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ACCT400_Week 2 Exercises Completed

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ACCT400_Week 2 Exercises Completed

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Solida
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Supplies - Inventory

Opening 6,000
Purchase 5,000
Consume (XXX) (6,500)
Ending 4,500

OPENING BALANCE xxx? 35,000 Unearned Revenue = Liability


Cash receipt 100,000
Earned Revenue (110,000) When customers prepaid; you receiv
Closing Balance 25,000
Opening @ start of the period
Increase +
Movement
Decrease -
Closing @ end of the period

nearned Revenue = Liability

hen customers prepaid; you received cash but have not performed service; YOU OWE
Ch6 : Revenue and AR
A. 5 steps to reveenue recognition
B. LT project methods (completed contract & percentage of completion)

Revenue is an important measure of customers’ response to a company’s offerings of products and/or services
Revenue recognition can be subject to manipulation by management when attempting to meet performance
SEC is often concerned about premature revenue recognition.

Percentage of Completion
Haskell Construction signedMethod
a $8M contract to build
a new library.
Cost information:
Cost incurred % of completion Revenue Expense Gross Profit
Year 1 1,800,000 30% 2,400,000 (1,800,000) 600,000
Year 2 4,200,000 70% 5,600,000 (4,200,000) 1,400,000
Total Cost 6,000,000 100%

How to record revenue, expense and gross profit for each year?

Completed Contract Method


Haskell Construction signed a $8M contract to build
a new library.
Cost information:
Cost incurred Revenue Expense Gross Profit
Year 1 1,800,000 - - -
Year 2 4,200,000 8,000,000 (6,000,000) 2,000,000
Total Cost 6,000,000

How to record revenue, expense and gross profit for each year?

ACCRUAL CONCEPT - MATCHING CONCEPT


f products and/or services
ng to meet performance
M6.16 - Accounting for LT Contract 1.6-36

Halsey Building Company signed a contract to build an office building for $20,000,000.
The scheduled construction costs follow.
Assumption A
Year Cost % of com. Revenue Expense Gross Profit
1 4,500,000 30% 6,000,000 (4,500,000) 1,500,000
2 7,500,000 50% 10,000,000 (7,500,000) 2,500,000
3 3,000,000 20% 4,000,000 (3,000,000) 1,000,000
Total 15,000,000 20,000,000 (15,000,000) 5,000,000

The building should be completed in Year 3.


Required: For each year, compute the revenue, expense and gross profit reported under each of the following ass
a. Halsey's performance obligation to build the office building is fulfilled as construction proceeds, and the cost
incurred is an accurate reflection of the value transferred to the customer.
b. Halsey's contract does not transfer ownership rights to the customer until the building is completed.
Assumption B
Revenue Expense Gross Profit
0 0 0
0 0 0
20,000,000 (15,000,000) 5,000,000

under each of the following assumptions:


tion proceeds, and the cost

lding is completed.
AR and allowance for uncollectible receiveables

AR = Account Receivbles
Because we sell on CREDIT
There is an INHERENT RISK related to CREDIT
So, ACCOUNTING requires that we provide an "ALLOWANCE" for AR
ALLOWANCE = ESTIMATED LOSS of AR

BS: NET REALISABLE VALUE of AR (Net AR)


Gross AR xxxx
Less: Allowance for AR (xxxx)
Net AR xxxx

Ending Gross AR 2,000,000


Write off (10,000)
Remaining Gross AR 1,990,000
6.5% allowance (129,350)
Net AR on BS 1,860,650

Cash Assets Non-Cash Assets (Contra Account) = Liabilities


AR (10,000) AFDD 10,000
AFDD (29,350)
AFDD = Allowance for Doubtful Debts
Opening allowanc 110,000
Write off (10,000)
Bad Debts Exp 29,350
Ending Allowance 129,350

Con. Capital Earned Capital Revenue (Expense)

RE (29,350) Bad Debts Exp (29,350)


© FSET
Cash Assets Non-Cash Assets (Contra Assets) = Liabilities
W/Off AR (5,745) AFDD 5,745 =
AFDD (6,270) =
(1) Bad Debt Expense

Opening allowance
(Write off)
Bad debts Exp
Ending allowance

(2) Net AR on BS
AR %
375,000 0.50%
135,000 1%
30,000 2%
16,500 5%
9,000 10%
6,000 25%
571,500

on BS, we will show the NET AR balance


Gross AR
Ending Allowance
Net AR

Con. Capital Earned Capital Revenue (Expense)

RE (6,270) Bad Debt Exp (6,270)


Expense

6,525
(5,745)
6,270
7,050

Ending allowance
1,875
1,350
600
825
900
1,500
7,050

l show the NET AR balance


571,500
(7,050)
564,450

(6,270)

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