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Exam 5: Income Measurement

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Question 41

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Use the following to answer questions McCombs Contractors received a contract to construct a mental health facility for $2,500,000.Construction was begun in 2015 and completed in 2016.Cost and other data are presented below: -Assume that McCombs recognizes revenue upon project completion. Required: Compute the amount of gross profit recognized by McCombs during 2015 and 2016.

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Question 42

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Use the following to answer questions Missoula Inc.reported the following selected financial statement data: -Required: Compute the inventory turnover ratio for 2016.

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$280,000 /...

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Question 43

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Explain briefly how a company who sells to distributors with a right of return might manage earnings if the company was falling short of profit projections.What sort of ethical problems could result from that earnings management?

What is the fixed contract price for CCC's project?

Which of the following is not an indicator that the customer is likely to have control over a good?

Dr.Privacy,Inc.specializes in shredding office documents and destroying computer hard drives for various clients in the U.S.In June 2016,it enters into a contract with the U.S.government to properly discard computer hard drives.The contract specifies a fixed fee of $50,000 for the first 25,000 hard drives,and an additional $5,000 for each incremental 10,000 drives.The company estimates a 65% chance of handling 25,000 drives or fewer,30% chance of handling more than 25,000 drives but fewer than 35,000 drives,and 5% chance of handling more than 35,000 drives but fewer than 45,000 drives. Required: Assuming that the company determines transaction price as the expected value of the consideration,what is Dr.Privacy's estimate of the transaction price for this contract?

Use the following to answer questions The following table presents a summary of ratio analysis for McDonald's and averages for their peer group: -Are differences between McDonald's and the industry likely driven by differences in size between McDonald's and the average company in their industry peer group? Explain briefly.

Estimated losses on long-term contracts are recognized as ratable over the contract term regardless of whether revenue is recognized over time or upon contract completion.

Jing Statistical Services operates a website that links experienced statisticians with businesses that need data analyzed.Statisticians post their rates,qualifications,and references on the website,and Jing receives 25% of the fee paid to the statisticians in exchange for identifying potential customers.VetMed Associates contacts Jing and arranges to pay a consultant $1,500 in exchange for analyzing some data.Jing's income statement would include the following with respect to this transaction:

In 2017,Rigsby would recognize realized gross profit of:

Typhoon Sons & Co.manufactures various types of golf clubs to third party vendors.On April 1,2016,Typhoon delivers a large quantity of golf clubs to Resona Country Club.Under the sales agreement,Resona is obligated to pay Typhoon $200,000 within six months.On May 1,Typhoon purchases for cash the right to advertise its products during Resona's annual golf tournament event for $3,000.Resona normally charges $2,500 for such services.On August 15,Resona pays Typhoon all amounts owed. Required: Prepare the journal entries Typhoon should record to account for the transaction on April 1,May 1 and August 15.Indicate the amount of revenue that Typhoon should recognize on its sale of golf clubs to Resona.

The transaction price should be allocated to the contract's performance obligations in proportion to the stand-alone selling prices of the performance obligations.

Sellers should recognize revenue over time for a long term contract in which the seller is receiving periodic payments for progress to date but may need to refund those payments in the event the contract is cancelled.

Which of the following is considered a performance obligation?

Poseidon Corporation,based in Greece,specializes in painting cargo ships.On December 1,2016 Poseidon received $300,000 in advance from Worldwide Shipping,Inc.to paint a 40,000-ton cargo vessel.The painting process is scheduled to begin on December 1,2016,and the ship is to be returned to Worldwide in four months.Worldwide retains legal title to the ship during the contract period,and can sell the ship to another shipper during the contract period if it so chooses. Required: Assuming Poseidon uses "proportion of time" as its measure of progress toward completion,prepare any journal entry that Poseidon would record: (1)at inception of the contract (2)at the end of 2016 to recognize all revenue associated with this contract that should be recognized in 2016.Ignore any costs associated with providing the painting service.

Use the following to answer questions The following partial income statement and balance sheet information (in $ millions)comes from the Annual Report of Saratoga Springs Co.for the year ending 12/31/2016: Required: Compute the following amounts for Saratoga Springs Co. -Its average days in inventory for 2016.Round your final answer to one decimal place.

How many performance obligations exist in this contract?

For 2015,what is the journal entry to record revenue?

Under IFRS,revenue for a product sale should occur when:

Prepare Romano's May 30 journal entry to record the revenue earned in May,as well as any appropriate adjustments to the revenue earned in April.