Brief Exercise 6-19

Mauer Company follows IFRS and sells consumer-relationship software to Hedges Inc. to be used
for three years. In addition to providing the software, Mauer promises to provide consulting
services over the life of the contract to maintain operability within Hedges’ computer system. The
total transaction price is $200,000. Based on stand-alone values, Mauer estimates the consulting
services have a value of $75,000 and the software has a value of $125,000. Upon installation of
the software on July 1, 2020, Hedges pays $100,000; the contract balance is due on December
31, 2020.

Your answer is correct.

   
Identify the performance obligations and the revenue in 2020, assuming the performance
obligations are interdependent.

select a Performance obligation

Performance
Obligation
softw are sale and the consulting services

$enter the Revenue in 2020 in dollars

Revenue in 2020 33333

Brief Exercise 6-19

The performance obligations relate to the software sale and the consulting services. They are
distinct.

If interdependent, the contract is accounted for as a single revenue amount of $33,333 [$200,000 ×

6/36].

Question

Identify the revenue in 2020, assuming the performance obligations are not interdependent.

Revenue in $enter the Revenue in 2020 in dollars

2020 137500

Brief Exercise 6-19

If not interdependent, sales revenue of $125,000 is recognized at delivery of the software and service
revenue is recognized for 6 months. Revenue of $137,500 ($125,000 + [$75,000 × 6/36]) is
recognized in 2020, based on estimated standalone values.
Brief Exercise 6-29

Your answer is correct.

   
On May 1, 2020, Mount Company enters into a contract to transfer a product to Eric Company
on September 30, 2020. It is agreed that Eric will pay the full price of $25,000 in advance on
June 15, 2020. Eric pays on June 15, 2020, and Mount delivers the product on September 30,
2020 which cost $18,000.

Prepare the journal entries required for Mount on May 1, June 15, and September 30,
2020. (Credit account titles are automatically indented when the amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the account titles and enter 0
for the amounts. Record journal entries in the order presented in the problem.)

Date Account Titles and Explanation Debit Credit

choose a transaction
date enter an account title enter a debit enter a credit
amount amount
No Entry
0
May 1, 2020

enter a debit enter a credit

enter an account title
amount amount
No Entry
0

choose a transaction
date enter an account title enter a debit enter a credit
amount amount
Cash
25000
June 15, 2020

enter a debit enter a credit

enter an account title
amount amount
Unearned Rev
25000

choose a transaction
date enter an account title to record sales enter a debit enter a credit
revenue amount amount
Unearned Rev 25000
September 30, 2020

enter an account title to record sales enter a debit enter a credit

revenue amount amount
Sales Revenu 25000

(To record sales revenue)

choose a transaction
date enter an account title to record cost enter a debit enter a credit
of goods sold amount amount
Cost of Goods 18000
September 30, 2020

enter an account title to record cost enter a debit enter a credit

of goods sold amount amount
Inventory 18000
(To record cost of goods sold)

Brief Exercise 6-33 a, b1-c1

During 2020, Darwin Corporation started a construction job with a contract price of $4.2 million.
Darwin ran into severe technical difficulties during construction but managed to complete the job
in 2022. The contract is non-cancellable. Under the terms of the contract, Darwin sends billings as
revenues are earned. Billings are non-refundable. The following information is available:

2020 2021 2022

Costs incurred to date $ 600,000 $2,100,000 $4,100,000
Estimated costs to 3,150,00
2,100,000 -0-
complete 0

Your answer is correct.

   
Calculate the amount of gross profit that should be recognized each year under the percentage-
of-completion method. (Enter negative amounts using either a negative sign preceding
the number e.g. -45 or parentheses e.g. (45).)

2020 2021 2022

$enter a dollar $enter a dollar $enter a dollar
Gross profit / amount amount amount
(loss) 72000 (72000) 100000

Brief Exercise 6-33 a, b1-c1

Gross profit recognized in

Percentage-of-Completion
2020 2021 2022
Contract price $4,200,000 $4,200,000 $4,200,000
Less estimated cost:
    Costs to date 600,000 2,100,000 4,100,000
    Estimated costs to complete
3,150,000 2,100,000 0

    Estimated total costs 3,750,000 4,200,000 4,100,000

    Estimated total gross profit
$450,000 $0 $100,000

Percent complete 16 % 50 % 100 %

[$2,100,000 [$4,100,000
[$600,000]
] ]
[$3,750,00 [$4,200,000 [$4,100,000
0 ] ]

Percentage-of-Completion

Recognized
in Prior Recognized
To Date Years Current Year
2020
Revenues ($4,200,000 × 16%) $672,000 $672,000
Costs 600,000 600,000
Gross profit $72,000 $72,000
2021
Revenues ($4,200,000 × 50%) $2,100,000 $672,000 $1,428,000
Costs 2,100,000 600,000 1,500,000
Gross profit $0 $72,000 $(72,000)
2022
Revenues ($4,200,000 ×
$4,200,000 $2,100,000 $2,100,000
100%)
Costs 4,100,000 2,100,000 2,000,000
Gross profit $100,000 $0 $100,000

Prepare the year-end journal entries for 2021 to record revenues and expenses from the contract,
assuming the percentage-of-completion method is used. (Credit account titles are automatically
indented when the amount is entered. Do not indent manually. If no entry is required, select
"No Entry" for the account titles and enter 0 for the amounts.)

Date Account Titles and Explanation Debit Credit

enter a debit enter a credit
enter an account title to record revenues
2021 amount amount
Contract Asset/Liability
1428000

enter a debit enter a credit

enter an account title to record revenues
amount amount
Revenue from Long-Term Contracts
1428000

(To record revenues)

enter an account title to record construction enter a debit enter a credit
2021 expenses amount amount
Construction Expenses 1500000

enter an account title to record construction enter a debit enter a credit

expenses amount amount
Contract Asse 1500000

(To record construction expenses)

   

Calculate the amount of gross profit or loss that should be recognized each year under the completed-
contract method. (Do not leave any answer field blank. Enter 0 for amounts. Enter negative
amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g.
(45).)

2020 2021 2022

$enter a dollar
Gross profit / $enter a dollar amount $enter a dollar amount
amount
(loss) 0 100000
0

Exercise 6-05 b

Your answer is correct.

   
Celic Inc. manufactures and sells computers that include an assurance-type warranty for 90 days.
Celic offers an optional extended coverage plan under which it will repair or replace any
defective part for three years from the expiration of the assurance-type warranty. Because the
optional extended coverage plan is sold separately, Celic determines that the three years of the
extended coverage represent a separate performance obligation. The total transaction price for
the sale of a computer and the extended warranty is $3,600 on October 1, 2020. Celic determines
that the stand-alone selling price of each is $3,200 and $400, respectively. Further, Celic
estimates, based on historical experience, that it will incur $200 in costs to repair defects that
arise within the 90-day coverage period for the assurance-type warranty. The cost of the
equipment is $1,440.

(b)

Prepare the journal entries to record the cash sale of the computer, cost of goods sold, and
liabilities related to the warranties. (Credit account titles are automatically indented when the
amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts.)

Date Account Titles and Explanation Debit Credit

enter a
enter an account title to record the cash sale of credit
October 1, the computer enter a debit amount amount
2020 3600
Cash

enter an account title to record the cash sale of enter a debit amount enter a
the computer 200 credit
amount
Warranty Expe

enter a
enter an account title to record the cash sale of credit
enter a debit amount amount
the computer
Warranty Liab
200

enter a
enter an account title to record the cash sale of credit
enter a debit amount amount
the computer
Unearned Rev
400

enter a
enter an account title to record the cash sale of credit
enter a debit amount amount
the computer
Sales Revenu
3200

(To record the cash sale of the computer)

enter a
enter an account title to record cost of goods credit
October 1, sold enter a debit amount amount
2020 1440
Cost of Goods

enter a
enter an account title to record cost of goods credit
enter a debit amount amount
sold
Inventory
1440

(To record cost of goods sold)

Exercise 6-13
During December 2020, Soft Skin Ltd. sells $20,000 of gift cards to customers.
From reliable past experience, management estimates that 8% of the gift cards
sold will not be redeemed by customers. In January 2021, $2,000 of these
cards is redeemed for merchandise with a cost of $1,500. In February 2021, a
further $10,000 of these cards is redeemed for merchandise with a cost of
$8,000. The company uses a perpetual inventory system and has a February 28
year end.

Your answer is correct.

   
Prepare the journal entry needed for December 2020. (Credit account titles are automatically
indented when the amount is entered.  Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the amounts.)

Date Account Titles and Debit Credit

Explanation

December, enter an account title enter a debit amount enter a credit amount
2020 Cash 20000

enter an account title enter a debit amount enter a credit amount

Contract Asse 20000

Prepare the journal entry needed for the January 2021 redemptions. (Credit account titles are
automatically indented when the amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers
to 0 decimal places, e.g. 5,275.)

Date Account Titles and Explanation Debit Credit

enter a debit enter a credit
January, enter an account title to record sales amount amount
2021 Contract Asse
2174

enter a debit enter a credit

enter an account title to record sales
amount amount
Sales Revenu
2174

(To record sales)

enter an account title to record cost of goods enter a debit enter a credit
January, sold amount amount
2021 Cost of Goods 1500

enter an account title to record cost of goods enter a debit enter a credit
sold amount amount
Inventory 1500

(To record cost of goods sold)

Solution
CLOSE

Exercise 6-13

The expected breakage $1,600 ($20,000 × 8%)

The redemption amount: $20,000 - $1,600 breakage or $18,400

Sales Revenue = [$2,000 × ($20,000/$18,400)] = $2,174

Prepare the journal entry needed for the February 2021 redemptions. (Credit account titles are
automatically indented when the amount is entered.  Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts. Round
answers to 0 decimal places, e.g. 5,275.)

Date Account Titles and Explanation Debit Credit

enter a debit enter a credit
February, enter an account title to record sales amount amount
2021 Contract Asse
10870

enter a debit enter a credit

enter an account title to record sales
amount amount
Sales Revenu
10870

(To record sales)

enter an account title to record cost of goods enter a debit enter a credit
February, sold amount amount
2021 Cost of Goods 8000

enter an account title to record cost of goods enter a debit enter a credit
sold amount amount
Inventory 8000

Solution
CLOSE

Exercise 6-13

Sales Revenue = $10,000 × ($20,000/$18,400) = $10,870

Exercise 6-20
On May 1, 2020, Richardson Inc. entered into a contract to deliver one of its specialty mowers to
Kickapoo Landscaping Co. The contract requires Kickapoo to pay the contract price of $900 in
advance on May 15, 2020. Kickapoo pays Richardson on May 15, 2020, and Richardson delivers
the mower (with a cost of $565) on May 31, 2020. Richardson follows IFRS.

Your answer is correct.

   
Prepare the journal entry on May 1, 2020, for Richardson. (Credit account titles are
automatically indented when the amount is entered.  Do not indent manually. If no
entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date Account Titles and Explanation Debit Credit

May 1, enter an account title enter a debit amount enter a credit amount
2020 No Entry 0

enter an account title enter a debit amount enter a credit amount

No Entry 0

Prepare the journal entry on May 15, 2020, for Richardson. (Credit account titles are
automatically indented when the amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date Account Titles and Explanation Debit Credit

May 15, enter an account title enter a debit amount enter a credit amount
2020 Cash 900

enter an account title enter a debit amount enter a credit amount

Unearned R 900

Prepare the journal entries on May 31, 2020, for Richardson. (Credit account titles are
automatically indented when the amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date Account Titles and Explanation Debit Credit

enter a debit enter a credit
May 31, enter an account title to record sales amount amount
2020 Unearned Rev
900

enter a debit enter a credit

enter an account title to record sales
amount amount
Sales Revenu
900

(To record sales)

enter an account title to record cost of goods enter a debit enter a credit
May 31, sold amount amount
2020 Cost of Goods 565

enter an account title to record cost of goods enter a debit enter a credit
sold amount amount
Inventory 565

(To record cost of goods sold)

Would the journal entries above change had Richardson followed ASPE?
NO

Exercise 6-28
On May 31, 2020, Eisler Company consigned 80 freezers, costing $500 each, to Remmers
Company. The cost of shipping the freezers amounted to $740 and was paid by Eisler Company.
On December 30, 2020, a report was received from the consignee, indicating that 40 freezers had
been sold for $750 each. Remittance was made by the consignee for the amount due after
deducting a commission of 6%, advertising of $200, and total installation costs of $320 on the
freezers sold.

Your answer is correct.

   
Calculate the inventory value of the units unsold in the hands of the consignee.

Inventory value of units $enter the Inventory value of units unsold in dollars
unsold 20370
Solution
CLOSE

Exercise 6-28

Inventoriable costs:
      80 units shipped at cost of $500 each
$40,000

      Freight
740

Total inventoriable cost $40,740

      40 units on hand (40/80 × $40,740)
$20,370

Calculate the profit for the consignor for the units sold.

Profit on consignment $enter the Profit on consignment sales in dollars

sales 7310

Solution
CLOSE

Exercise 6-28

Computation of consignment profit:

Consignment sales (40 × $750)

$30,000
Cost of units sold (40/80 × $40,740)
(20,370)
Commission charged by consignee (6% × $30,000)
(1,800)
Advertising (200)
Installation (320)
Profit on consignment sales
$7,310

Calculate the amount of cash that will be remitted by the consignee.

$enter the Remittance from consignee in dollars

Remittance from consignee 27680

Solution
CLOSE

Exercise 6-28
Remittance of consignee:
Consignment sales $30,000
Less: Commissions $1,800
Advertising 200
Installation 320 2,320
Remittance from consignee $27,680

Exercise 6-32
During 2020, Nilsen Company started a construction job with a contract price of $1,600,000. The
job was completed in 2022. The following information is available. The contract is non-
cancellable.

2020 2021 2022

Costs incurred to date $400,000 $825,000 $1,070,000
Estimated costs to complete 600,000 275,000 0
Billings to date (non-refundable) 300,000 900,000 1,600,000
Collections to date 270,000 810,000 1,425,000

Your answer is correct.

   
Calculate the amount of gross profit to be recognized each year, assuming the percentage-of-
completion method is used. (Enter negative amounts using either a negative sign
preceding the number e.g. -45 or parentheses e.g. (45).)

2020 2021 2022

$enter a dollar $enter a dollar $enter a dollar
Gross profit / amount amount amount
(loss) 240000 135000 155000

Solution
CLOSE

Exercise 6-32

2020 2021 2022

Contract price $1,600,000 $1,600,000 $1,600,000
Costs:
    Costs to date $400,00 $825,00
$1,070,000
0 0
    Estimated costs to
600,000 1,000,000 275,000 1,100,000 0 1,070,000
complete
Total estimated profit 600,000 500,000 530,000
Percentage completed to *
× 40% * × 75% × 100%
date *
Total gross profit
240,000 375,000 530,000
recognized
Less: Gross profit
recognized in previous 0 240,000 375,000
years
Gross profit recognized in
$240,000 $135,000 $155,000
current year

*$400,000 ÷ $1,000,000
**$825,000 ÷ $1,100,000

Prepare all necessary journal entries for 2021. (Use Materials, Cash, Payables for costs incurred
to date.) (Credit account titles are automatically indented when the amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the account titles and enter 0
for the amounts.)

Account Titles and Explanation Debit Credit

enter an account title to record cost of construction enter a debit amount enter a credit amount
Contract Asse 425000

enter an account title to record cost of construction enter a debit amount enter a credit amount
Materials, Cas 425000

(To record cost of construction)

enter an account title to record progress billings enter a debit amount enter a credit amount
Accounts Rec 600000

enter an account title to record progress billings enter a debit amount enter a credit amount
Contract Asse 600000

(To record progress billings)

enter an account title to record collections enter a debit amount enter a credit amount
Cash 540000

enter an account title to record collections enter a debit amount enter a credit amount
Accounts Rec 540000

(To record collections)

enter an account title to record revenues enter a debit amount enter a credit amount
Contract Asse 560000

enter an account title to record revenues enter a debit amount enter a credit amount
Revenue from 560000

(To record revenues)

enter an account title to record construction
enter a debit amount enter a credit amount
expenses
425000
Construction E

enter an account title to record construction enter a debit amount enter a credit amount
expenses 425000
Contract Asse

(To record construction expenses)

Solution
CLOSE

Exercise 6-32

Contract Asset/Liability $825,000 – $400,000 = $425,000

Accounts Receivable $900,000 – $300,000 = $600,000
Cash $810,000 – $270,000 = $540,000
Revenue from Long-Term $1,600,000 × (75% –
= $560,000
Contracts 40%)

Calculate the amount of gross profit to be recognized each year, assuming the completed-contract
method is used. (Do not leave any answer field blank. Enter 0 for amounts. Enter negative
amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g.
(45).)

2020 2021 2022

$enter a dollar
Gross profit / $enter a dollar amount $enter a dollar amount
amount
(loss) 0 530000
0

Solution
CLOSE

Exercise 6-32

2022 - $1,600,000 - $1,070,000 = $530,000

Exercise 6-39
Vaughn Enterprises Ltd. has entered into a contract beginning in February 2020 to build two
warehouses for Atlantis Structures Ltd. The contract is a non-cancellable fixed price contract for $9.5
million. The following data pertain to the construction period (all figures in thousands).

2020 2021 2022

$3,82 4,67
Costs for the year 1,200
5 5
1,27
Estimated costs to complete 4,675 -0-
0
4,10
Progress billings for the year (non-refundable) 3,500 1,900
0
4,15
Cash collected for the year 3,100 2,250
0

Using the percentage-of-completion method, calculate the percent

complete for 2020 and 2021.

2020 2021
enter percentages enter percentages
Percent 45 87
complete
% %

Solution
CLOSE

Exercise 6-39

2020 2021
Contract price $9,500,000 $9,500,000
Less estimated cost:
              Costs to date 3,825,000 8,500,000 *
              Estimated costs to complete 4,675,000 1,270,000
              Estimated total costs 8,500,000 9,770,000
              Estimated total gross profit / (loss) $1,000,000 $-270,000
              Percent complete 45% 87%
[$3,825,000 [$8,500,000
] ]
[$8,500,000 [$9,770,000
] ]

*($3,825,000 + $4,675,000)

Calculate the amount of revenue to be recognized in 2020 and 2021.

2020 2021
Revenue $enter a dollar amount $enter a dollar amount
recognized 4275000 3990000

Solution
CLOSE

Exercise 6-39

The revenue recognized in 2020:

Contract price $9,500,000 × 45% = $4,275,000

complete
Gross profit $1,000,000 × 45% complete = $450,000

Revenue recognized in 2021:

Contract price $9,500,000

Percent complete (based on costs to date/total estimated costs) -
× 87%
above
Revenue recognizable to date 8,265,000
Less: Revenue recognized prior to 2021 4,275,000
Revenue recognized in 2021 $3,990,000

Calculate the construction costs to be expensed in 2021.

Construction $enter the Construction costs in dollars

costs 4710000

Solution
CLOSE

Exercise 6-39

To compute the construction costs to be expensed in 2021, Vaughn adds the total loss to be
recognized in 2021 ($450,000 profit previously recognized + $270,000 overall loss expected on
contract) to the revenue to be recognized in 2021.

Revenue recognized in 2021 $3,990,000

Total loss recognized in 2021:
$450,00
    Reversal of profit from 2020
0
    Total estimated overall loss on contract 270,000 720,000
Construction costs expensed in 2021 $4,710,000

Prepare the journal entry at December 31, 2021, to record long-term contract revenues, expenses,
and losses for 2021. (Credit account titles are automatically indented when the amount is
entered.  Do not indent manually. If no entry is required, select "No Entry" for the account
titles and enter 0 for the amounts.)

Account Titles and

Debit Credit
Explanation
enter an account title enter a debit amount enter a credit amount
Construction E 4710000

enter an account title enter a debit amount enter a credit amount

Contract Asse 720000

enter an account title enter a debit amount enter a credit amount

Revenue from 3990000

What is the balance in the Contract Asset/Liability account at December 31, 2020 and 2021?

December 31, 2020 December 31, 2021

$enter a dollar
$enter a dollar amount
Balance in the Contract Asset/Liability account amount
630000
775000

Solution
CLOSE

Exercise 6-39

Balance in Contract Asset/Liability account

December 31,2021:

Cost 2020 $3,825,000 

Billings 2020 (3,500,000)
Construction revenue 2020 4,275,000 
Construction expenses 2020 (3,825,000)
Balance Dec. 31, 2020 775,000 
Costs 2021 4,675,000 
Billings 2021 (4,100,000)
Construction revenue 2021 3,990,000 
Construction expenses 2021 (4,710,000)
Balance Dec. 31, 2021 $630,000 

Show how the construction contract would be reported on the SFP and the income statement for the
year ended December 31, 2021. (List Current assets in order of liquidity. Enter negative
amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g.
(45).)

VAUGHN ENTERPRISES LTD.
Partial Statement of Financial Position
choose the accounting period
December 31, 2021

select an opening section name

Current Assets

enter a balance sheet item $enter a dollar amount

Accounts Rec 350000

enter a balance sheet item enter a dollar amount

Contract Asse 630000
VAUGHN ENTERPRISES LTD.
Partial Income Statement
choose the accounting period
Year Ended December 31, 2021

enter an income statement item $enter a dollar amount

Revenue from 3990000

enter an income statement item enter a dollar amount

Construction E 4710000

select a summarizing line for this part of the income statement $enter a total amount
Gross Profit / (Loss) (720000)

Solution
CLOSE

Exercise 6-39

Progress billings to date Dec. 31,

$7,600,000
2021
Collections to date 7,250,000
    Balance Dec. 31, 2021 $350,000