1.
Jansen Corporation shipped $18,400 of merchandise on consignment to Gooch Company. Jansen paid freight costs of $1,760.
Gooch Company paid $720 for local advertising, which is reimbursable from Jansen. By year-end, 63% of the merchandise had
been sold for $21,900. Gooch notified Jansen, retained a 9% commission, and remitted the cash due to Jansen.
Prepare Jansen’s entry when the cash is received. (Round answers to 0 decimal places, e.g. 1,525. Credit account titles are
automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
(To record the cash remitted to Jansen.)
(To record the cost of inventory sold on consignment.)
Cash
Inventory on Consignment
= [$21,900 – $720 – ($21,900 x 9%)] = $19,209
= [63% x ($18,400 + $1,760)]
= $12,701
2. Turner, Inc. began work on a $7,723,000 contract in 2012 to construct an office building. During 2012, Turner, Inc. incurred costs of
$1,702,140, billed its customers for $1,333,000, and collected $978,300. At December 31, 2012, the estimated future costs to complete the
project total $3,455,860.
Prepare Turner’s 2012 journal entries using the percentage-of-completion method. (Credit account titles are automatically indented
when amount is entered. Do not indent manually. For costs incurred use account Materials, Cash, Payables.)
Account Titles and
Explanation
No.
Debit
Credit
(1)
(To record costs incurred.)
(2)
(To record billings.)
(3)
(To record collections.)
(4)
(To recognize revenue.)
Construction in Process
=
[($1,702,140 ÷ 5,158,000) x
$2,565,000]
=
$846,450
Revenue from Long-Term
Contracts
=
($7,723,000 x 33%)
=
$2,548,590
3.Gordeeva Corporation began selling goods on the installment basis on January 1, 2012. During 2012, Gordeeva had installment
sales of $110,000; cash collections of $67,100; cost of installment sales of $77,000.
Prepare the company’s entries to record 1) installment sales, 2) cash collected, 3) cost of installment sales, 4) deferral of gross
profit, and 5) gross profit recognized, using the installment-sales method. (Credit account titles are automatically indented
when amount is entered. Do not indent manually.)
No. Account Titles and Explanation
Debit
Credit
1.
2.
3.
4.
5.
4.On June 3, Hunt Company sold to Ann Mount merchandise having a sales price of $11,000 with terms of 3/10, n/60, f.o.b. shipping point.
An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt
of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day,
Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on
the returned merchandise was $28, paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from
Mount.
(a) Prepare journal entries for Hunt Company to record all the events noted above under each of the following bases. (Credit account titles
are automatically indented when amount is entered. Do not indent manually.)
1. Sales and receivables are entered at gross selling price
Date Account Titles and Explanation
6/3
6/5
6/7
6/12
Debit
Credit
2. Sales and receivables are entered net of cash discounts.
Date Account Titles and Explanation
Debit
Credit
6/3
6/5
6/7
6/12
(b) Prepare the journal entry under basis (2), assuming that Ann Mount did not remit payment until August 5. (Credit account titles are
automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
(a) 1.
2.
6/12
6/3
6/5
(b)
8/5
Debit
Credit
Sales Discounts
Sales Revenue
Accounts Receivable (Ann Mount)
(3% x $10,400)
[$11,000 – (3% x $11,000)]
[$600 – (3% x $600)]
$312
$10,670
$582
Sales Discounts Forfeited
(3% x $10,400)
$312
5. (Recognition of Profit, Percentage-of-Completion)
In 2012 Gurney Construction Company agreed to construct an apartment building at a price of $1,200,000. The information relating to the
costs and billings for this contract is shown below.
2012
2013
Cost incurred to date
$280,000
$600,000
Estimated costs yet to be incurred
520,000
200,000
Customer billings to date
150,000
500,000
Collection of billings to date
120,000
320,000
(a)
Assuming that the percentage-of-completion method is used.
(1)
Compute the amount of gross profit to be recognized in 2012 and 2013.
2012
2013
Gross profit recognized
(2)
Prepare journal entries for 2013.
Description/Account
Materials, Cash, Payables, etc.
$
2014
$785,000
-01,200,000
940,000
$
Debit
Credit
Cash
Construction Expense
(b)
For 2013, show how the details related to this construction contract would be disclosed on the balance sheet and on the income
statement.
Income Statement (2013)
$
Balance Sheet (12/31/13)
$
$
(a) (1)
Gross profit recognized
2012
2013
$140,000
$160,000
Gross profit recognized in 2012:
Contract price
Costs:
Costs to date
Estimated additional costs
Total estimated profit
Percentage completion to date
($280,000/$800,000)
Gross profit recognized in 2012
Gross profit recognized in 2013:
Contract price
Costs:
Costs to date
Estimated additional costs
Total estimated profit
Percentage completion to date
($600,000/$800,000)
Total Gross profit recognized
Less: Gross profit recognized in 2012
Gross profit recognized in 2013
(2)Journal entries for 2013.
Description/Account
Construction in Process ($600,000 - $280,000)
Materials, Cash, Payables, etc.
Accounts Receivable ($500,000 - $150,000)
Billings on Construction in Process
Cash ($320,000 - $120,000)
Accounts Receivable
Construction Expense
Construction in Process
Revenues from Long-Term Contract
* 1,200,000 × [($600,000 – $280,000) ÷ $800,000]
Income Statement (2013)
(b)
Gross profit on long-term construction project
Balance Sheet (12/31/13)
Current assets:
Receivables- construction in process
Inventories-construction in process totaling
($900,000 ** less billings of $500,000)
* $180,000 = $500,000 – $320,000
**Total cost to date
$600,000
2012 Gross profit
140,000
160,000
2013 Gross profit
$900,000
6. (Gross Profit Calculations and Repossessed Merchandise)
$1,200,000
$280,000
520,000
800,000
400,000
35%
$140,000
$1,200,000
$600,000
200,000
800,000
400,000
75%
300,000
140,000
$160,000
Debit
320,000
Credit
320,000
350,000
350,000
200,000
200,000
320,000
160,000
*480,000
$160,000
* $180,000
$400,000
Basler Corporation, which began business on January 1, 2012, appropriately uses the installment-sales method of accounting. The following
data were obtained for the years 2012 and 2013.
2012
2013
Installment Sales
$750,000
$840,000
Cost of installment sales
510,000
588,000
General & administrative expenses
70,000
84,000
Cash collections on sales of 2012
310,000
300,000
Cash collections on sales of 2013
-0400,000
(a)
Compute the balance in the deferred gross profit accounts on December 31, 2012, and on December 31, 2013.
Deferred Gross Profit Account
2012 Installment Sales
2013 Installment Sales
Balance, December 31, 2012
$
Balance, December 31, 2013
$
$
A 2012 sale resulted in default in 2014. At the date of default, the balance on the installment receivable was $12,000, and the
repossessed merchandise had a fair value of $8,000. Prepare the entry to record the repossession. (List multiple debit/credit
entries from largest to smallest amount, e.g. 10, 5, 2.)
Description/Account
Debit
Credit
(b)
(To record the default and the repossession of the merchandise)
(a)
(b)
Deferred Gross Profit Account
2012 Installment Sales
Balance, December 31, 2012
$140,800
Balance, December 31, 2013
$44,800
Balance, December 31, 2012
Deferred Gross Profit Account-2012 Installment Sales
Gross profit on installment sales-2012 ($750,000 - $510,000)
Less: Gross profit realized in 2012 ($310,000 × 32%)
Balance at 12/31/12
Balance, December 31, 2013
Deferred Gross Profit Account-2012 Installment Sales
Balance at 12/31/12
Less: Gross profit realized in 2013 on 2012 sales ($300,000 × 32%)
Balance at 12/31/13
Deferred Gross Profit Account-2013 Installment Sales
Gross profit on installment sales-2013 ($840,000 - $588,000)
Less: Gross profit realized in 2013 on 2013 sales ($400,000 × 30%)
Balance at 12/31/13
2013 Installment Sales
$132,000
$240,000
(99,200)
$140,800
$140,800
(96,000)
$44,800
$252,000
(120,000)
$132,000
Description/Account
Repossessed Merchandise
Deferred Gross Profit ($12,000 × 32%)
Loss on Repossession [$8,000 - ($12,000 - $3,840)]
Installment Accounts Receivable
(To record the default and the repossession of the merchandise)
Debit
8,000
3,840
160
Credit
12,000
7. Shanahan Construction Company has entered into a contract beginning January 1, 2012, to build a parking complex. It has been estimated
that the complex will cost $849,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $1,411,000.
The following data pertain to the construction period.
2012
Costs to date
2013
2014
$382,050
$602,790
Estimated costs to complete
466,950
246,210
$862,000
–0–
Progress billings to date
328,000
529,000
1,411,000
Cash collected to date
305,000
497,000
1,411,000
(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the
construction period.
Gross profit recognized in 2012
$
Gross profit recognized in 2013
Gross profit recognized in 2014
$
$
(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction
period.
Gross profit recognized in 2012
Gross profit recognized in 2013
$
$
Gross profit recognized in 2014
$
2012
$1,411,000
2013
2014
Contract price
$1,411,000 $1,411,000
Less estimated cost:
Costs to date
382,050
602,790
862,000
Estimated cost to complete
466,950
246,210
—
Estimated total cost
849,000
849,000
862,000
Estimated total gross profit
$562,000
$562,000
$549,000
$382,050
2012:
x $562,000= $252,900
$849,000
$602,790
2013:
x $562,000=
$399,020
$849,000
Less 2012 recognized gross profit
252,900
Gross profit in 2013
$146,120
2014: Estimated total gross profit for 2014
Less 2012–2013 recognized gross profit
Gross profit in 2014
Total billings
$1,411,000
Total cost
(862,000)
Gross profit recognized in 2014
$549,000
$549,000
399,020
$149,980