Review questions Exam 2 with answers Essay
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 …show more content…
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?
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