E182.

(Revenue RecognitionPoint of Sale)

ShawCompanysellsgoodsthatcost$300,000toRicardCompanyfor$410,000onJanuary2,
2014.Thesalespriceincludesaninstallationfee,whichisvaluedat$40,000.Thefairvalueof
thegoodsis$370,000.Theinstallationisexpectedtotake6months.

Instructions
(a)Preparethejournalentry(ifany)torecordthesaleonJanuary2,2014.
(b)Shawpreparesanincomestatementforthefirstquarterof2014,endingonMarch31,
2014.HowmuchrevenueshouldShawrecognizerelatedtoitssaletoRicard?
E184.(Revenue RecognitionPoint of Sale)
WoodModeCompanyisinvolvedinthedesign,manufacture,andinstallationofvarious
typesofwoodproductsforlargeconstructionprojects.WoodModerecentlycompleteda
largecontractforStadiumInc.,whichconsistedofbuilding35differenttypesofconcession
countersforanewsoccerarenaunderconstruction.Thetermsofthecontractarethatupon
completionofthecounters,Stadiumwouldpay$2,000,000.Unfortunately,duetothe
depressedeconomy,thecompletionofthenewsoccerarenaisnowdelayed.Stadiumhas
thereforeaskedWoodModetoholdthecountersatitsmanufacturingplantuntilthearenais
completed.Stadiumacknowledgesinwritingthatitorderedthecountersandthattheynow
haveownership.ThetimethatWoodModeCompanymustholdthecountersistotally
dependentonwhenthearenaiscompleted.BecauseWoodModehasnotreceivedadditional
progresspaymentsforthearenaduetothedelay,Stadiumhasprovidedadepositof$300,000.

Instructions

(a)Explainthistypeofrevenuerecognitiontransaction.
(b)Whatfactorsshouldbeconsideredindeterminingwhentorecognizerevenueinthis
transaction?
(c)Preparethejournalentry(ies)thatWoodModeshouldmake,assumingitsignedavalid
salescontracttosellthecountersandreceivedatthetimeofsalethe$300,000payment.
E185.(Right of Return)
OrganicGrowthCompanyispresentlytestinganumberofnewagriculturalseedsthatithas
recentlyharvested.Tostimulateinterest,ithasdecidedtogranttofiveofitslargestcustomers
theunconditionalrightofreturntotheseproductsifnotfullysatisfied.Therightofreturn
extendsfor4months.OrganicGrowthsellstheseseedsonaccountfor$1,500,000onJanuary
2,2014.CompaniesarerequiredtopaythefullamountduebyMarch15,2014.

Instructions
(a)PreparethejournalentryforOrganicGrowthatJanuary2,2014,assumingOrganic
Growthestimatesreturnsof20%basedonpriorexperience.(Ignorecostofgoodssold.)
(b)AssumethatonecustomerreturnstheseedsonMarch1,2014,duetounsatisfactory
performance.Preparethejournalentrytorecordthistransaction,assumingthiscustomer
purchased$100,000ofseedsfromOrganicGrowth.
(c)Brieflydescribetheaccountingforthesesales,ifOrganicGrowthisunabletoreliably
estimatereturns.

E188.(Revenue Recognition on Marina Sales with Discounts)

TaylorMarinahas300availableslipsthatrentfor$800perseason.Paymentsmustbemade
infullatthestartoftheboatingseason,April1,2015.Slipsforthenextseasonmaybe
reservedifpaidforbyDecember31,2014.Underanewpolicy,ifpaymentismadeby
December31,2014,a5%discountisallowed.TheboatingseasonendsOctober31,andthe
marinahasaDecember31yearend.Toprovidecashflowformajordockrepairs,themarina
operatorisalsoofferinga20%discounttosliprenterswhopayforthe2016season.
ForthefiscalyearendedDecember31,2014,all300slipswererentedatfullprice.Two
hundredslipswerereservedandpaidforthe2015boatingseason,and60slipsforthe2016
boatingseasonwerereservedandpaidfor.

Instructions
(a)Preparetheappropriatejournalentriesforfiscal2014.
(b)Assumethemarinaoperatorisunsophisticatedinbusiness.Explainthemanagerial
significanceoftheaccountingabovetothisperson.
E189.(Consignment Computations)
OnMay3,2014,EislerCompanyconsigned80freezers,costing$500each,toRemmers
Company.Thecostofshippingthefreezersamountedto$840andwaspaidbyEisler
Company.OnDecember30,2014,areportwasreceivedfromtheconsignee,indicatingthat
40freezershadbeensoldfor$750each.Remittancewasmadebytheconsigneeforthe
amountdue,afterdeductingacommissionof6%,advertisingof$200,andtotalinstallation
costsof$320onthefreezerssold.

Instructions
(a)Computetheinventoryvalueoftheunitsunsoldinthehandsoftheconsignee.
(b)Computetheprofitfortheconsignorfortheunitssold.
(c)Computetheamountofcashthatwillberemittedbytheconsignee.
E1810.(Multiple-Deliverable Arrangement)
ApplianceCenterisanexperiencedhomeappliancedealer.ApplianceCenteralsooffersa
numberofservicestogetherwiththehomeappliancesthatitsells.AssumethatAppliance
Centersellsovensonastandalonebasis.ApplianceCenteralsosellsinstallationservicesand
maintenanceservicesforovens.However,ApplianceCenterdoesnotofferinstallationor
maintenanceservicestocustomerswhobuyovensfromothervendors.Pricingforovensis
asfollows.
Ovenonly
$800
Ovenwithinstallationservice
850
Ovenwithmaintenanceservices
975
Ovenwithinstallationandmaintenanceservices
1,000
Ineachinstanceinwhichmaintenanceservicesareprovided,themaintenanceserviceis
separatelypricedwithinthearrangementat$175.Additionally,theincrementalamount
chargedbyApplianceCenterforinstallationapproximatestheamountchargedby
independentthirdparties.Ovensaresoldsubjecttoageneralrightofreturn.Ifacustomer
purchasesanovenwithinstallationand/ormaintenanceservices,intheeventAppliance
Centerdoesnotcompletetheservicesatisfactorily,thecustomerisonlyentitledtoarefund

oftheportionofthefeethatexceeds$800.

Instructions
(a)Assumethatacustomerpurchasesanovenwithbothinstallationandmaintenance
servicesfor$1,000.Basedonitsexperience,ApplianceCenterbelievesthatitis
probablethattheinstallationoftheequipmentwillbeperformedsatisfactorilytothe
customer.Assumethatthemaintenanceservicesarepricedseparately.Explainwhether
theconditionsforamultipledeliverablearrangementexistinthissituation.
(b)Indicatetheamountofrevenuesthatshouldbeallocatedtotheoven,theinstallation,and
tothemaintenancecontract.
E1812.(Recognition of Profit on Long-Term Contracts)
During2014,NilsenCompanystartedaconstructionjobwithacontractpriceof$1,600,000.
Thejobwascompletedin2016.Thefollowinginformationisavailable.

2014
2015
2016
Costsincurredtodate
$400,000
$825,000
$1,070,000
Estimatedcoststocomplete
600,000
275,000
0
Billingstodate
300,000
900,000
1,600,000
Collectionstodate
270,000
810,000
1,425,000

Instructions
(a)Computetheamountofgrossprofittoberecognizedeachyear,assumingthe
percentageofcompletionmethodisused.
(b)Prepareallnecessaryjournalentriesfor2015.
(c)Computetheamountofgrossprofittoberecognizedeachyear,assumingthecompleted
contractmethodisused.
E1819.(Installment-Sales Method Calculations, Entries)
CoffinCorporationappropriatelyusestheinstallmentsalesmethodofaccountingto
recognizeincomeinitsfinancialstatements.Thefollowinginformationisavailablefor2014
and2015.

2014
2015
Installmentsales
$900,000
$1,000,000
Costofinstallmentsales
594,000
680,000
Cashcollectionson2014sales
370,000
350,000
Cashcollectionson2015sales
0
450,000

Instructions

(a)Computetheamountofrealizedgrossprofitrecognizedineachyear.
(b)Preparealljournalentriesrequiredin2015.
E1823.(Installment-Sales Method and Cost-Recovery Method)
SwiftCorp.,acapitalgoodsmanufacturingbusinessthatstartedonJanuary4,2014,and
operatesonacalendaryearbasis,usestheinstallmentsalesmethodofprofitrecognitionin
accountingforallitssales.Thefollowingdataweretakenfromthe2014and2015records.


2014
2015
Installmentsales
$480,000
$620,000
Grossprofitasapercentofcosts
25%
28%
Cashcollectionsonsalesof2014
$130,000
$240,000
Cashcollectionsonsalesof2015
0
$160,000
Theamountsgivenforcashcollectionsexcludeamountscollectedforinterestcharges.

Instructions
(a)Computetheamountofrealizedgrossprofittoberecognizedonthe2015income
statement,preparedusingtheinstallmentsalesmethod.(Roundpercentagestothree
decimalplaces.)
(b)StatewherethebalanceofDeferredGrossProfitwouldbereportedonthefinancial
statementsfor2015.
(c)Computetheamountofrealizedgrossprofittoberecognizedontheincomestatement,
preparedusingthecostrecoverymethod.
(CIAadapted)