2006 2007 Installment sales $360000 $350000 Cost of installment sales 234000 245000 Cash collections on installment sales during: 2006 150000 100000 2007 ? 120000 Required: Prepare summary journal entries for 2006 and 2007 to account for the installment sales and cash collections. The company uses the perpetual inventory system. 2006 To record installment sales __________ ____________ __________ ____________ __________ ____________ 2006 To record cash collections from installment sales __________ ____________ __________ ____________ 2006 To recognize gross profit from installment sales __________ ____________ __________ ____________ 2007 To record installment sales __________ ____________ __________ ____________ __________ ____________ 2007 To record cash collections from installment sales __________ ____________ __________ ____________ 2007 To recognize gross profit from installment sales __________ ____________ __________ ____________ ________________________________________Question 2: (10 points)E 5-3 Installment sales; alternative recognition methods LO2 On July 1 2006 the Foster Company sold inventory to the Slate Corporation for $400000. Terms of the sale called for a down payment of $100000 and three annual installments of $100000 due on each July 1 beginning July 1 2007. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $120000. The company uses the perpetual inventory system. Required: 1.Compute the amount of gross profit to be recognized from the installment sale in 2006 2007 2008 and 2009 using point of delivery revenue recognition. Ignore interest charges. 2.Repeat requirement 1 applying the installment sales method. 3.Repeat requirement 1 applying the cost recovery method. Round final answers to nearest whole number use unrounded numbers for interim calculations. 1. Year Income recognized 2006 $ ____________ 2007 ____________ 2008 ____________ 2009 ____________ ________________________________________ Total $ ____________ ________________________________________________________________________________2. Year Cash Collected Cost Recovery Gross Profit 2006 $ ____________ $ ____________ $ ____________ 2007 ____________ ____________ ____________ 2008 ____________ ____________ ____________ 2009 ____________ ____________ ____________ ________________________________________________________________________________________________________________________ Totals $ ____________ $ ____________ $ ____________ ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________3. Year Cash Collected Cost Recovery Gross Profit 2006 $ ____________ $ ____________ $ ____________ 2007 ____________ ____________ ____________ 2008 ____________ ____________ ____________ 2009 ____________ ____________ ____________ ________________________________________________________________________________________________________________________ Totals $ ____________ $ ____________ $ ____________ ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________Question 3: (15 points)E 5-7 Long-term contract; percentage-of-completion and completed contract methods LO4 Nortel Networks contracted to provide a customer with Internet infrastructure for $2000000. The project began in 2006 and was completed in 2007. Data relating to the contract are summarized below: 2006 2007 Costs incurred during the year $ 300000 $1575000 Estimated costs to complete as of 12/31 1200000 ?0? Billings during the year 380000 1620000 Cash collections during the year 250000 1750000 Required: 1.Compute the amount of gross profit or loss to be recognized in 2006 and 2007 using the percentage-of-completion method. 2.Compute the amount of gross profit or loss to be recognized in 2006 and 2007 using the completed contract method. 3.Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2006 using the percentage-of-completion method. 4.Prepare a partial balance sheet to show how the information related to this contract would be presented at the end of 2006 using the completed contract method. 1. Gross Profit Recognition: 2006 2007 2006: $ ____________ 2007: $ ____________ 2. Gross Profit Recognition: 2006 $ ____________ 2007 $ ____________ 3. Balance Sheet At December 31 2006 Current Assets: Accounts Receivable $ ____________ Costs and Profit in Excess of Billings ____________ 4. Balance Sheet At December 31 2006 Current Assets: Accounts Receivable $ ____________ Current Liabilities: Billings in Excess of Costs $ ____________ ________________________________________Question 4: (20 points)E 5-10 Completed contract method; loss projected on entire project LO4 On February 1 2006 Arrow Construction Company entered into a three-year construction contract to build a bridge for a price of $8000000. During 2006 costs of $2000000 were incurred with estimated costs of $4000000 yet to be incurred. Billings of $2500000 were sent and cash collected was $2250000. In 2007 costs incurred were $2500000 with remaining costs estimated to be $3600000. 2007 billings were $2750000 and $2475000 cash was collected. The project was completed in 2008 after additional costs of $3800000 were incurred. The company?s fiscal year-end is December 31. Arrow uses the completed contract method. Required: 1.Calculate the amount of gross profit or loss to be recognized in each of the three years. 2.Prepare journal entries for 2006 and 2007 to record the transactions described (credit various accounts for construction costs incurred). 3.Prepare a partial balance sheet to show the presentation of the project as of December 31 2006 and 2007. Amounts in parenthesis do not require a minus sign. 1. Year Gross profit (loss) recognized 2006 $ ____________ 2007 ( ____________) 2008 ( ____________) ________________________________________ Total Project Loss $( ____________) ________________________________________________________________________________2. 2006 2007 __________ ____________ ____________ Various Accounts ____________ ____________ To record construction costs. __________ ____________ ____________ __________ ____________ ____________ To record progress billings. __________ ____________ ____________ __________ ____________ ____________ To record cash collections. __________ ____________ __________ ____________ To record an expected loss. 3. Balance Sheet 2006 2007 Current Assets: Accounts Receivable $ ____________ $ ____________ Current Liabilities: Billings in Excess of Costs $ ____________ Billings in Excess of Costs Less Loss $ ____________ ________________________________________Question 5: (50 points)E 5-11 Income (loss) recognition; percentage-of-completion and completed contract methods compared LO4 Brady Construction Company contracted to build an apartment complex for a price of $5000000. Construction began in 2006 and was completed in 2008. The following are a series of independent situations numbered 1 through 6 involving differing costs for the project. All costs are stated in thousands of dollars. Estimated Costs to Complete Costs Incurred During Year (As of the End of the Year) Situation 2006 2007 2008 2006 2007 2008 1 1500 2100 900 3000 900 ? 2 1500 900 2400 3000 2400 ? 3 1500 2100 1600 3000 1500 ? 4 500 3000 1000 3500 875 ? 5 500 3000 1300 3500 1500 ? 6 500 3000 1800 4600 1700 ? Required: Complete the following table.Round all answers to the nearest whole dollar. Amounts in parenthesis do not require a minus sign. Gross Profit (Loss) Recognized Percentage-of-Completion Completed Contract Situation 2006 2007 2008 2006 2007 2008 1 $ ____________ $ ____________ $ ____________ $ ____________ $ ____________ $ ____________ 2 ____________ ( ____________) ____________ ____________ ____________ ____________ 3 ____________ ( ____________) ( ____________) ____________ ( ____________) ( ____________) 4 ____________ ____________ ____________ ____________ ____________ ____________ 5 ____________ ( ____________) ____________ ____________ ____________ ____________ 6 ( ____________) ( ____________) ( ____________) ( ____________) ( ____________) ( ____________) ________________________________________