Chapter 5

1. Optimus Pools, Inc. constructs outdoor swimming pools for wealthy individuals. Recently
it obtained an order to build a three-lane swimming pool of 25 yards in length in the
customer’s backyard. Under the contract, Optimus is also obligated to install a water
heater and a filtration system, which are necessary to make a swimming pool fully
functional. Total price for the construction was $55,000. Each of these smaller
components would typically cost $40,000, $10,000, and 20,000 if installed separately.
How many performance obligations are included in this contract?
Answer: 1

2. Accorsi & Sons specializes in selling and installing upscale home theater systems. On
March 1, 2016, Accorsi sold a premium home theater package that includes a projector,
set of surround speakers, and high quality leather seats, along with complete installation

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service, for $32,500. If sold separately, each of these goods and services would have cost

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$15,000 (projector), $12,500 (speakers), $17,500 (seats), and $3,000 (installation),

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respectively. How much of the transaction price would be allocated to the projector, the

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speakers, the leather seats, and the installation service, assuming that each of these four

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parts of the contract is a separate performance obligation?
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Answer: Projector = $10,156.25; Speakers= $8,463.00; Seats=$11,849.50; Installation
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service=$2,031.25

3. Baldi Piano manufactures customized pianos for concert halls. On July 1, 2016, Baldi
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signed a contract to deliver a concert piano for $150,000. Under the contract, Baldi is
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also obligated to provide a one-year maintenance service. If sold separately, the piano
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and the maintenance service would have cost $140,000 and $20,000, respectively.
Assume that these are viewed as two performance obligations, how much revenue
would Baldi recognize in July (assuming the piano is delivered on July 1, 2016)?
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Answer: $132,812.50
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4. Part 5 of P5-10 and P5-11

Answer: on CourseWeb under Textbook Solutions
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Chapter 7
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1. A summary of London Fashion's December 31, 2013, accounts receivable aging schedule
is presented below along with the estimated percent uncollectible for each age group:
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 The allowance for uncollectible accounts had a balance of $1,600 at January 1, 2013.
During the year bad debts of $1,150 were written off.

Required: Prepare all 2013 journal entries with respect to bad debts and the allowance
for uncollectible accounts.

Allowance for uncollectible accounts 1,150

A/R 1,150

Bad debt expense 915

Allowance for uncollectible accounts 915

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2. During Burns Company's first year of operations, credit sales totaled $140,000 and

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collections on credit sales totaled $105,000. Burns estimates that bad debt losses will be

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1.5% of credit sales. By year-end, Burns had written off $300 of specific accounts as
uncollectible.

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Required:
1. Prepare all appropriate journal entries relative to accounts receivable, uncollectible
accounts and bad debt expense.
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2. Show the year-end balance sheet presentation for accounts receivable.

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Part 1:
A/R 140,000
Sales 140,000
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Cash 105,000
A/R 105,000
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Allowance for uncollectible accounts 300

A/R 300
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Bad Debt Expense 2,100

Allowance for uncollectible accounts 2,100
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Part 2:
A/R $34,700
Less: Allowance of Uncollectible Accounts 1,800
A/R, net $32,900

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 3. E7-13

Answer: $17,639.30

4. On June 30, 2013, Blondie Fixtures was considering alternatives to bolster its cash
position. Option One called for transferring $400,000 in accounts receivable to Dogwood
Finance Company without recourse for a 5% fee. Option Two calls for Blondie to transfer
the $400,000 in receivables to Dogwood with recourse. Dogwood's charges a 4% fee for
receivables factored with recourse. Option Two meets the conditions to be considered a
sale, but Blondie estimates a $3,000 recourse liability. Under either option, Dogwood
will immediately remit 90% of the factored receivables to Blondie, and retain 10%. When

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Dogwood collects the remaining receivables, it remits the amount, less the fee, to

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Blondie. Blondie estimates that the fair value of the final 10% of the receivables is

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$25,000 (ignoring the factoring fee).

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Required:
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1. Prepare any necessary journal entry or entries if receivables are factored under
Option One.
Answer:
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Cash 360,000
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Loss on sale of receivables 35,000

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Receivable from factor 5,000

A/R 400,000

2. Prepare any necessary journal entry or entries if receivables are factored under
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Option Two.
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Answer:

Cash 360,000
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Loss on sale of receivables 34,000

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Receivable from factor 9,000

Recourse liability 3,000
A/R 400,000
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Chapter 8

1. Shown below is the activity for one of the products of Random Creations:

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 January 1 balance, 80 units @ $50 $4,000
Purchases:

Sales:

a) Compute the January 31 ending inventory and cost of goods sold for January,
assuming Random Creations uses FIFO periodic.
Answer: EI = $2,845 COGS=$5,275
b) Compute the January 31 ending inventory and cost of goods sold for January,

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assuming Random Creations uses LIFO and perpetual inventory system.

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Answer: EI = $2,755 COGS=$5,365

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c) Compute the January 31 ending inventory and cost of goods sold for January,

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assuming Random Creations uses LIFO and a periodic inventory system.
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Answer: EI = $2,750 COGS=$5,370
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d) Compute the January 31 ending inventory and cost of goods sold for January,
assuming Random Creations uses average cost and a periodic inventory system.
Answer: EI = $2,791.25 COGS=$5,328.75
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e) Compute the January 31 ending inventory and cost of goods sold for January,
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assuming Random Creations uses average cost and a perpetual inventory system.
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Answer: EI = $2,809 COGS=$5,311

2. On January 1, 2013, the National Furniture Company adopted the dollar-value LIFO
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method of computing inventory. An internal cost index is used to convert ending

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inventory to base year. Inventory on January 1 was $200,000. Year-end inventories at

year-end costs and cost indexes for its one inventory pool were as follows:
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Required: Compute inventory amounts at the end of each year.

Answer: 2013 = $243,200; 2014 = $271,200; 2015 = $265,600

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 Chapter 9:

1)
Weldon Animal Feeds has developed the following data for lower of cost and net
realizable valuation for its products (in thousands):

Selling

Price Cost

Large animals:

Cattle $320 $160

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Horse 400 400

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Small animals:

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Cat $360 $320
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Dog 120 90

Exotic pets:
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Ferret $140 $112

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Iguana 70 48
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The costs to sell are 20% of selling price.

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Required:
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Determine the reported inventory value assuming the lower of cost and net realizable
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value rule is applied to:

a) individual types of feeds.

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Answer: $1,018

b) classes of feeds.

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 Answer: $1,104

c) total inventory.

Answer: $1,128

2) On March 17, 2013, a flood destroyed the entire inventory of Beatty Co. The following
information is available from its accounting records:

Required: Compute the estimated cost of inventory lost in the flood.

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Answer: $268,000

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3) Manila Bread Company uses the conventional retail method to estimate its ending

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inventories. The following data has been summarized for the year 2013:
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Required: Estimate the ending inventory as of December 31, 2013.

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Answer: $85,029.75
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