Question 1. -Long-Term Contracts
Parcell Company contracted on 4/1/07 to construct a building for $2,500,000. The project was completed in 2005. Additional data follow:
2007 2008 2009
Costs incurred to date $ 560,000 1,350,000 1,900,000
Estimated cost to complete 1,040,000 450,000 -
Billings to date 500,000 2,000,000 2,500,000
Collections to date 400,000 1,300,000 2,400,000
Instructions
(a) Calculate the income recognized by Parcell under the percentage-of-completion method of accounting in each of the years 2007, 2008, 2009.
(b) Prepare all necessary entries for the year 2008.
(c) Present the balance sheet disclosures at December 31, 2008. Proper headings or subheadings must be indicated
Question 2. Installment Sales Method
Ruxton, Inc. accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/09:
Cash---------------------------------------------------$90,000
Installment Accounts Receivable-2007----------170,000
Installment Accounts Receivable-2008------------400,000
Installment Accounts Receivable-2009-------------750,000
Inventory, 1/1/05-----------------------------------------78.000
Repossessed Merchandise--------------------------------22,000
Accounts payable----------------------------------------------------------------------$ 136,000
Deferred Gross Profit-2007-------------------------------------------------------------84,000
Deferred Gross Profit-2008--------------------------------------------------------------195,000
Capital Stock--------------------------------------------------------------------------------------------600,000
Retained Earnings--------------------------------------------------------------------------------------406,200
Installment Sales-------------------------------------------------------------------------------------1,000,000
Purchase------------------------------------------------------------758,000
Loss on Repossession---------------------------------------------3,000
Operating Expenses-----------------------------------------------150,000 ----------
$ 2,421,000 $ 2,421,000
Additional Data: 2007 Gross profit Rate = 30%; Inventory 12/31/09 = $ 158,000; Repossessed merchandise 12/31/09 = $ 15,000; Merchandise sold in 2008 was repossessed in 2009 and the following entry was prepared (assume correctly):
Deferred Gross Profit-2008- - - - - - - - - - - - - - - - 15,000
Repossessed Merchandise - - - - - - - - - - - - - - - - - 22,000
Loss on Repossession- - - - - - - - - - - - - - - - - - - - - --3,000
Installment Accounts Receivable-2008________________ 40,000
Instructions
(a) Determine collections during 2009 on Installment A/R for each of the years 2007, 2008, 2009.
(b) Without prejudice to your answer in part (a), assume that total collections on installment accounts receivable during 2009 were $ 1,060,000; $ 220,000 from 2007, $ 300,000 from 2008, and $540,000 from 2009. Prepare all necessary adjusting and closing entries at 12/31/09.
Question 3. Available-for-sale equity securities
On January 2, 2007, Tomlin company purchase 1,000 shares of Joel company common stock for $35,000. The stock has a per value of $10 and is part of the total stock outstanding of 20,000 shares of Joel company. Tomlin Company intends the stock to be available for sale. Total stockholders' equity of Joel Company on January 2, 2007 was $600,000.
Instructions
Prepare necessary journal entries in accordance with generally accepted accounting principles on the book of Tomlin Company for the following transactions. If no entry is required, write "none" in the space provided. (Round all calculations to the nearest cent)
(a) January 2, 2007: Tomlin purchases the shares described above.
(b) December 31, 2007: Tomlin receives a $ .75 per share dividend from Joel; Joel announces a net income for 2007 of $250,000.
(c) December 31, 2007: According to wall street Journal, Joel common is selling for $30 per share. Tomlin's management views this decline as being only temporary in nature. Joel's common is Tomlin's only available-for-sale security.
(d) February 15, 2008: Tomlin sells 500 of the shares purchased on January 2, 2008 at $36 per share.