revene o# P63,72,, co-'te) as #ollos

riginal contract H120,000 nits @ 62,000 nits x *00I………………………* 43,200,000 Ne 'ro)ct 24,000 nits x *55……………………………………………….. 20,520,000 >otal revene a#ter the -o)i+cation………………………………….…………* %3,620,000

n this sitation, the contract -o)i+cation #or the a))itional 24,000 'ro)cts is, as a reslt, a new and separate contract , hich does not a!ect the accounting or the original contract.

Problem XX 2 Prospecti<e =odi!cation

7or <G, the a-ont recognie) as revene #or each o# the re-aining 'ro)cts ol) be a blen)e)'rice o P""#, co-'te) as shon:

*ro)cts not deli$ered n)er original contract *00 x 4,000……………*43,200,000 *ro)cts to be deli$ered n)er contract -o)i+cation 24,000 x *55…. 20,520,000 >otal re-aining revene……………………………………………………………* %3,620,000

Revene 'er re-aining nit *%3,620,000 S 62,000B P""#, blended price

%ote& n$e t&e osect!e aoac&, t&!s comutat!on $!>es fom t&at !n t&e seaate efomance ol!-at!on aoac& !s t&at re$enue on the remaining units 'i.e., 72,units( is recognized at the blended price.

Prospecti<e =odi!cation9 ;n)er the prospecti$e approach, a blended price 'P""#( is used or sales in the periods ater the modifcation.

Revene Recognie)*rior to Mo)i+cation

Revene Recognie)<#ter Mo)i+cation

>otal ReveneRecognie)

"e'arate 'er#or-ance obligation *%4,00,000 * %3,620,000 *12,520,000

No se'arate 'er#or-anceobligation ? 'ros'ectivel$ *%4,00,000 * %3,620,000 *12,520,000

62,000 x *00

0ote <s 'ointe) ot, whether a modifcation is treated as a separate perormance obligationor prospecti$ely , the same amount o re$enue is recognized beore an) ater themodifcation. )owe$er, under the prospecti$e approach, a blended price >P??5@ is used #orsales ater the modifcation.



Problem XXI 2 Identifyin4 Separate Performance -bli4ations >he license and the consulting ser$ices are distinct but interdependent , an) there#ore shol)be acconte) #or as one performance obli4ation.

Problem XXII 2 Identifyin4 Separate Performance -bli4ations1. >he sale o the computer and related assurance warranty are one perormance

obligation as they are interdependent and interrelated ith each other.

2. >he e*tended 8arranty is separately sold and is not interdependent9

Problem XXII 2 Estimatin4 Variable Consideration >he probability*weighted method is the -ost 're)ictive a''roach #or the -anage-ent to)eter-ine the transaction 'rice:

%0 chance o# *1%0,000,000………………………………………………………………* %,000,00030 chance o# *154,000,000H*1%0,000,000 @ 10 x *%0,000,000I..……………… 4%,200,00010 chance o# *14,000,000H*1%0,000,000 @ 10 x *%0,000,000 x 2I…………… 14,00,000

*156,000,000

Problem XXIII 2 .e<enue .eco4nition Constraint >he ollowing items should be ta+en into consideration b$ in4 and ssociates:

1. Recognie) the management ee each Farter base) on the 'er#or-ance o# its services)ring the $ear.

2. >he incenti$e ee shol) not be recor)e) ntil the en) o# the $ear. >here#ore, this #ee isconstraine) not recognie) ntil the incentive is )eter-inable at the en) o# the $ear.

Problem XXIV 2 E*tended Payment /erms uly &' ()*7 .ecord the Sale

Notesreceivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,%6.0

"ales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

540,000.00

;nearne) nterest inco-e )iscont on notes receivable. . . . . . 354,%6.0

Cost o# sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

354,000.00

nventor$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

354,000.00

$ecember %&' ()*7 .ecord interest re<enue;nearne) interest inco-e (iscont on notes receivable. . . . . . . . . . .. . .

32,400.00

nterest inco-e 12 x T x *540,000. . . . . . . . . . . . . . . . . . . . . . .. . . . .

32,400.00

>he revene that Aa-es Co-'an$ shol) recor) on Al$ 1, 20x6 shol) a-ont to *540,000. Jhile thea-ont o# revene i.e., interest inco-e that shol) be re'ort relate) to this transaction on (ece-ber31, 20x6 also a-onte) to *32,400.

7or 'ractical consi)erations, companies are not re-uired to reect the time $alue o money i the time period or payment is less than a year.

Problem XXV 2 Volume $iscount >he entries that "a-sng recognie as revene #or the +rst three -onths o# 20x6 March 31, 20x6 are

as #ollos:<cconts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

406,400

"ales H*420,000 ? *420,000 x3I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..

406,400

"a-sng shol) re)ce its revene b$ *12,%00 *420,00 x 3 becase it is 'robable that it ill'rovi)e this rebate.

<ss-ing "a-sngLs csto-er -eets the )iscont threshol), "a-sng -aes the #olloing entr$:



Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . ..

406,400

<ccontsreceivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

406,400

# "a-sngLs csto-er #ails to -eet the )iscont threshol), "a-sng -aes the #olloing entr$ 'on'a$-ent.

Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .. 420,000


406,400

"ales )iscontlost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,%00

Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . ..

406,400


406,400

Problem XXVI 2 -ne or =ultiple Performance -bli4ations >he ollowing items should be ta+en into consideration b$ Ube /ompany :

1. >he 'er#or-ance obligations relate to bil)ing constrction, -aintenance o# the bil)ing an)

o'erate the con)o-ini- bil)ings.2. <s 'ointe) ot, Ube /ompany can )eter-ine stan)alone vales #or the bil)ing, an) the-aintenance bil)ing.

3. >he co-'an$ then can -ae a best esti-ate o# the 'rice #or o'erating the con)o-ini-bil)ings, sing the a)=ste) -aret assess-ent a''roach or ex'ecte) cost 'ls a -argina''roach.

4. Ube /ompany next a''lies the relative #air vale -etho) at the ince'tion o# the transactionto )eter-ine the 'ro'er allocation to each 'er#or-ance obligation.

5. nce the allocation is been 'ro'erl$ )eter-ine), Ube /ompany recognies revenein)e'en)entl$ #or each 'er#or-ance obligation sing reglar revene recognition criteria.

%. #, alternativel$, the stan)alone selling 'rice #or o'erating the con)o-ini- bil)ing is highl$variable or ncertain, Ube /ompany -a$ se a resi)al a''roach. n this case, Ube/ompany ses the #air vales o# the high rise bil)ing an) the -aintenance agree-ents an)sbtracts their #air vale #ro- the total transaction 'rice to arrive at a resi)al vale #oro'erating the con)o-ini- bil)ings:

>otal transaction 'rice………………………………………………… * xxx&ess: 7air vale o# the high rise bil)ing…………………………… * xxx Gil)ing -aintenance………………………………………….. Dxxx DxxxResi)al vale @ <-ont allocate) #or o'erating the con)o-ini- bil)ings………………………………………….. * xxx

Problem XXVII 2 =ultiple Performance -bli4ations >he ollowing items should be ta+en into consideration b$ 0aritime 1ndustries, 1nc.

• >he +rst con)ition #or se'aration into a stan)alone nit #or the bri)ge si-lator is -et. >hat is,the bri)ge si-lator, installation, an) training are )istinct an) not inter)e'en)ent ? the$ arethree se'arate 'ro)cts or services, an) each o# these ite-s has a stan)alone selling 'rice.

• >he total revene o# *42,000,000 shol) be allocate) to the three co-'onents base) on theirrelative #air vales.

1. >he #air vale o# the bri)ge si-lator shol) be consi)ere) *42,000,000, the installation #ee is*40,000, an) the training is *420,000. >he total #air vale to consi)er a-onte) to:

Gri)ge si-lator *40,640,000/*42,000,000 x *40,640,000……………………...*3,516,00nstallation *40,000/*42,000,000 x*40,640,000……………………………..

14,00

>raining *420,000/*42,000,000 x*40,640,000….........................................

DDD406,400

>otal…………………………………………………………………………………….. *40,640,000



2. 0aritime 1ndustries, 1nc -aes the #olloing entr$ on %o$ember , 27, to recor)both sales revene an) service revene on the installation, as ell as nearne) servicerevene:

Cash. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .. . . .

40,640,000

"ervice revene installation. . . . . . . . . . . . . . . . . . . . . . .. . . . 14,00

;nearne) servicerevene. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

406,400

"alesrevene. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,516,00

Not reFire)<ss-ing the cost o# the bri)ge si-lator is *2,51,000 the entr$ on Nove-ber 1, 20x6 torecor) cost o# goo)s sol) is as #ollos:

Cost o# goo)s sol). . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . .

2,51,000

nventor$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

2,51,000

<s in)icate) b$ the above entries, 0aritime 1ndustries, 1nc recognies revene #ro- thesale o# the bri)ge si-lator once the installation is co-'lete) on Nove-ber 1, 20x6. na))ition, it recognies revene #or the installation #ee becase these services have been'er#or-e).

3. 0aritime 1ndustries, 1nc recognie) the training revenes on a straight?line basisstarting on Nove-ber 1, 20x6, or *101,000 *406,400/4 -onths 'er -onth #or #or 4 -onths.4he 5ournal entry on ecember 3 27 to recognize the training re$enue o two '2(months in 27 is as ollows:

;nearne) service revene. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .

202,000

"ervice revene *101,000 x 2 -onths. . . . . . . . . . . . . . .. . .

202,000

>here#ore, 0aritime 1ndustries, 1nc recognies revene on (ece-ber 31, 20x6, in thea-ont o# *40,534,%00 *3,516,00 P *14,00 P *202,000. 0aritime 1ndustries, 1nc-aes the #olloing =ornal entr$ on (ece-ber 31, 20x6 to recognie the training revene in20x, ass-ing a)=sting entries are -a)e at $ear?en):

;nearne) service revene. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .

205,400

"ervice revene *406,400 @ *202,000. . . . . . . . . . . . . . .. . .

205,400

Problem XXVIII 2 $iscounted /ransaction Price >he ollowing items should be ta+en into consideration b$ 4obys 8tore&

•

<s in)icate), the stan)alone 'rice #or 'ro)ct 1, 2, 3, an) 4 is *21,240, bt the bn)le) 'rice#or all #or 'ro)cts is *1,%00.

• >he )iscont a''lies to the 'er#or-ance obligations relate) to 'ro)cts 1, 3, an) 5.<ccor)ingl$, 4obys 8tore& allocates the )iscont to 'ro)ct 1, 3, an) 4, an) not to 'ro)cts2, as #ollos:

<llocate) <-onts*ro)ct 1, 3, an) 4…………………………………… * 1%,200*ro)ct 2……………………………………………….. %,000 >otal……………………………………………………… * 16,200



Problem XXIX 2 /imin4 of .e<enue .eco4nition 6 Point in time 8hen re<enue should bereco4ni;ed >he ollowing items should be ta+en into consideration b$ /erise 9utsourcing /ompany&

• /erise 9utsourcing /ompany )oes not create an asset ith an alternative se becase it is'rohibite) #ro- re)irecting the so#tare to another csto-er.

• /erise 9utsourcing /ompany is entitle) to 'a$-ents #or 'er#or-ance to )ate an) ex'ectsto co-'lete the 'ro=ect.

• ConseFentl$, /erise 9utsourcing /ompany concl)es that the contract -eets the criteria#or recogniing revene over ti-e.

Problem XXX 2 .i4ht of .eturn4he ollowing entries in relation to the sale are as ollows&1. NN recor)s the sale as #ollos ith the ex'ectation that three 'ro)cts ill be retrne):

Cash. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

24,000

"ales *100 x 240 @%I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,400

Re#n) &iabilit$ *100 x %nits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

%00

Cost o# sales *14,400 @*3%0. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,040

Esti-ate) inventor$ retrns *%0 x %. . . . . . . . . . . . . . . . . . . . . . . . . .. .

3%0

nventor$ *%0 x 240 nits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

14,400

2. Jhen a retrn occrs, ass-ing 4 nits ere retrne): NN recor)s the #olloing entries:Re#n) &iabilit$ 4 nits x *100 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

400

<cconts*a$able. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

400

Retrne) nventor$ 4 x *%0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .

240

Esti-ate) inventor$ retrns . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. ..

240

Co-'anies recor) the retrne) asset in a se'arate accont #ro- inventor$ to 'rovi)e trans'arenc$.

Problem XXXI 2 .epurchase A4reementMM nc., an eFi'-ent )ealer, sells eFi'-ent on Aanar$ 1, 20x6, to RR Co-'an$ #or *200,000. tagrees to re'rchase this eFi'-ent on (ece-ber 31, 20x, #or a 'rice o# *242,000.

1. <ss-ing an interest rate o# 10 'ercent is i-'te) #ro- the agree-ent, MM -aes the #olloingentr$ to recor) the +nancing on Aanar$ 1, 20x6:

Cash. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

240,000

&iabilit$ to RR Co-'an$. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000

2. MM nc. recor)s interest on (ece-ber 31, 20x, as #ollos:

nterestEx'ense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000

&iabilit$ to RR Co-'an$ *240,000 x10. . . . . . . . . . . . . . . . . . . . . .

24,000

3. MM nc. recor)s interest an) retire-ent o# its liabilit$ to RR Co-'an$ on (ece-ber 31, 20x, as#ollos:nterestEx'ense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2%,400

&iabilit$ to RR Co-'an$ H*240,000 P *24,000 x 2%,400



10I. . . . . . . . . . . . . . . .

&iabilit$ to RRCo-'an$. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

20,400

Cash H*240,000 P *24,000 P *2%,400I . . . . . . . . . . . . . . . . . . . . . .. . . . ..

20,400

Problem XXXII 2 1ill and 3old!! Co-'an$ )eter-ines hen it has satis+e) its 'er#or-ance obligation to trans#er a 'ro)ct b$evalating hen CC obtains control o# that 'ro)ct. 7or CC to have obtaine) control o# a 'ro)ct in abill?an)?hol) arrange-ent, all o# the #olloing criteria shol) be -et:

- >he reason #or the bill?an)?hol) arrange-ent -st be sbstantive.- >he 'ro)ct -st be i)enti+e) se'aratel$ as belonging to CC.- >he 'ro)ct crrentl$ -st be rea)$ #or 'h$sical trans#er to CC- !ianne cannot have the abilit$ to se the 'ro)ct or to )irect it to another csto-er.

n this case, it a''ears that the above criteria 8ere met, an) there#ore re<enue reco4nitionshould be permitted at the ti-e the contract is signe).

!! -aes the #olloing entr$ to record the sale<ccontsreceivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,00,000

"ales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .

1,00,000

!! -aes an entr$ to recor) the relate) cost o# goo)s sol) as #ollos.Cost o# sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

%62,000

nventor$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

%62,000

Problem XXXIII 6 Barranties AA Co-'an$ sol) 2,400 nits )ring 20x6 at a total 'rice o# *14,400,000, ith a arrant$ garanteethat the 'ro)ct as #ree o# an$ )e#ects. >he cost o# each nit sol) is *,%00,000. >he ter- o# theassrance arrant$ is to $ears, ith an esti-ate) cost o# *62,000. n a))ition, Aac sol) exten)e)

arranties relate) to 00 nits #or three $ears be$on) the to?$ear 'erio) #or *2,00.&9 /o record the re<enue and liabilities related to the 8arranties

Cash *14,400,000 P*2,00. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,42,00

Jarrant$ ex'ense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

62,000

Jarrant$ liabilit$. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

62,000

;nearne) Jarrant$ Revene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .

2,00

"ales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .

14,000,000

(9 /o reduce in<entory and reco4ni;e cost of 4oods soldCost o# sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

,%00,000

nventor$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

,%00,000

Problem XXXIV 2 0on6refundable pfront "ee Considerations >he ollowing items should be ta+en into consideration b$ Physical :ym:

1. n this case, the -e-bershi' #ee arrange-ent -a$ be viee) as a single 'er#or-anceobligation si-ilar services are 'rovi)e) in all 'erio)s. >hat is, Physical :ym is 'rovi)ing a



)isconte) 'rice in the secon) an) thir) $ears #or the sa-e services, an) this shol) bereUecte) in the revene recognie) in those 'erio)s.

2. Physical :ym )eter-ines the total transaction 'rice to be *144,000 ? the '#ront #ee o# *14,400 an) the 3 $ears o# -onthl$ #ees o# *12,%00 *3,%00 x 3% -onths ? an) allocates itover the 3 $ears.

3. n relation to No. 2, the Physical :ym ol) re'ort revene o# *4,000 H*144,000 / 3%-onths each -onth #or 3 $ears.

Problem XXXV 6 Contract Assetsn "ebruary &' ()*7, Aanine recor)s the #olloing entr$:

Contract <sset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

62,000

"ales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .

62,000

n 7ebrar$ 1, AA )oes not recor) an acconts receivable becase it )oes not have an ncon)itionalright to receive the *240,000 nless it also trans#ers *ro)ct to ((.

Jhen AA trans#ers *ro)ct on =arch &' ()*7, it -aes the #olloing entr$:<ccontsreceivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

240,000

Contract<sset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,000

"ales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .

1%,000

Problem XXXVI 6 Contract ,iabilities/here is no entry is required on =arch &' ()*7 for the follo8in4 reasons

• Neither 'art$ has 'er#or-e) on the contract.

• Neither 'art$ has an ncon)itional right as o# March 1, 20x6.

-n recei<in4 the cash on April &5' ()*7' Asser records the follo8in4 entryCash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .. . . .

24,000

;nearne) "ales Revene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .

24,000

-n satisfyin4 the performance obli4ation on uly %&' ()*7' anine records the follo8in4entry to record the sale

;nearne) "ales Revene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

24,000

"ales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . .

24,000

n a))ition, <sser recor)s cost o# goo)s sol) as #ollos:Cost o# sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .

1,000

nventor$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .

1,000

Costs to "ul!ll a Contract

Co-'anies )ivi)e ulfllment costs 'contract ac-uisition costs( into to categories:• >hose that give rise to an asset.

• >hose that are ex'ense) as incrre).

Co-'anies recognie an asset or the incremental costs i# these costs are incrre) to obtain acontract ith a csto-er. n other or)s, incre-ental costs are those that a co-'an$ ol) not incri# the contract ha) not been obtaine), sch as:

a. "ales co--issions8



b. (irect labor, )irect -aterials, an) allocation o# costs that relate )irectl$ to the contract e.g.,costs o# contract -anage-ent an) s'ervision, insrance, an) )e'reciation o# tools an)eFi'-ent8 an)8

c. Costs that generate or enhance resorces o# the co-'an$ that ill be se) in satis#$ing'er#or-ance obligations in the #tre. "ch costs incl)e intangible )esign or engineeringcosts that ill contine to give rise to bene+ts in the #tre.

ther costs that are ex'ense) as incrre) incl)e general an) a)-inistrative ex'enses nless thosecosts are ex'licitl$ chargeable to the csto-er n)er the contract as ell as costs o# aste, labor, orother resorces to #l+ll the contract that ere not reUecte) in the 'rice o# the contract.

n s--ar$, co-'anies onl$ ca'italie costs that are direct, incremental, and reco$erable'assuming that the contract period is more than one year .

Problem XXXVII 6 Contract Costs >he ollowing items should be ta+en into consideration b$ ;spi 9utsoucing /ompany&

• >he *4,000 selling co--ission costs relate) to obtaining the contract are recognie) as anasset.

• >he )esign services cost o# *62,000 an) the har)are #or the 'lat#or- o# *240,000 are alsoca'italie).

• <s the technolog$ 'lat#or- is in)e'en)ent o# the contract, the 'attern o# a-ortiation o# this'lat#or- -a$ not be relate) to the ter-s o# the contract.

• >he -igration an) testing costs o# *15%,000 are ex'ense) as incrre)8 in general, these costsare not recoverable.

=ultiple Choice Problems1. b @

20x4: *500,000 x 30 B * 150,00020x5: *%00,000 x 40 B 240,000 *30,000

2. )

Realie) !ross *ro+t on nstall-ent "ales in 20x%:20x4 sales: *10,000 x 22*

2,20020x5 sales: *50,000 x 25

12,50020x% sales: *45,000 x *2,200 / *2,200P*1,00

10,565 * 25,265

Realie) !ross *ro+t on "ales in 20x5 *10,500

&ess: Realie) !ross *ro+t in 20x5 #or 20x5 sales: *20,000 x 255,000

Realie) !ross *ro+t in 20x5 #or 20x4 sales *5,500

(ivi)e) b$: Collections in 20x5 #or 20x4 sales *25,000

!ross *ro+t #or 20x4 sales 22 3. a

nstall-ent "ales Metho):20x3 "ales: *240,000 x 25/125* 4,00020x4 "ales: *10,000 x 2/12 3,365Realie) !ross *ro+t on nstall-ent "ales* 6,365

Cost Recover$ Metho):20x3 Cost: *40,000 / 1.25 *34,000



&ess: Collections in 20x3 140,000 Collections in 20x4 240,000;nrecovere) Cost, 12/31/20x4 * 4,000

Under the cost reco$ery method , no income !s eco-n!e$ on a sale unt!l t&e cost of t&e !temsol$ !s ecoee$ t&ou-& cas& ece!ts" All cas& ece!ts, ot& !nteest an$ !nc!al ot!ons, aeal!e$ st to t&e cost of t&e !tems sol$" #&en, all suseuent ece!ts ae eote$ as eenue"

?ecause all costs &ae een ecoee$, t&e eco-n!e$ eenue afte t&e cost ecoe eesents!ncome !nteest an$ eal!e$ -oss ot" #&!s met&o$ !s use$ onl .&en t&e c!cumstancessuoun$!n- a sale ae so unceta!n t&at eal!e eco-n!t!on !s !moss!le"

4. a *0.

5. c

%. e, 20x% @ 08 20x6 ? 0;nrecovere) costs,1/1/20x4 110,000&ess: Collections 1/1//20x4 0 <)): "ales on accont 15,000 >otal 15,000 &ess: 1/1/20x5 10,500

Collections in 20x4 DD4,500;nrecovere) costs,1/1/20x5 105,500 1/1//20x5 10,500 <)): "ales on accont 30,000 >otal 40,500 &ess: 1/1/20x% 25,500 Collections in 20x5 15,000;nrecovere) costs,1/1/20x% 0,500 1/1//20x% 25,500 <)): "ales on accont %0,000 >otal 5,500 &ess: 1/1/20x6 40,500 Collections in 20x% 45,000;nrecovere) costs,1/1/20x6 45,500 1/1//20x6 40,500

<)): "ales on accont 24,000 >otal %4,500 &ess: 1/1/20x 60,000 Collections in 20x6 DDDD?0?;nrecovere) costs,1/1/20x 45,500

6. b 20x4: *150,000 @ *5%,%20 x 10 B *3,13. 20x5: *5%,%20 @ *3,13 x 10 B *46,54.

. a @ re#er to No. 3 #or )iscssion.Cost, Aanar$ 1, 20x4 * %0,000&ess: Collections incl)ing interest @ 20x4 32,160

;nrecovere) Cost, (ece-ber 31, 20x4 * 26,30

. c *3,%00,000 @ *2,400,000 S *3,%00,000 B 33 1/3 *3,%00,000 × .20 P H3,%00,000 × .0 × 4/12I B *1,%0,000

*1,%0,000 × 33 1/3 B *5%0,000.

10. b H*3,%00,000 × .20 P *3,%00,000 × .0 x /12I @ *2,400,000 B *240,000.

11. b @ re#er to No. 3 )iscssion.



Cost, Aanar$ 1, 20x4…………………………………………………………….* 500,000&ess: Collections incl)ing interest @ 20x4……………………….*241,2% Collections incl)ing interest @ 20x5……………………… 241,2% 42,53;nrecovere) Cost, (ece-ber 31, 20x5……………………………………….* 16,4%2

12. b H*1,400,000 @ *0,000 S *1,400,000I x *40,000 B *252,000.13. c *300,000 P *50,000 B *350,000

*350,000 @ *245,000 B *105,000 gross 'ro+t 30 gross 'ro+t rate *300,000 @ *100,000 x 30 B *%0,000.

14. c *1,200,000 @ *620,000 B *40,000 gross 'ro+t 40 gross 'ro+t rate *40,000 @ *2,000 V.4 B *3%4,00.

15. ) @ H*225,000 P *120,000/40I

1%. b *3%,000 S 24 P *1,000 S 30 B *10,000.

16. )nstall-ent <cconts Receivable, (ece-ber 31, 20x5: (!*, 12/31/20x5 / !*

20x4 "ales: *120,000/ 30 * 400,00020x5 "ales: *440,000/ 40 1,100,000

* 1,500,0001. c

"ale: nstall-ent receivables 4,500,000 nventor$3,%00,000 (e#erre) gross 'ro+t00,000*a$-ent: Cash 500,000 nstall-ent receivables500,000 (e#erre) gross 'ro+t 100,000 Realie) gross 'ro+t100,000Galance "heet: nstall-ent receivables 4,500,000 @ 500,000 *4,000,000 (e#erre) gross 'ro+t 00,000 @ 100,00000,000 nstall-ent receivables net * 3,200,000

1. b12/15/x5 Cash H*4,500,000 @ *500,000/2 B *2,000,000I 2,000,000 nstall-ent receivables 2,000,000 (e#erre) gross 'ro+t H*2,000,000 x 00/4,500I 400,000 Realie) gross 'ro+t400,000

Galance sheet: (e#erre) gross 'ro+t: *00,000 400,000 B *400,000 Realie) gross 'ro+t o# *400,000 ol) be re'orte) in the inco-e state-ent.

20. No reFire-ent21. c ? *300,000 20x4 sales P *500,000 20x5 sales B *00,000

22. a !ross 'ro+t B *00,000 *450,000/*00,000 B 50 20x4: 50 x *300,000 B *150,000



23. c 20x4 sales: !ross 'ro+t B *00,000 *450,000/*00,000 B 50 50 x *300,000 receive) in 2010 B *150,000

20x5 sales: !ross 'ro+t B *1,500,000 *00,000/*1,500,000 B 40

40 x *400,000 receive) in 2010 B *1%0,000 >otal: *150,000 P *1%0,000 B *310,000

24. c 20x4 "ales: nstall-ent receivables B *00,000 @ *300,000 x4 collections

? *300,000 x5 collections B *300,000

(e#erre) gross 'ro+t B *450,000 @ *150,000 x4 collections? *150,000 x5 collections B

150,000Net install-ent receivable #or 20x4 sales B *

150,000

20x5 "ales: nstall-ent receivables B *1,500,000 @ *500,000 x5 collectionsB*1,000,000

(e#erre) gross 'ro+t B *%00,000 @ *200,000 x5 collections B400,000

Net install-ent receivable #or 20x5 B * %00,000 >otal B * 650,000

25. a ? Costs not $et recovere).2%. b

Cost, 20x4 * 30,000 20x4 cost recover$ 20,000

Re-aining cost, 12/31/x4 * 10,000 20x5 collection 15,000 !ross 'ro+t @ 20x5 * 5,000

26. )Cost * 30,000

20x4 cost recover$ 20,000 20x5 cost recover$ 10,000 Re-aining cost 0

>he entire *20,000 'a$-ent receive) in 20x% is recognie) as gross 'ro+t.



2. a"ale: nstall-ent receivables 55,000

nventor$ 30,000(e#erre) gross 'ro+t 25,000

*a$-ent: Cash 20,000nstall-ent receivables 20,000

Galance "heet:nstall-ent receivables *55,000 @ 20,000 * 35,000(e#erre) gross 'ro+t 25,000nstall-ent receivables net * 10,000

2. a

"ale: nstall-ent receivables 55,000nventor$ 30,000(e#erre) gross 'ro+t 25,000

200: Cash 20,000nstall-ent receivables 20,000

Cash 15,000nstall-ent receivables 15,000

200: (e#erre) gross 'ro+t 5,000Realie) gross 'ro+t 5,000

Galance "heet:nstall-ent receivables * 20,000(e#erre) gross 'ro+t 20,000nstall-ent receivables net * 0

30. c Note: "ince the collectibilit$ o# the note is reasonabl$ assre), the accral basis shol)

be a''lie). >here#ore, full -oss ot is recognie) in the $ear o# sale.!ross 'ro+t on sale:

"ales *16,500 x 4.3553 *1%,%1 Cost o# sales %36,500 !ross 'ro+t realie) *16,11

31. c >otal nco-e #or 20x4: !ross 'ro+t realie) @ No. 51

nterest revene4 -onths: *1%,%1 x 10 x 4/12..*16,11 D 26,221

>otal inco-e #or 20x4 *20%,340

32. b >otal nco-e #or 20x5: !ross 'ro+t realie) @ alrea)$ recognie) in 20x4 *0 nterest revene @ -onths in ear 1 *1,%%2 x /12 * 54,441 4 -onths in ear 2 *61,06 x 4/12 23,%36,134

>otal nco-e #or 20x5 *6,134

"che)le o# (iscont <-ortiation/nterest nco-e co-'tation:



1 2 3 47ace Net (iscont

<-ont ;na-ortie) <-ont <-ortiation ear o# Note1 (iscont 1 @ 2 10 × 3

1 *1,125,000 *30,313 * 1%,%12 1,%%25

2 36,500 22%,614 610,61 61,06

1 *16,500 x % $ears B *1,125,0008 ever$ $ear *16,500 shol) be )e)cte) on the'revios balance.

2 >he 'resent vale o# sales/receivables: *16,500 x 4.3553 B *1%,%13 *1,125,000 @ *1%,%1

4 2 @ 45 (iscont a-ortiation give rise to recognition o# interest revene/inco-e.

33. a Note: "ince the collectibilit$ o# the note cannot be reasonabl$ assre), the !nstallment

sales met&o$ s&oul$ e al!e$. <lso, i# the there is &!-& $e-ee of unceta!nt as tocollect!!l!t , the cost ecoe met&o$ -a$ be se).nstall-ent sale: !ross 'ro+t *16,11/*1%,%1 22 ron)e)

!ross 'ro+t earne) in 20x4 *0 x 22 * 0 no collections in 20x4.

34. a >otal nco-e #or 20x4: !ross 'ro+t earne) in 20x4 *0 x 22 *

0 nterest revene re#er to No. 52 26,221 >otal inco-e #or 20x4. * 26,221

35. )Collections in 20x5 <gst 31, 20x5 * 16,500

&ess: nterest revene/inco-e #ro- "e'te-ber 1, 20x4 to<gst 31, 20x5 re#er to sche)le o# a-ortiation in No. 531,%%2 Collection as to 'rinci'al * 105,3 x: !ross *ro+t re#er to No. 5422 !ross 'ro+t realie) in 20x5 * 23,24 <)): nterest revene/inco-e #or 20x5 re#er to No. 536,134 >otal nco-e #or 20x5 * 101,41

3%. ) *2,000,000 @ *1,500,000 S *2,000,000 B 25

36. a *00,000 x .25 @ *0,000 B *110,000,

3. ) *600,000 x .25 B *165,0008 *500,000 x .25 B *125,000.

3. a *3,000,000 @ *2,100,000 S *3,000,000 B 30.

40. ) *1,200,000 × .30 @ *120,000 B *240,000.

41. a *1,050,000 × .30 B *315,000



*00,000 @ H*1,200,000 P *1,050,000 × .30I B *225,000. 42. b *24,000 @ *6,200 B *1%,00

*1%,00 @ *13,500 B *3,300 loss.

43. ) H*5,%00 x 1 @ .40I @ *2,100 @ *140 B *1,400.

44. )? *,400 @ 60 x *,400 B *2,520 *3,000 @ *300 @ *2,520 B *10 gain.

0ote >he selling 'rice to be se) in )eter-ining gain or loss shol) be -ore 'ro+tableto the co-'an$ hich is *3,000 instea) o# *2,400 as re'ossesse). >heoreticall$, the gainis not recognie) bt since the reFire-ent is gain or loss on re'ossession, there#ore,*10 is the in)icate) gain.

45. ) 20x4: *24,000 @ *0 B *24,000 collections x 3*,3%0 20x5: *300,000 @ *%0,000 @ *10,000 )e#alts B *230,000 x 42

%,%00 20x%: *40,000 @ *320,000 @ *5,000 )e#alts B *155,000 x 40%2,000 Realie) gross 'ro+t on install-ent sales in 20x%*1%6,%0

4%. b 20x5 "ales 20x% "ales

Net Maret Oales * 4,500 * 3,500 &ess: ;nrecovere) Cost:

<R, n'ai) balances *10,000 * 5,000 x: Cost Ratio 50 5,00 %0 3,000

!ain loss * 1,300 * 500 * 00

46. a1 !ain or &oss on re'ossession:

Esti-ate) selling 'rice *1,600&ess: Nor-al 'ro+t 36 x *1,600 %2Maret vale o# re'ossesse) -erchan)ise * 1,061&ess: ;nrecovere) Cost:

;n'ai) balance @ 20x3 * 2,200&ess: (!* @ x3 *2,200 x34 64

1,452&oss on re'ossession * 31

2 Realie) gross 'ro+t on install-ent sales:20x2 "ales: *24,020 @ * 0 x 35 * ,406.020x3 "ales: *344,4%0 @ *%6,440 @ *2,200 x 34

3,43.20x4 "ales: *%02,000 @ *410,00 x 36 61,00%.6Realie) gross 'ro+t on install-ent sales * 162,52.5

4. c(e#erre) !ross *ro+t, en) 12/312/20x4: <R, en) o# 2004 x !*



20x2 "ales: * 020x3 "ales: *%6,440 x 34.

22,2.%20x4 "ales: *410,00 x 36

151,633.3 *

164,%%2. 4. )

Resale Oale * ,500&ess: Nor-al 'ro+t #or 20x% ? $ear o# re'ossession

H*3,010,000 @ *1,%,300/*3,010,000I x ,500 3,145Maret Oale o# Re'ossesse) Merchan)ise * 5,355&ess: ;nrecovere) Costs @ 20x5 (e#alte) balance *26,000 @ *1%,000 * 11,000 &ess: (!* H*2,1%0,000 ? *1,425,%00/*2,1%0,000Ix *11,000 DDD3,640 DD6,2%0&oss on re'ossession * 1,05

Entr$ -a)e:nventor$ o# RM 11,000

<R?20x5 11,000

Correct Entr$ "hol) be:nventor$ o# RM at MO 5,355(!*?20x5 3,640

&oss on re'ossession 1,05<R?20x5 11,000

Correcting Entr$:(!*?20x5 3,640

&oss on re'ossession 1,05;nento of '@ 5,645**

50. cnstall-ent "ales * 3,%00,000

&ess: ver?alloance: >ra)e?in alloance *1,500,000 &ess: MO o# >ra)e?in Merchan)ise:

Esti-ate) Resale *rice * 1,400,000 &ess: Nor-al 'ro+t 25 x *1,400,000 350,000

Recon)itioning costs 150,000 00,000%00,000 <)=ste) nstall-ent "ales *3,000,000 &ess: Cost o# /"2,500,000 !ross *ro+t * 500,000 !ross 'ro+t rate: *500,000/ *3,000,000 1% 2/3 x: Collections @>ra)e?in -erchan)ise at MO *00,000 R!* on /" in 20x4 *150,000



51. c >ra)e?in alloance *43,200&ess: MO o# tra)e?in alloance:

Esti-ate) resale 'rice a#ter recon)itioning costs *3%,000 &ess: Recon)itioning costs 1,00

Nor-al 'ro+t 15 x *3%,000 5,400 2,00

ver?alloance * 14,400 nstall-ent sales *122,400&ess: ver?alloance 14,400<)=ste) nstall-ent "ales *10,000&ess: Cost o# nstall-ent "ales %,400!ross 'ro+t * 21,%00!ross 'ro+t rate: *21,%00/*10,000 20

Realie) gross 'ro+t:(on 'a$-ent * 6,200

>ra)e?in at -aret vale 2,00nstall-ent collections:

*10,000 @ *2,00 @ *6,200 / 10 -os. 9 3 -os. 21,%00 >otal collections in 200 * 56,%00x: !ross 'ro+t rate 20

Realie) gross 'ro+t * 11,520

52. )Note: 7or +nancial acconting 'r'oses, the install-ent?sales -etho) is not se), an) the#ll gross 'ro+t is recognie) in the $ear o# sale, becase collection o# the receivable isreasonabl$ assre).

7inle$ Co-'an$Co-'tation o# nco-e Ge#ore nco-e >axes

n nstall-ent "ale Contract7or the ear En)e) (ece-ber 31, 20x3

"ales *4,54,000Cost o# "ales 3,25,000!ross *ro+t 65,000nterest Revene "che)le 32,320nco-e be#ore nco-e >axes *1,06,320"che)le

Co-'tation o# nterest Revene onnstall-ent "ale Contract

Cash selling 'rice sales *4,54,000*a$-ent -a)e on Aanar$ 1, 20x3 3%,000Galance otstan)ing at 12/31/x3 3,%4,000nterest rate

nterest Revene * 32,320

53. c 54. ) 55. )

5%. a56. )5. a *00,000 × .%5 P *0,000 × .25 P *0,000 × .05 P *60,000 × .05 B*5,000.5. ) *55,000 − *50,000 × 6/12 B *2,16.

%0. c *36,000 − *36,000 × .03 B *35,0.



%1. b *%,650,000 × .5 B *5,636,500.%2. ) *65,000 P *50,000 P *25,000 B *150,000 *65,000/ *150,000 × *120,000 B *%0,000

*50,000/ *150,000 × *120,000 B *40,000

*25,000/ *150,000 × *120,000 B *20,000.%3. c *65,000 P *50,000 P *25,000 B *150,000

*25,000/ *150,000 × *120,000 B *20,000.%4. a *1%0,000 P *25,000 B *15,000. *1%0,000/ *15,000 × *10,000 B *155,%6%

*25,000/ *15,000 × *10,000 B *24,324

%5. b *3,000 × .2 B *%008 *3,000 − *%00 B *2,400

%%. c *1,500/ *3,000 B 58 *200 × .5 B *100.%6. c%. a%. b ? *10,000 P *265,000 P *5,000 P *15,000 P *25,000 B *410,000.

/heories1. 7alse %. >re 11. >re 1%. >re 21

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>re 2%. >re

2. >re 6. 7alse 12.

7alse 16.

>re 22.

>re 26. >re

3. 7alse . >re 13.

7alse 1.

7alse 23.

>re 2. 7alse

4. >re . 7alse 14.

>re 1.

7alse 24.

>re 2. >re

5. >re 10. >re 15. >re 20. >re 25. >re

30.

c 35.

b 40. a 45. b 50.

) 55. )

31. b 3%. ) 41. e 4%. c 51. c 5%. b

32.

b 36.

) 42. b 46. c 52.

b 56. )

33.

b 3.

e 43. b 4. c 53.

a 5. c

34.

c 3.

c 44. ) 4. ) 54.

b 5. c

%0. c %5. b 60. ) 65. c 0. b%1. b %%. b 61. c 6%. b 1. c%2. b %6. ) 62. b 66. b 2. a%3. c %. ) 63. ) 6. )

%4. ) %. c 64. a 6. a

solution chapter 7

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