Buy New ACCT 557 Week 1 Homework Assignment: Chapter 18


Buy New ACCT 557 Week 1 Homework Assignment Chapter 18


Problem 1:

  • You are the Senior Accountant for the Patty Corporation, which has several divisions. They each keep their own accounting books and have chosen the appropriate method of revenue recognition based on their operations.
  • Pat’s Electronics Division
    Pat’s Electronics Division sells computers through agents in various cities. Agents send orders and down payments to our company. The division then ships the goods F.O.B. shipping point directly to the customers. Revenue is recognized at the point of sale.
  • Additional Financial Data
    Orders for fiscal year 2012 $ 3,000,000
    Down payments collected in 2012 $ 300,000
    Billed and shipped in 2012 $ 2,400,000
    Freight billed in 2012 $ 70,000
    Commissions paid to agents (after ship to customer) 10%
    Warranty returns as % of Sales 1%
  • Pickle Construction Division
    The Pickle Construction Division was working on one project for the 2012 fiscal year. They use the percentage of completion revenue recognition method.
  • Contract for new administration building
    Total contract amount $ 60,000,000
    Contract grant date August 14, 2012
    Construction began September 1, 2012
    Estimated cost to complete at beginning of contract $ 52,000,000
    Estimated time to complete project 2 years
    As of Dec 31, 2012
    Construction costs incurred to date $ 14,140,000
    Billings to date $ 19,500,000
    Expected costs to complete $ 36,360,000
  • Peace Book Distribution Division
    Peace Book Distribution Division sells to national bookstores. Our division allows for up to 25% of sales in returns. For the past 4 years, returns have averaged 20%. We record revenue based on revenue recognition when the right of return exists.
    Total sales for 2012 $ 9,000,000
    Sales still available for return for six months $ 2,000,000
    Actual returns on sales not returnable 21%
    2011 sales collected in 2012 $ 2,500,000
    2011 sales returned in 2012 19%
    (a) We have studied several methods of revenue recognition. Define and describe each of the following methods of revenue recognition and indicate whether each is in accordance with generally accepted accounting principles.
    – Point of sale
    – Completion-of-production
    – Percentage-of-completion
    – Installment-sales
    (b) Calculate the revenue to be recognized in fiscal year 2012 for each division of Patty Corporation in accordance with generally accepted accounting principles. Show all calculations for full credit.

Problem 2:

  • Curiosity Company
    Curiosity Company provided the following financial information for its installment-sales for the current year.
  • Financial Data
    Installment sales for current year $ 800,000
    Cost of goods sold on installment basis $ 600,000
    Payments by customers $ 320,000
    Repossessed merchandise – unpaid balances $ 52,000
    Repossessed merchandise – estimated value $ 26,800
    a) Prepare journal entries for the end of the year based on the information above.
    b) Prepare the entry to record the gross profit realized in the current year.

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