# Review questions Exam 2 with answers Essay

2556 Words Nov 5th, 2014 11 Pages
PART I MULTIPLE CHOICE QUESTIONS

Use the following information for questions 1-4:

Seasons Construction is constructing an office building under contract for Cannon Company. The contract calls for progress billings and payments of \$1,240,000 each quarter. The total contract price is \$14,880,000 and Seasons estimates total costs of \$14,200,000. Seasons estimates that the building will take 3 years to complete, and commences construction on January 2, 2014.

1. At December 31, 2014, Seasons estimates that it is 30% complete with the construction, based on costs incurred. What is the total amount of Revenue from Long-Term Contracts recognized for 2014 and what is the balance in the Accounts Receivable account assuming Cannon Cafe has not
What amount would be shown in Vaughn’s December 31, 2015 financial statement for realized gross profit on 2014 installment sales, and deferred gross profit on 2014 installment sales, respectively?
A. \$262,500 and \$562,500
B. \$487,500 and \$262,500
C. \$562,500 and \$187,500
D. \$262,500 and \$187,500
Realized gross profit in 2015: 1050000*25%=262500
Balance in deferred gross profit account: 750000-300000-262500=187500
Coaster manufactures and sells logging equipment. Due to the nature of its business, Coaster is unable to reliably predict bad debts. During 2014, Coaster sold equipment costing \$4,800,000 for \$7,200,000. The terms of the sale were 20% down, with equal payments due quarterly over the next 3 years. All payments for 2014 were made on schedule. Round answers to two places.

11. Assuming that Coaster uses the cost-recovery method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for the year ended December 31, 2015?
A. \$0
B. \$ 480,000
C. \$ 633,600
D. \$1,920,000 Cash collected in 2014: 7200000*20% + 7200000*80%/3=3360000
Cash collected in 2015: 7200000*80%/3=1920000
Cash collected in excess of total cost: 3360000+1920000-4800000=480000
On December 15, 2013, Rigsby Sales Co. sold a tract of land that cost \$3,600,000 for \$4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of \$500,000 with the

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