ACCT homework

ACC225 Case 3: Revenue Recognition Due: 7PM EST on April 13th. NOTE: Each part below (Part 1 and Part 2) are separate and distinct parts. Part 1: On July 1, 2020, Pack Corporation contracted to build an administrative building for Hart Hospital for a contract price of $2,200,000. On July 1, 2020 Pack estimated it would take 2.5 years to complete the building. On December 15, 2022 the building was completed and a very special ribbon cutting ceremony took place. The following are data related to the contract over the building period.

12/31/20 12/31/21 12/31/22

Contract costs incurred TO DATE $300,000 $1,200,000 $2,000,000

Estimated cost to complete the contract 1,200,000 800,000 0

Billings to Hart during the year 300,000 900,000 1,000,000

Cash collected from Hart during the year 200,000 800,000 1,200,000

Required:

1. Prepare a schedule to compute the gross profit or loss recognized on the contract for the years ended December 31, 2020, 2021 and 2022 assuming revenue was recognized over time.

2. Prepare the necessary journal entries related to the contract in 2020, 2021 and 2022 given that revenue was recognized over time.

3. Show how the appropriate balance sheet accounts are reported on the 12/31/20 balance sheet assuming revenue was recognized over time.

4. Prepare a schedule to compute the gross profit or loss recognized on the contract for the years ended December 31, 2020, 2021 and 2022 assuming revenue was recognized at a point in time.

5. Prepare the necessary journal entries related to the contract in 2020, 2021 and 2022 given that revenue was recognized at a point in time.

6. Show how the appropriate balance sheet accounts are reported on the 12/31/20 balance sheet assuming revenue was recognized at a point in time.

Part 2: XMF radio enters into a 3-year value-price contract with John DeRue to provide him with a satellite radio for his home as well as provide satellite radio services to that radio on May 1, 2020. The contract requires John DeRue to pay $350, on May 1, 2020, to XMF for the radio as well as $69 per month for the services, which is due on the last day of the month the services are provided. Customers who do not enter into the special 3-year contract pay $600 for the radio and $80 per month for the services. Required:

1. Identify the performance obligations for XMF radio in the contract. 2. Calculate the transaction price for the different performance obligations in the contract assuming

that XMF radio allocates consideration based on stand-alone prices. 3. Record the journal entry required on XMF radio’s books on May 1, 2020. 4. Record the journal entry required on XMF radio’s books on May 31, 2020.