Income Summary 350,000
Retained Earnings 350,000 4.
a. Preferred stock gives its owner certain advantages over common stockholders. These benefits include the right to receive dividends before the common stockholders and the right to receive assets before the common stockholders if the corporation liquidates. Corporation pay a fixed amount of dividends on preferred stock.
The 7% cumulative term indicates that the investors earn 7% fixed dividends. b. 7%*120%*20,000=504,000
c. If corporation issued debt, it has obligation to repay principal
d. The date of declaration decrease the stockholders’ equity; the date of record and the date of payment have no effect on stockholders. 5.
a. Jan. 15
Retained Earnings 35,000
Accumulated Depreciation 35,000 To correct error in prior year’s depreciation. b. Mar. 20
Loss from Earthquake 70,000
Building 70,000 c. Mar. 31
Retained Earnings 12,500
Dividends Payable 12,500 d. Apirl.15
Dividends Payable 12,500
Cash 12,500 e. June 30
Retained Earnings 37,500
Common Stock 25,000 Additional Paid-in Capital 12,500 To record issuance of 10% stock dividend: 10%*25,000=2,500 shares; 2500*$15=$37,500 f. Dec. 31
Depreciation Expense 14,000
Accumulated Depreciation 14,000
Original depreciation: $40,000/40=$10,000 per year. Book value on Jan.1, 2009 is $350,000(=$400,000-5*$10,000). Deprecation for 2009 is $14,000(=$350,000/25).
g. The company does not need to make entry in the accounting records. But the amount of Common Stock ($10 par value) decreases 275,000, while the amount of Common Stock ($5 par value) increases 275,000.
Chapter 7
1.
Requirement 1
If revenue is recognized at the date of delivery, the following journal entries would be used to record the transactions for the two years:
Year 1
Inventory ....................................................................................... 480,000 Cash/Accounts payable .......................................................... To record purchase of inventory
Inventory ....................................................................................... 124,000 Cash/Accounts payable .......................................................... To record refurbishment of inventory
Accounts receivable ...................................................................... 310,000 Sales revenue ......................................................................... To record sale of goods on account
Cost of goods sold ........................................................................ 220,000 Inventory ................................................................................. To record the cost of the goods sold as an expense
Sales returns (I/S) ......................................................................... 15,500* Allowance for sales returns (B/S) ........................................... To record provision for return of goods sold under 30-day return period * 5% of $310,000
Warranty expense ......................................................................... 31,000* Provision for warranties (B/S) ................................................. To record provision, at time of sale, for warranty expenditures * 10% of $310,000
Allowance for sales returns .......................................................... 12,400 Accounts receivable ............................................................... To record return of goods within 30-day return period.
It is assumed the returned goods have no value and are disposed of.
Provision for warranties (B/S) ....................................................... 18,600 Cash/Accounts payable .......................................................... To record expenditures in year 1 for warranty work
Cash .............................................................................................. 297,600*
480,000
124,000
310,000
220,000
15,500
31,000
12,400
18,600
Accounts receivable ............................................................... To record collection of Accounts Receivable * $310,000 – $12,400
Year 2
Provision for warranties (B/S) ....................................................... Cash/Accounts payable .......................................................... To record expenditures in year 2 for warranty work
Requirement 2
297,600
8,400
8,400
If revenue is recognized only when the warranty period has expired, the following journal entries would be used to record the transactions for the two years:
Year 1
Inventory ....................................................................................... 480,000 Cash/Accounts payable .......................................................... 480,000 To record purchase of inventory
Inventory ....................................................................................... 124,000 Cash/Accounts payable .......................................................... 124,000 To record refurbishment of inventory
Accounts receivable ...................................................................... 310,000 Inventory ................................................................................. 220,000 Deferred gross margin ............................................................ 90,000 To record sale of goods on account
Deferred gross margin .................................................................. 12,400 Accounts receivable ............................................................... 12,400 To record return of goods within the 30-day return period. It is assumed the goods have no value and are disposed of.
Deferred warranty costs (B/S) ...................................................... 18,600 Cash/Accounts payable .......................................................... 18,600 To record expenditures for warranty work in year 1. The warranty costs incurred are deferred because the related revenue has not yet been recognized
Cash .............................................................................................. 297,600* Accounts receivable ............................................................... 297,600 To record collection of Accounts receivable * $310,000 – $12,400
Year 2
Deferred warranty costs ................................................................ 8,400 Cash/Accounts payable .......................................................... 8,400 To record warranty costs incurred in year 2 related to year 1 sales. The warranty costs incurred are deferred because the related revenue has not yet been recognized.
Deferred gross margin .................................................................. **77,600 Cost of goods sold ........................................................................ 220,000 Sales revenue ......................................................................... 297,600* To record recognition of sales revenue from year 1 sales and related cost of goods sold at expiry of warranty period * $310,000 – $12,400 ** ($90,000 – $12,400)
Warranty expense ......................................................................... 27,000* Deferred warranty costs ......................................................... 27,000 To record recognition of warranty expense at same time as related sales revenue recognition
* $18,600 + $8,400
Requirement 3 Allied Auto Parts Inc. might choose to recognize revenue only after the warranty period has expired if they are not able to make a good estimate, at the time of sale, of the amount of warranty work that will be required under the terms of the one-year warranty. If Allied is not able, at the time of sale, to make a good estimate of the warranty work that will be required, then the measurability criterion of revenue recognition is not met at the time of sale. The measurability criterion means that the amount of revenue can be reliably
measured. If the seller is not able to estimate the amount of work that will have to be done under the warranty agreement, then it is not able to reasonably measure the profit that it will eventually earn on the sales. The performance criteria might also be invoked here. The performance criterion means that the seller has transferred the significant risks and rewards of ownership to the buyer. As long as there is warranty work to be performed after the sale that is the responsibility of the seller, you might argue that performance is not substantially complete. However, if the seller was able to reliably estimate the amount of warranty work, then performance would be satisfied on the assumption that we could measure the risk that remains with the seller, and make a provision for it.
2.
Percentage-of-completion method:
The first step in applying revenue recognition using the percentage-of-completion method (using costs incurred to date compared to estimated total costs to determine the
percentage of completion) is to estimate the percentage of completion of the project at the end of each year. This is done in the following table (in $000s):
End of 2005 End of 2006 End of 2007
Total costs incurred $ 5,400 $ 12,950 $ 18,800 Total estimated costs 18,000 18,500 18,800 % completed 30% 70% 100%
Once the percentage of completion at the end of each year has been calculated as above, the next step is to allocate the appropriate amount of revenue to each year, based on the percentage completed to date, less what has previously been recorded in revenue. This is done in the following table (in $000s):
2005
2006
2007
2005 $20,000 × 30% $ 6,000 2006 $20,000 × 70% $ 14,000 2007 $20,000 × 100% $ 20,000 Less: Revenue recognized in prior years (0) (6,000) (14,000) Revenue for year $ 6,000 $ 8,000 $ 6,000
Therefore, the profit to be recognized each year on the construction project would be:
2005
2006
2007
Total $ 20,000 (18,800) $ 1,200 Revenue recognized $ 6,000 $ 8,000 $ 6,000 Construction costs incurred (expenses) (5,400) (7,550) (5,850) Gross profit for the year $ 600 $ 450 $ 150
The following journal entries are used to record the transactions under the percentage-of-completion method of revenue recognition:
2005
2006
2007
1. Costs of construction: Construction in progress .................. 5,400 Cash, payables, etc. ..... 2. Progress billings: Accounts receivable ............ 3,100 Progress billings ............ 3. Collections on billings: Cash .................................... 2,400 Accounts receivable ...... 4. Recognition of profit: Construction in progress ..... 600 Construction expense.......... 5,400 Revenue from long-term contract ...................... 5. To close construction in progress: Progress billings .................. Construction in progress .
7,550 5,850
5,400 7,550 5,850 4,900 12,000 3,100 4,900 12,000 4,000 12,400 2,400 4,000 12,400
450 7,550
150 5,850
6,000
6,000
8,000
20,000
20,000
会计英语课后习题参考答案
