QUESTION 1 A) A liability must meet all the below criteria: 1) Is a present obligation * Yes, because Sliverstrike Minds has has 4 operating mining shaft in Country X and 6 shafts in Country Y. 2) Arising from a past transaction * Yes, because Silverstrike Minds has already purchased the right to mine silver in the 2 countries. 3) Expected to result in an outflow to the entity. * Yes, because the company will dig 17 meters in Country Y in December 2015 with a 95% certainty. Conclusion: The scenario is a liability because it meets all 3 criteria. B) A liability must meet all the below criteria: 1) Is a present obligation * No, because the employee has not left or retired yet. He or she is still
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PERCENTAGE-OF –COMPLETION * Recognizes revenues and gross profit each period based on progress or contract completion * After a few years Jupiter Inc. started to focus their business in commercial building projects. * Commercial projects usually take multiple years to complete so using the Completed-contract method was no longer reliable. * Due to their change in customer the company needs to start using the Percentage-of-Completion.
Contract Price: $10,000,000 | | 2014 | 2015 | 2016 | Current Costs | 2,010,000 | 4,015,000 | 1,675,000 | Cost to Date | 2,010,000 | 6,025,000 | 7,700,000 | Est Cost to Complete | 1,200,000 | 1,240,000 | 0 | Est. Total Costs | 3,210,000 | 7,265,000 | 7,700,000 | % Complete | 2,010,000/3,210,000 = 63% | 6,025,000/7,265,00 = 83% -63% = 20% | 7,700,000/7,700,000= 100% -83% = 17% | Revenue | 63% x 10,000,000= 6,300,000 | 20% x 10,000,000= 2,000,000 | 17% x 10,000,000= 1,700,000 | Expense | 2,010,000 | 6,025,000 | 1,675,000 | Gross Profit | 4,290,000 | -4,025,000 | 25,000 |
QUESTION 3 1. Criteria for revenue recognition-Sale of Service a) Probable economic benefits will flow to the entity b) Rev. measured reliably
-Cannot measure because we have nothing to compare figures to. c) Costs incurred & costs to complete measured reliably