ACCT 557 Week 1 Homework Assignment: Chapter 18

You are the Senior Accountant for the Patty Corporation, which has several divisions. They each keep their own accounting books and have chosen the appropriate method of revenue recognition based on their operations. 

Pat's Electronics Division

Pat's Electronics Division sells computers through agents in various cities. Agents send orders and down payments to our company. The division then ships the goods F.O.B. shipping point directly to the customers. Revenue is recognized at the point of sale.

Additional Financial Data

Orders for fiscal year 2012

 $                      3,000,000

Down payments collected in 2012

 $                          300,000

Billed and shipped in 2012

 $                      2,400,000

Freight billed in 2012

 $                            70,000

Commissions paid to agents (after ship to customer)

10%

Warranty returns as % of Sales

1%

Pickle Construction Division

The Pickle Construction Division was working on one project for the 2012 fiscal year. They use the percentage of completion revenue recognition method.

Contract for new administration building

Total contract amount

 $                    60,000,000

Contract grant date

August 14, 2012

Construction began

September 1, 2012

Estimated cost to complete at beginning of contract

 $                    52,000,000

Estimated time to complete project

2 years

As of Dec 31, 2012

Construction costs incurred to date

 $                    14,140,000

Billings to date

 $                    19,500,000

Expected costs to complete

 $                    36,360,000

Peace Book Distribution Division

Peace Book Distribution Division sells to national bookstores. Our division allows for up to 25% of sales in returns. For the past 4 years, returns have averaged 20%. We record revenue based on revenue recognition when the right of return exists.

Total sales for 2012

 $                      9,000,000

Sales still available for return for six months

 $                      2,000,000

Actual returns on sales not returnable

21%

2011 sales collected in 2012

 $                      2,500,000

2011 sales returned in 2012

19%

Required:

(a) We have studied several methods of revenue recognition. Define and describe each of the following methods of revenue recognition and indicate whether each is in accordance with generally accepted accounting principles.

   - Point of sale

   - Completion-of-production

   - Percentage-of-completion

   - Installment-sales

(b) Calculate the revenue to be recognized in fiscal year 2012 for each division of Patty Corporation in accordance with generally accepted accounting principles. Show all calculations for full credit.

Curiosity Company

Curiosity Company provided the following financial information for its installment-sales for the current year.

Financial Data

Installment sales for current year

 $               800,000

Cost of goods sold on installment basis

 $               600,000

Payments by customers

 $               320,000

Repossessed merchandise - unpaid balances

 $                 52,000

Repossessed merchandise - estimated value

 $                 26,800

Required:

a) Prepare journal entries for the end of the year based on the information above.

b) Prepare the entry to record the gross profit realized in the current year.